Why You Need to Go on a Cash diet (and How to Do It)

Many people often look for a magical solution to improve their financial situation, but the fact is, solving your money problems comes down to some basic simple principles. There are actually only two ways to improve your financial situation: make more money or curb your spending.

cash-dietWhile this may sound simple, it’s often very difficult for people to live within their means. Whether you’re trying to keep up with the latest trends, treat your family to a holiday or simply manage the rising cost of living, spending more than you make is the primary reason people go into debt.

If you’re struggling to make ends meet and can find a way to make more money, either by finding a higher-paying job or taking on a side hustle to supplement your income, you should do it. However, not everyone will be as fortunate to be able to increase their income.

The one thing we do have control over however is our spending. Yet many people are afraid to take a good look at their finances and make some crucial decisions on where they should cut back. Additionally, with technology making it so easy for us to spend money at the click of the button, we’re easily spending more than we have…and paying the ultimate price.

The easiest way to start spending less is to go on an all-cash diet. This means using only cash the old-fashioned way to buy the items you need. Credit is a relatively new concept introduced less than a hundred years ago. Before then, your grandparents and great-grandparents had to earn every penny before they wanted to buy something. If they didn’t have the money, they simply couldn’t afford it.

Using cash is a great way to ensure you’re not relying on credit to buy things, especially essentials that you should be budgeting for in the first place. Here are some tips on how to get started on a cash diet.

  • Leave your credit and debit cards at home. Now that you have decided to use only cash to buy groceries and other items, start by leaving your credit and debit cards at home. If you carry them with you, you’ll likely be tempted to use them. It will be difficult at first if you are used to paying with your credit card, but once you get used to using cash, it will be a breeze.
  • Carry just enough cash to buy what you need. Switching to cash-only payments doesn’t automatically solve your problem. If you empty your bank account and stuff all your money in your wallet, you will soon find yourself spending more than you can afford. When going shopping, calculate the amount of money you will require, and withdraw just enough to purchase what you need. That way you won’t be tempted to buy items that are outside of your budget.
  • Use the envelope approach. The success of your cash diet depends on how much you can save each month. At the beginning of each month, withdraw just enough cash to cover your expenses and divide it under headings like groceries, gas and entertainment. Put the cash for each category in a labelled envelope and make sure that you use the money only for that purpose. If you run out of cash in your grocery envelope, it means you either have to cut the budget for another category, or lower the budget for your groceries.
  • Don’t ignore the entertainment category. When creating a budget, many of us forget to include a category for entertainment expenses. We tend to think, “Oh well I won’t go out this month.” This is the wrong approach because it is unrealistic. If we force ourselves to live within too strict a diet – whether it be a cash diet or a food diet – we end up failing. While the amount of cash you allot to this category shouldn’t be extravagant, try to budget for a few small treats to keep you motivated throughout each month.
  • Keep it up! Once you’ve mastered the cash diet, try cutting back on your budget by finding other areas where you can spend less. Challenge yourself to live on a smaller budget, and use the extra money to pay down your debts or put into a savings account.

Starting a cash-only diet can be challenging, but it can also be very rewarding as you begin to live within your means and really see where your money is going. Need more help paying down your debts? Contact Credit Counselling Services of Atlantic Canada to get started on a personalized debt management plan that fits your budget.

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