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Cash Budgeting Challenge

May 1, 2015 | News

We believe in the power of planning and budgeting. Let us help you get started with this cash budgeting challenge!  We want to share some budgeting tips that will help you know where your money is going and lay a foundation for financial success. This system, based on using cash to make purchases, is derived from Dave Ramsey’s Financial Peace University course. While this system may sound radical considering today’s electronic environment, using cash eliminates credit and debit card tracking and maintenance. We encourage you to try this cash challenge for a month!

Here’s how to begin your budgeting journey:

  1. Divide your spending into monthly and yearly categories. See example below.
  2. Estimate how much you spend/want to spend in each category. For this exercise, a budget that zeroes out is essential. Expenses, debt payments and savings need to equal net income.
  3. Determine categories without a set bill, including short-term savings items. Keep track of these items by putting cash in envelopes. See example below.
  4. Go to the bank and get cash for the envelope categories (see #3). If you have one month’s expenses in your checking account at the start of the month (part of your emergency fund), then you can go to the bank on the first day of each new month and get the cash out. If you do not, you will need to take out cash following each paycheck deposit. You will need to allocate that paycheck to bills you have to pay before your next paycheck. This money should stay in the bank (electricity) along with cash you need to withdraw to put in envelopes before your next paycheck (food).
  5. Add the monthly deposits to your cash yearly envelopes. For example, place $100 in the clothing envelope, $175 in the car repair envelope, etc.
  6. Do not fill the monthly envelopes. Instead, add up the monthly envelope categories. For example purposes, say that the total came out to $1,200. Divide this up into weeks – 1, 2, 3 and 4 – to find the amount to spend each week on the monthly items. The following sequence works well:
    I. On the first weekend of the month, buy monthly items in bulk – BJ’s and Costco are great store options for this. Take household inventory to determine what must be purchased for the month that can be bought in bulk at this time. This can include house supplies, toilet paper, nonperishable food items, and more. This strategy is helpful for not exceeding your budget because you will need to buy these items regardless if you spent the last of your money on entertainment. Having spare necessity items ensures that you will not run out during the month.
    II. Subtract the above spending amount from your monthly total. For example, if you spent $200 on monthly items, you would then have $1,000 left for month.
    III. To determine weekly budget, divide this number by four. In this case, $1,000/4=$250, the weekly allotment.
    IV. Put this amount ($250 in this example) in envelopes labeled by week: 1, 2, 3, and 4.
    V. Fill up your cars with gas at the beginning of each week – make this procedure at the same time each week, such as Sunday afternoons. This is key because if you run out of gas mid-way through the week, but spent the rest of the weekly budget on dinner the night before, you will still have to buy gas, putting your spending over budget.
    VI. Complete your supplemental grocery shopping for the week (to complement nonperishables purchased at the beginning of the month). Doing this regularly, such as on Saturday afternoons, may be helpful as well.
    VII. The leftover money in the week’s envelope (which you should have at this point) can be spent on your choosing or things that come up. 
  7. When you need to purchase items allotted to the yearly envelope, take the yearly envelope with you to the store. If you do not have the envelope with you, use cash from your wallet, replacing the money afterward by moving the same amount from the yearly envelope to your wallet.

We encourage you to accept this cash challenge! This process will help you budget with tremendous success.

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