Should You Live On a Cash Budget?

by Team Dinks on April 14, 2010 · 12 comments

wallet - you have no money
When I was the manager of a small business, I was always shocked to learn when a new hire didn’t have a bank account. He or she would opt out of getting an electronic direct deposit in favor of a paper check that they’d cash every payday. I guess it surprised me because bank and credit accounts lay the foundation for my entire money management system and make my life so much easier.

You might argue that a cash budget has benefits because there’s no chance you can spend more than you have. Or that spending cash gives you a psychological advantage because it’s more painful to peel off a Benjamin than to swipe a debit or credit card for a purchase. Yeah, that’s true. But on the other hand, you can’t buy online or make a reservation for something like a concert, hotel room, or a rental car with cash. Trying to keep the right amount of cash in your wallet at all times is terribly inconvenient and could be dangerous if you were caught short of funds at the wrong time.

Let’s take a look at four reasons to use bank and credit accounts, instead of cash, and how to find the best ones:

1. You need to track every penny of your money.

Spending with a debit or credit card allows you to automatically track your expenses. It’s simple to import transactions from your bank and credit card accounts into a financial program at the click of a button. Quicken is one of the best-known brands in accounting software. But there’s also free software like GnuCash and Outright to keep you organized. is a fantastic online application that automatically aggregates your financial data in one place for easy budgeting and reporting. On the other hand, purchases made with cash can’t be easily tracked. You have to manually enter them into your software or paper register which means they’re easily forgotten.

2. You need to earn interest on your idle money.

Money that you set aside for emergencies, short-term savings goals, and everyday bills and spending, should be working for you in a high-yield FDIC-insured bank account. Funds up to $25,000 in my checking account at Bank of the Sierra earn over 4% APY. To get that currently-awesome rate, the bank requires that I do the following each billing cycle:

  • Make a minimum of 12 debit card purchases
  • Have at least one direct deposit or automatic payment
  • Pay at least one bill using online banking
  • Receive an account e-statement

Am I happy to comply with those requirements in exchange for earning over 4% with absolutely no fees? You betcha! You can find more high-interest checking accounts at

3. You can use credit card rewards to your advantage.

I really enjoy getting 5% cash back when I buy everyday items like groceries and gas with my American Express Blue Cash card. I buy everything I can on it (except for the 12 debit card purchases that I mentioned above) and deduct each charge from my checking account balance each week. Then I pay down the card balance in full twice a month—so I actually use it like a debit card. The cash reward is credited to my account every 12 months.

4. You need to pay bills on time.

Without a checking account, it would take me so much longer to pay my bills. I remember the old days of writing paper checks, addressing envelopes, and stamping them. Whew! I’m so thankful for online bill pay; now it literally takes me all of a few seconds. Paying bills with cash or a money order seems downright archaic.

To me, living on cash has too many limitations and too few advantages. However, if you’re still convinced that using a cash budget is the only way you can tame your spending—don’t change a thing.

Laura Adams is the author of Money Girl’s 10 Steps to a Debt Free Life. It’s available as an audiobook at or as a short e-book in the Amazon Kindle Store, the Sony Reader Store, and the Fictionwise E-bookstore. Learn how easy it is to get out of debt and stay out of debt for good. Take control of your finances today and create a more secure future.

(Photo by Jeff Keen)

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