How using cash helps you get out of debt

During our debt free journey, I have had a lot of people ask me what changes we have made. While  changes have really added up over time, the one big change we made after creating a budget is using the cash envelope system!

If you are a Dave Ramsey fan, you have heard him speak about this method multiple times. In a world where we are used to swiping a card for our purchases (debit or credit), it is hard to fathom that people still know how to use and count cash.

Have you ever made a large purchase with cash? It is hard, isn't it? You have to really think about that purchase because once you make it, the cash is gone. Using cash also helps with your budget too. Once you withdraw cash when you get paid and put it into the envelopes, it is accounted for as a line item in your budget.

If you are interested in getting started, here are some helpful tips based on our experience.

1. Develop your cash categories. Look at your spending and see what spending trends you have. Once you do that, you will be able to eliminate excessive spending and identify categories which will become your basics. Every person or family will be different, but our categories include:

• Groceries (this also includes household items such as detergents, toilet paper, etc.)
• Clothing.
• Household (for minor repairs or new furniture, etc.).
• Entertainment (for nights out or in with your significant other or family).
• Holiday (birthdays, Halloween, and Christmas).
• Dining out (family meals or date nights at restaurants).
• "Fun money" (cash that you can spend on meals with friends or anything not identified in the categories above for yourself. It's your money to have fun with!)

2. Assign amounts to each category. Look at your trends in spending for each category and assign amounts to each. This will be difficult to do because you will need to cut back from each category to really make progress in paying down your debt. For example, most of our categories are $50 every two weeks with the exception of the grocery category (which is more). This will really force you to look at where you spend your money.

3. Put your cash in an envelope and label each category. No, seriously - this is what you do! We have ours labeled in an organizer. It is pretty simple and basic, and you get used to it over time. Once you spend what is in that category, it is gone until the next payday. It really forces you to become mindful of your spending choices.

4. Adjust your categories as needed. After a few months of spending, you may notice that you do not have enough in one category. Maybe you have taken out of one category (after talking to your spouse of course) to pay for something out of another category. This is a sign that you need to adjust your amounts. This could change several times depending on where you are at each point in life. For example, with growing kids we should adjust our clothing category accordingly. This isn't a reason to spend more, but is designed to help you focus on what you need.

5. Save up for something within each category. This is one thing I love about the cash envelopes. If you want a really nice night out on the town or something new for the house, you can save up your cash within that category. After three months, you may look in the household envelope and realize you have a small savings there to buy something you have been wanting for your home. It is also great for Christmas because you have had all year to save your holiday money!

I cannot express how much using cash has helped us pay down almost $30,000 in debt in one year. Once you are mindful of your spending, you will begin to notice changes. It's worth the work and effort.