Cash

January marks a unique anniversary for Wife and me. This time last year we woke up with the all-too-common post-Christmas money hangover. We were looking some credit card balances in the face and said to each other, "This sucks."

Normally, that would have been the end of the conversation and we would have moved on to other things, namely chasing Daughter around and pacifying Son, who was just a few months old at the time. But for some reason, God laid it on our hearts to address the way we spend money rather than avoid it.

Our mutual conclusion was that we couldn't really point to where all our money was going each month. The solution, inspired by Dave Ramsey's Financial Peace University, was to get ourselves on a budget. And I mean really, honestly plan how we are going to spend each dollar before the month begins.

People come up with a lot of different ways to do a budget. I had tried to do a budget before, thinking Quicken or Microsoft Money would be the answer. I linked our bank accounts to Money and downloaded all our transactions for six months or so. But then I got lazy and quit doing it. And then, when I got to thinking about it, I realized that Quicken or Money can't help you do a budget, in the same way that your car's odometer can't tell you how many miles you're going to drive in a month. It's a trailing indicator. It only tracks what has already happened.

So for us, we had to come up with a way to account for my income before it hit our checking account. Today, we have budget categories such as Groceries, Dining Out, Utilities, Diapers & Wipes, Babysitter, etc. At the beginning of each month, we plan how much we need to allot to each category, and when I get paid we take out the right amount of cash and fill envelopes bearing those labels.

Just as an aside, the bank tellers hate me. Every two weeks I come trotting in with my withdrawal slip and a handwritten breakdown of how I want the cash, i.e. two $1s, twelve $5s, etc. It's more work for them, but last time I checked, it's not outside the bounds of their job description to give customers they money they ask for in the desired denominations.

This cash system has worked well for us. It has given us a greater appreciation for how important every dollar is. It has also shown us that living on a budget isn't about being bean-counters or denying ourselves the things we want. It's all about choices. When there is a set quantity of cash coming into the house every month, you know that the money for an extra meal out or a new tie has to come from one of the other categories.

In the year that we've been doing this, we've arrived at a much greater sense of peace and control over our income. It's a great feeling, and it's a technique that will be incredibly simple to teach to Daughter and Son.