If I was asked to identify the single most effective budgeting tactic we have used to curb excessive, non-essential spending in our family, it would be this:
Designated Spending Money. In CASH.
As part of our monthly budget, we allocate a specific amount of cash for each individual to use any way they want. The cash is not tracked after it is withdrawn it on the first day of the month. Once it’s gone, it’s gone until the next month arrives. Here are a few of the many benefits we’ve experienced:
- Less guilt about spending on personal indulgences (for me, that’s a daily McCafe and a monthly Apple Music membership)
- Less arguing as a couple about what is or isn’t a waste of money (your spending money = your decision)
- Less worry about unintentional overspending (I used to just tap my credit card for a coffee…but by month’s end it always added up to a lot more spending than I had estimated)
- Fewer receipts and transactions to review at the end of the month
There is a caveat to this tip – it will only pay off if the rest of your budget is well-defined. The spending money should be replacing categories – not supplementing them. Eliminating or reducing a non-essential category like “fast-food” is a good place to start.
Granted, it does require self-discipline to keep the plastic in my wallet once the cash runs out, but I know that at the end of the month there will be a little more green in the bank if I stick to my guns.
Try it out:
- Pick a non-essential item or category (“X”) that you like to spend money on.
- How much do you usually spend per month on “X”? Reduce your budgeted amount for the following month, and withdraw the amount in cash on the first day of the month.
- Resolve to only purchase “X” with your spending cash, then evaluate your success at the end of the month.
Tell me how it goes, and any helpful ideas you come up with!