Tip of The Week: If your cash disappears, find a way to track it.

Do you ever get to the end of the month and wonder where all of your cash went? Most people have found themselves in that situation before; the big key is to not let that happen month after month. In this post we’ll cover a number of ways that you can better track you cash so that you can avoid being “cashless” at the end of the month. Before we get into this post it’s important to point out that there are definitely two very opinionated views as to which is a better way to track your finances, whether it’s using a cash system or tracking it electronically with a credit, debit or prepaid debit card.

We will cover some of the views on both using cash vs. using credit and talk about some additional ways that you can better track where your money is going. The biggest thing to keep in mind is that fact that regardless of whether you use the cash method or us a credit card you’re going to have trouble staying within your budget if you lack financial discipline.

Being More Financially Disciplined

Being more disciplined financially is a lot easier when you have some desire or a reason to be stricter with your budget. We recommend sitting down before you start your new budget thinking about your goals. Is your goal build up your savings or perhaps you have a lot of consumer debt you’d like to get rid of, either way you need to do something to make those goals more real. One of the best ways to make your goals real is to have them in front of you every day.

If your goal is to get out of debt, keep a running total of your debt on your bathroom mirror or somewhere you will see it every morning that way that number becomes real to you, and while it might be painful to see it every day that will keep it in your mind. If you goal is to build up your savings or save for a family vacation, put pictures of that vacation up throughout the house, that way when the temptation to spend uncontrollably comes, and it will, you’ll have a constant reminder of why you can’t go out and spend all your money.

Now when it comes to tracking your money each month there are two main schools of thought. One is to only use cash so that you limit your spending, and the other is to use credit or debit cards because you’ll be able to track each transaction, where it took place and the date. Realistically regardless of what the “Gurus” say, it’s up to you to decide which route is best for you.

The Cash Only Method

There are several financial gurus that claim that using a cash budget is the only way to go. The financial guru that is by far the most vocal about using cash instead of credit cards is Dave Ramsey. The main reasons Dave Ramsey says not to use credit cards include:

  • You Spend More With Plastic than Cash- On his website Dave is adamant about the use of credit cards when he says that, “There is no positive side to credit card use. You will spend more if you use credit cards.” To further prove this point Dave cites a study done by McDonalds on his website showing that people who paid with credit cards typically spent 47% more on their orders. While that may be true there are also studies that have shown that people are more likely to spend less when using a credit card. A study done by Carnegie Mellon University found that in some cases the use of credit cards actually lead to lower spending.
  • Millionaires Don’t Get Rich on Credit Card Rewards- This reason comes from the fact that some people will argue that credit cards are worth it because of the fact that you can get 3% cash back or skymiles etc.. While there are no millionaires claiming they made their fortunes off of cash back programs they can still be an extra benefit when using credit cards responsibly.
  • Credit Card Companies Will “Misplace” Your Payment and Charge You a Late Fee- While this may happen from time to time, it really seems like a bit of a stretch to make his point or a bit of paranoia. Most companies are good to work with you and remove fees if you can show a paper trail of some sort.

While these are some valid points, it’s also important to understand that it’s just as easy to blow through your cash as it is to swipe a card so if you don’t have a constant reminder of WHY you’re trying to get out of debt as we mentioned above.
In addition to people promoting the cash only method there are also some big names pushing electronic transactions whether it be through credit or debit cards. The biggest name by far is Bill Gates, his foundation helped finance The Better Than Cash Alliance whose mission it is to bring safe financial transactions to the world’s poor and unbanked. According to the Alliance there are five main reasons why electronic payments are better than cash payments.

  • Transparency: Less corruption and theft when payments can be easily tracked. In Afghanistan, U.S. aid agencies use it so workers aren’t so vulnerable to robbery.
  • Security: The money gets where it’s supposed to go.
  • Financial inclusion: Electronic payment is a way for unbanked people to establish a record of on-time payment of their bills. This can be an “on-ramp” for them to get other services, such as loans, speakers said.
  • Cost savings: Moving physical cash around is costlier than zipping electrons. Many poor people, however, still find it cheaper to use cash, because some cashless networks charge high fees.
  • Access to new markets: This benefit is mainly for providers of financial services.

While there are definitely pros and cons to both options, we recommend figuring out which option best suits you and going from there. As we’ve mentioned before, the key to success is always remember why you’re doing this. To be able to keep better track of your cash you’ll want to follow the steps below.

Step 1: Income vs. Expenses- The first step in creating a budget is figuring out how much money you have coming in, and how much money you have going out. With this process you want to get as detailed as possible include income from your job, investments, interests on bank accounts etc.. In addition to getting a detailed outlook of your income you’ll also want to look at all of your expenses, we also recommend looking at your monthly expenses as well as expenses that will come up once a year such as property taxes, vehicle registration, and then take those annual expense and divide them out across the whole year so that you know how much you’ll need to save each month for those. Once you have that figured out you can start putting together a plan to improve your situation.

Step 2: Create a Budget- When it comes to creating your budget there are several ways to do it. The most important thing is to stay organized so once you’ve outlined all of your different expense we recommend breaking up your expenses into categories such as food, gas, clothing, entertainment etc…

Step 3: Start Cutting Expenses- Once you have all of your expense laid out it’s time to see which ones you can cut. If you see that your “Entertainment” category is busting your budget it’s time to think of less expensive ways to go out and enjoy yourself.

Step 4: Stick to Your Budget- Once you’ve created your budget; it’s time to put it into action. Be disciplined; always be looking for ways that you can minimize your expenses.

By following these four simple steps you’ll be able to avoid spending all of your money and seeing your cash disappear every month.

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