Opposing Approaches To Budgeting

$5? Sorry, Don’t Have It! (click to tweet this!)

A few weeks ago I had to contribute $5 to the office fund for my boss’ birthday gift – and I had to tell my colleague collecting the money that I would bring it in Monday since I didn’t have any cash.


Cash or Credit?

“If you need until payday, no problem”, she said. Embarrassed, I had to explain. It’s not that I didn’t have $5, it’s just that I virtually never have cash since we intentionally pay as much with rewards cards so we can track our purchases and earn cash back bonuses. She totally couldn’t fathom that. How could we limit our spending if we put it all on cards? “The best way to budget,” she said confidently, “is to put cash in an envelope after every payday and when it’s gone you can’t spend anymore!”

We both probably walked away from the water cooler thinking the other was nuts, but the conversation stuck with me and I’ve been thinking about these two competing approaches to budgeting ever since:

  • Measure to Manage
  • Cash Only to Limit

 Measure to Manage

I’m a numbers geek, always have been. So I look for patterns everywhere and am a big believer that the more I can track something the more I can improve on it. It’s why I log my running miles on RunKeeper and use Mint to know where every last penny ends up. We set up our budgets for various categories, and when we get near these preset spending limits, we can cut back spending in that category knowing that we’ve reached our limits. Mint.com emails to tell us we’re near the restaurant budget limit for the month? Date night will just have to be a beach picnic, then!

We prefer this method becauuse it allows us to track where our money is going so we can figure out where to cut back if needed. But, it does require a measure of self restraint since technically we always have a means to pay available in that little piece of plastic.


Cash Only To Limit

Using cash only as a means of limiting your spending is pretty much the exact opposite approach. You limit your means to pay for anything, but you don’t track where any of the money actually goes. (Yes, you can theoretically add every cash transaction to software like Mint, but show me somewhere someone who actually does.) This is exactly what my “cash only colleague” does. She limits how much she spends, but wouldn’t be able to tell how much she spends on groceries or clothing or eating out in any given month.

The downside of not knowing how much you spend means that for me it would be hard to cut back since I wouldn’t know where to start cutting. But for her, the big benefit is that by not carrying a card, she can’t spend more than she has. She readily admits that if she has the means to shop, she will. She’s very upfront about her lack of self restraint when it comes to both desserts and shopping.

So while not knowing which piles all those pennies ended up in would terrify me, this system has more or less been working for her for the last 30+ years of her adult life.


Are Budgeting Differences Generational?

I initially assumed that the difference in budgeting tactics was largely due to the generation gap – after all my cash only colleague is 25+ years my senior. And maybe the difference is partly generational, but the Shopaholic books (and movie) were certainly written for a younger generation, so there must be more than a few millenials that have trouble saying “no” to a purchase when they’ve got a credit card in their pocket.


Does Budgeting Have To Be Either / Or?

No. And as much as I love to track all of those pennies, there are times when I don’t care how the money is spent, just that we stay under a certain amount.

Case in point, vacations.

Vacations are “off budget” for us. We set money aside beforehand to spend so that meals out and other entertainment won’t count against our normal monthly allotments. So for vacations, we act almost exactly like my cash only colleague. And it works!


So in the end, it seems my colleague and I might not be quite as different from one another as we first thought.


What do you use for budgeting? Do you stick exclusively to credit cards or an “envelope” cash system? If not, what are your exceptions?

14 comments to Opposing Approaches To Budgeting

  • I am just like you!!! We never have any real money. I never even have $1 to get a pop out of a machine. We put everything on rewards cards as I am obsessive about getting credit card rewards. We pay in full several times a month- of course! And I like getting on my online credit card account and tracking my spending several times per month.
    There is no way I would want to carry around severalenvelopes with cash for different purposes. I would just end up screwing that system up somehow =)

    • The last thing I know we pay cash for is my Sunday paper from the corner news stand. But sometimes I have to hunt around for $1 in change to buy it!

  • It used to be that I didn’t have a separate place for savings. Now I started to set some money aside with every paycheck into a savings account. The account has no particular use but will most likely be used for travel funds or emergencies (whichever comes first). I’m also like you and carry little or no cash most of the times. In social outing situations people sometimes jump to conclusions that I’m poor since I never have cash in the wallet which can get a little embarrassing.

    • I’ve never had a person my age think I was out of $ because I didn’t have cash, but grandparents seem to wonder if we don’t want to leave a cash tip at a restaurant!

  • Anne

    So we actually use a hybrid system.

    I keep track of every penny we spend, but I don’t budget in catagories. I just keep track of the total amount and as long as we spend under the total amount, we are ok.

    But when I want to cut back in an area, we use cash only. For example, our grocery budget was way out of line. (It was so high, I’m embarrased to write the amount.) So now we take out cash when we get paid and that is all we have to spend on groceries. It’s still high according to what everyone else seems to pay on average, but it’s much lower than we used to spend.

    • Grocery budgets are oddly personal, aren’t they? We totally debated whether we would split the grocery store and dining out expenses when we publish our monthly reports on the blog. Splitting them won in the hopes that it might embarrass us into spending less. Hasn’t worked yet!
      Thanks for sharing your system, too!

  • I use a mixture of debit cards and cash only. But I normally don’t have a lot of cash on me anyways. I am keeping spending in line by not taking money unless it is for a specific use (ie. I’ll take grocery money to the store but keep it in an envelope otherwise). It keeps down on my impulse buys.

  • Isn’t that interesting?

    I don’t think it’s a generational thing. I’m old as the hills and can NOT keep cash in my hot little hands. It slides through my fingers like water, leaving no clue to where it went.

    Much preferable, IMHO, is a credit card that you pay off at the end of each month. Of course, ya gotta have the self-discipline to keep track of every charge and see too it that you don’t go over budget. But for some people, that isn’t very hard.

    On the other hand, I have a friend who says that using cash helps her stay on budget because the physical act of handing over dollars and coins makes her appreciate how much things are costing. She says it’s almost painful to see that money going away, and that she doesn’t get that effect with a charge card. So she does use the cash envelope system.

    Different strokes for different folks, I guess…

    • Its weird how the psychological effects are different… cash doesn’t always “feel” like spending in the same way as credit cards do to us. But your friend sees it the exact opposite.

      Different strokes, indeed…

  • My husband and I use a rewards card for almost all our purchases, it helps to pay for flights for vacation! i’ve never liked the cash system because i would take cash out from other places to keep paying for what i wanted.

    • We save up the cash rewards for Christmas gifts and the like, but my in-laws use them for flights like you. They say they love their travel rewards card!

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