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Financial Tips

Reduce Your Spending with an All-Cash Diet

Man with plaid shirt opening wallet to remove cash

How much money do you spend a week on groceries or entertainment? How about petrol for your car or a train ticket for your commute to work? Let’s face it, it can be hard to answer this question due to our increasing reliance on debit or credit cards. It’s easy to just tap and go when you are using one.

In addition, many of us don’t think about how much we’re spending – it’s easy to top up our monthly income with a credit card and then pay it off next month. However, this traps us in a cycle of debt and card use that can actually promote higher spending. The trick is learning how to value money again and get our spending back under control. One way to achieve this is to go on an all-cash diet.

What is an All-Cash Diet?

Basically, it’s a technique where you only use cash to pay for things and get your finances on track. Much like a diet to help you lose weight, you choose an amount of cash to spend on various things you need and stick to it. It’s a low-card, high-cash solution which almost completely eliminates anything you spend on your debit or credit card. Think of your money as calories: you’re not allowed to go over a certain amount. This forces you to think about money in a healthier way.

How Using Cash Can Save You Money

Swiping your debit or credit card is, let’s face it, easy. It can also feel like you’re not spending your own money, as you physically cannot see what you are spending. There are even studies that have suggested that people can spend up to 83% more when they use a card rather than cash (valuepenguin.com/credit-cards/credit-card-spending-studies).

With cash, you physically have to take it out of your purse or wallet and hand it over to the cashier. Then, when you get your change, you can see that it is less than you gave out. This gives you a connection to that money and forces you to think about how much you have left for your next shop. If you’re thinking about this rather than just using a card for convenience, it makes you budget better.

Think about it – if your budget is £100 for groceries, by taking cash (and leaving your card at home) you physically cannot go over that amount. It forces you to stick to a budget rather than spending extra because you can. The same goes for a lot of other things such as restaurants, cinemas, and non-essential shopping. By working out how much you want to spend in each category and sticking to it 100%, you avoid overspending.

How to Prepare Your All-Cash Diet

Like anything in life, proper preparation makes all the difference. You wouldn’t go into an exam without revising, so why go into an all-cash diet without preparing for it? Whilst it may seem daunting, it’s incredibly easy once you get going. You don’t have to dive all-in though – making a small change initially will set you up for success later on.

Choose your categories.

Start out with one or two categories and write them on separate envelopes. Some categories which you can use include:

  • Food shopping
  • Eating out/restaurants/coffee
  • Entertainment
  • Clothing
  • Personal care
  • Home improvement
  • Transport/fuel

You don’t have to think this is forever, either. You can do it as a “cash challenge” where you use cash for a month and then try it for another month later (or you can do it weekly). Eventually, you can still go back to using credit or debit cards, but your goal should be to use them more mindfully.

Work out your budget.

The idea isn’t just to use cash – it’s to save money. After all, what use is a cash diet if you’re just dipping into it as you please? You need to work out what you want to spend on each category and stick to it 100%.

The easy way to work out how much you can spend on each category is to come up with your average spend. Choose a certain time period (for example, 3 months) and add them all up and divide by the number of months.

Taking 3 months as an example, let’s say you’ve spent £350 one month on grocery shopping, £420 the next, and the most recent spend was £380. This would give you an average spend of £383 (you can round this up to £390 to make it easier for yourself) per month on groceries. This should be your cash budget for food shopping. If you go to the shop every week, divide this figure by 4 – in this example, it would be £97.50. This is your weekly budget. Take that amount with you when you shop next.

Of course, the idea here is to save money, rather than just stick to a budget. So, ask yourself, can you or your family make do on 10% less in a certain budget? This will force you to think about your shopping habits and make you look for bargains. Don’t do yourself out of anything if you absolutely need it – just try to determine whether you can manage to spend a little bit less each time.

Track your spending.

Once you have worked out what you can spend on each category, you can then spend it. But what use is spending it if you don’t know where it’s going? Keeping track of your spending by saving receipts is essential to make an all-cash diet a success. Make sure you get a receipt for everything.

Once you get home, enter the figure you just spent into a spreadsheet and put the change back in the envelope. It’s as simple as that to keep track of how you’re doing, and you can easily see how much you have left in each category.

Don’t, however, set unreasonable targets. For example, not having a budget for clothing one month may seem to save money if you don’t think you need new clothes, but what if the soles of your shoes come off? You’ll have to replace them, so you’ll still need money for them. The idea is to save money, not to punish yourself. Setting unrealistic goals is the quickest way to fail.

Work out what you’re going to do with the money you save.

Here’s the fun part – if your all-cash diet has been successful, you will have money left over afterward. The next thing to do is work out what you’re going to do with the cash you saved. You can put it into savings or pay debts like credit cards off, or even put it towards a holiday or similar big purchase. It doesn’t matter what you save it for, the takeaway is that you shouldn’t squander it.

Placing the money into a bank account means that you can track your savings easily, but even if you decide to keep some of it in cash, you can still keep track with a savings book. Just seeing how much money you’ve saved can be a massive motivator to save more in the future. You may even decide that using cash for all discretionary spending is the way forward for you.

The Cons of an All-Cash Diet.

Before embarking on an all-cash diet, it’s useful to remember that there are pitfalls to using cash. Some of the pitfalls include:

  • Fewer shops are using cash, especially since the Covid-19 pandemic.
  • Debit and credit cards are more convenient than cash.
  • Cash cannot be used for online purchases.
  • Cards can be canceled if stolen or lost – cash cannot. Once it’s gone, it’s gone.
  • Using cash is slower – self-service machines may only take cards, so you have to use the cashier’s till. Counting out change can add time to your shopping trip too.

The Lowdown

An all-cash diet is a great experiment if you’re trying to get your spending back on track as long as you consider that there are pitfalls to this strategy. If you do it right, before you know it you could see some serious savings which you can whittle away for a rainy day. Remember – you are in control of your money. You just have to be smarter about how you spend it, and an all-cash diet can help.

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