Debit cards, credit cards, checks, or piles of nickels – it doesn't really matter how you spend your money. What matters is that you spend it according to your plan, according to what is important to you. According to your budget.
The Great Cash Dilemma
So how should you handle cash spending now that you have a budget? There are two options, and the one you choose depends on honest answers to two questions: How much cash do you spend? And how willing (or excited!) are you to record every penny of spending, no matter how small?
- The more cash you spend and the better able you are to track it, the more you should set up and spend from a cash account.
- The less cash you use and the less you are willing to track $1.17 purchases, the more you should treat cash as a category.
- Do you fall somewhere in the middle? Pick whichever feels simpler to you. Or throw a dart to choose. But don't throw a dart at your phone or computer screen. Please.
Spending from a cash account
This method allows you to track every dollar of your spending. If you spend a lot of cash, especially in relation to your total spending, you should use this method – otherwise your budget won’t reflect significant portions of your spending. With mobile apps and entry of spending at the point of sale, though, it’s easy.
- Add a new account and select Cash as the account type.
- Enter the amount of cash you have on hand as today’s balance. Keep it simple and don't include cents.
- When you spend cash, enter the transaction in your cash account immediately on your mobile device.
- If you don’t spend coins but get them as change, round up your transaction to the nearest whole dollar that you’ll keep in your pocket or wallet.
- Take that change you won’t spend and, well, that’s up to you. But don’t forget that it is real money.
Treating cash as a category
This method treats cash withdrawals as immediately spent from your budget. This means you don't have to track cash spending if you have difficulty maintaining that level of detail.
Whenever you withdraw cash from one of your other accounts, you have two choices in categorizing that withdrawal. Ask yourself, what is the job of these dollars?
- If you’re going to spend on a specific purpose or item, use that category. For example, if you’d like to withdraw $200 to spend freely on your vacation, go ahead and categorize the withdrawal using your vacation category.
- If you’re going to spend this cash on a number of small things, you should set up a category for that type of spending. Fun money, spending money – whatever describes to you the job of those dollars.