Savvy Spender: Using a Cash Budget for Fun, Frivolity, & Freedom.

I used to swipe my debit card for almost all of my purchases. That small piece of plastic made life easy. I didn’t have to worry about having enough cash or finding the right change.

Now I hardly ever use my debit card.

In my post on Living a Champagne Life on a Lemonade Budget, I mentioned that I pay cash for almost all of my day-to-day purchases.

My approach to managing my finances used to be avoid, avoid, avoid. I generally had enough to get by but I didn’t like looking at my bank balance and my savings only grew when I had a specific goal, so then I’d wipe it out in one fell swoop.

Studies have shown that we are more motivated by seeing our assets decrease physically (ie. in cash), versus looking at our bank balance or credit card statement.

Plus, limitation fosters creativity. Being realistic about our limited amount of money allows us to be really intentional with how we spend. We end up finding innovative solutions for getting what we want in less expensive ways.

Every week I take out a small amount of cash. I can use it however I want (although it has to feed me as well). If I want to blow it all on amazing dinner or a beautiful new dress, that's fine. But when it's gone, it's gone and I go back to staying in and eating kitchen staples until the following week.

Using a cash budget is simple. I’ll walk you through deciding how much to use and how to make the most of this money.

Start by figuring out how much money you make each month.

If you work at a salaried job, figuring out your monthly income is pretty straightforward. If you work as a freelancer or get paid hourly, you might want to take an average of the past six months and work from that.

Then it’s time to get a clear picture of your monthly outgoings. For me, these include: rent, utilities, phone, travel, debt repayment, and business expenses. I also factor in saving (short-term, long-term, and emergency). I include buying groceries in my cash budget, so I don’t factor in food costs yet. You might decide to add a small around (say £50), to factor in a special pay day splurge and maybe another £100 to add extra wiggle room to your budget. You can track your spending with an app like Wally or Mint, and play with these numbers to find what feels right and works for your spending habits.

Add up your outgoings and subtract it from your monthly income.

Take the amount that’s leftover and divide it by 4.5 to determine your weekly cash budget.

For me, this ends up being £100. Which tells me how much I can afford to spend each week.

But what I’d recommend doing, is cutting this amount down a bit. I give myself a cash budget of £80 a week.

This gives me some wiggle room if I want to make small online purchases, if unexpected expenses come up, or if I want to allow it to roll over so I can make a slightly bigger purchase at the end of the month.

You might decide to lump your food and discretionary expenses into one cash budget, like I do. Or you can split it into two. It just depends on what feels good to you. If you decide to go with the latter, just use different compartments in your wallet for your two cash budgets, or buy two change purses to keep them separate.

If I have cash left over at the end of the week, I just take out less the following week. I can use the windfall to buy a special treat at the end of the month or, preferably, whack it into my savings.

If I were to consistently be having money left over from my cash budget week after week, I’d consider reducing it and saving more each month. It’ll all add up to a fabulous holiday eventually!

Living on a cash budget definitely does not mean having to go without any fun or luxury. In fact, I’ve found quite the opposite. My money goes further now and I feel more secure always knowing how much I have.

Using a cash budget means that I never get part way through the month and feel absolutely skint. I always know that I have enough money in the bank to live modestly but comfortably. And if I spend too zealously one week, I never have to wait more than a few days for a little top up.

Here are a few tips to stretch your cash budget further:

  • Plan your meals for the week. If you plan a few dishes to make throughout the week and buy groceries according to those recipes, you'll buy less food because it won't be going to waste. Try to choose dishes that use some of the same fresh ingredients so you don't have to buy as many items.
  • Keep your kitchen stocked with staples. Keeping your kitchen stocked with the essentials, like spices and canned goods, that you use regularly means that you'll mostly just have to buy fresh ingredients throughout the week. Many cookbooks coming with a shopping list of kitchen staples that their recipes rely upon, so if you know that you want to follow a certain "diet" (and I don't mean that in a restrictive, calorie counting kind of way), use that as your guide.
  • Make your own. Making your own fancy coffee, fresh juice, or lush pastry will always be the more budget-friendly option. £5 here and £5 there will eat away at your cash budget in no time but a little homemade savvy will stretch your money a lot further.
  • Get comfortable saying no.It can be uncomfortable to decline an invite for financial reasons but the more we all avoid talking about money issues, the more they stay mired in shame and embarrassment. It's okay to mention that you can't afford a lavish dinner right now, so politely decline or suggest a budget-friendly alternative.
  • Make your own fun. Bringing a bottle of wine to the park or inviting your friends over for a pot luck can be just as fun as a night out on the town. Add a few DIY frills to make the occasion feel extra special, while staying within your means.

Check out my tips for Living a Champagne Life on a Lemonade Budget for even more tips.

None of this is rocket science but when we practice being savvier with our spending, it becomes easier and easier to stretch a dollar while still having a lot of fun.

Women face a lot of pressure to spend. From expensive skin care products and the latest fashion trends to expensive nights out and premium super foods, it can feel like living the good life inherently costs a lot of money.

And, as women, we face different financial issues than men. More and more, women are the primary breadwinner’s in our families. We’re juggling more expenses and taking on different responsibilities, but we aren’t always learning the financial literacy to make the transition easier. Statistically, women are likely to earn less than their male counterparts and most of us growing up thinking it's wrong to ask for what we want, so we don't negotiate for pay rises as often. Legal & General is appealing to women to consider the financial role they play by taking out life insurance. With premiums as low as £6, per month this is a small expense to add to your outgoings.

Using a cash budget has been the most successful method I’ve tried for overcoming my own financial hurdles. It’s left me feeling more abundant and more secure. And I always seem to have enough for little treats here and there.

How do you manage your money? Do you think you’ll give using a cash budget a try?

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