The Non-Cash Budget System: How It Works and Who It’s For
With there being a lot more buzz around the idea of cashless societies recently, you may be wondering how to manage and get the most out of a non-cash budget. You may also be wondering if it’s even possible to save and manage money effectively without relying on cash.
To help you out, we’ve revived and refined this article on a lesser-known yet effective non-cash budgeting system!
What’s a Non-Cash Budget?
First off, this isn’t exactly a real budgeting system. In fact, it’s basically the opposite of the popular cash envelope budgeting system that you may have already heard of.
So why are we even writing about this? Well, the cash envelope system isn’t for everyone. Withdrawing cash every week or month to fill your envelopes can be inconvenient, and for some budget categories, a cash envelope might not make any sense.
That’s why I use a non-cash budgeting system. And it’s basically exactly what it sounds like: I never carry cash and I charge every last cent on my credit cards.
Some of you may be thinking that sounds absolutely crazy, and for some, it is. Let me explain:
Who This Budgeting System is For
It’s actually probably more important to talk about who this budgeting system ISN’T for. Why? Because this system is definitely not right for everyone.
If you are a compulsive buyer or you have no control when it comes to credit cards, this system won’t work for you. Instead, it will most likely just wreak havoc on your finances. If that’s the case, check out these posts instead:
For those left reading, if you CAN show restraint with a credit card, this system will benefit you a ton! Using it has helped me never have to pay for Christmas, birthdays, or school clothes out of pocket. EVER.
How to Implement a Cashless Budget
Implementing the non-cash budget system is really simple as there aren’t many moving parts. Just follow these 5 steps:
Step 1. Identify what you want for free.
Credit card companies offer it all: vacations, plane tickets, gift cards, and simple cashback.
Do you want to accrue points like I do and earn gift cards? Do you want to rack up air miles and jet off to some exotic location? Do you want to give your bank account a little extra cushion each quarter and earn cash back? You decide what’s best for your family.
Step 2. Find the perfect credit card to match your needs.
NEVER pay an annual fee. You don’t have to. There are plenty of rewards cards out there with no annual fee. Just find the one that’s right for you.
I use a CHASE card. My goal is to earn gift cards, so we have a card that maximizes points earned. Your current credit card may already be perfect. Call your company to see what options they offer.
If you’re looking for a new card and are not sure where to start, read our guide on the Best Rewards Credit Cards.
Using this system, you will pay off the card every month, so the interest rate is not a concern. That being said, if you know you don’t have the will power to pay off your credit card each month, this system is NOT for you!
Step 3. Make a plan.
First, sit down and figure out what monthly expenses can be paid using your credit card.
Some credit cards (and mortgage companies) allow you to make your house payment on a credit card, while others do not. You would be surprised at how many monthly bills you can pay with a credit card.
Next, take an average of what you spend each month on everything else, ie. food, clothes, eating out, fun money, etc.
Finally, add everything up to get your grand total.
Here’s an example:
- Paycheck: $10,000 (this is a fake scenario so let me dream please)
- Monthly bills that can be paid on a credit card, ie. power bill, car payment, etc.: $3,000
- Additional monthly expenses, ie. food, fun money, etc.: $3,000
Once you have your grand total, you can do these two optional steps:
- Based on your reward credit card, you can roughly estimate how many points or how much cash back you’ll earn each month based on your spending.
- Take the chance to look for places you can cut back in your budget, if necessary. Check out this post for tips: How to Save Money on Bills and Reduce Monthly Expenses.
And finally, you can set up an automatic credit card payment so that you never risk a late payment. Most banks will allow you to set this up online or over the phone.
Step 4. Monitor your expenses as you rack up rewards.
Just like you would your bank account, log into your credit card account frequently, and make sure you are sticking to your budget.
I personally use YNAB (You Need a Budget) to digitally track my budget and it helps me a ton. You might be fine managing it all in your head, or on paper. It’s all personal preference.
It’s especially important to monitor your expenses if you have an automatic credit card payment set up. You need to make sure you always have enough in your account to make that automatic payment. Otherwise, you risk an overdraft or missed payment.
Step 5. Redeem your rewards.
Because in Step 1 you have already identified what freebies you are working towards, this step will vary for everyone. We redeem our rewards 3 times a year.
Near Christmas, we use our points to buy gift cards and use those cards to buy our children’s presents. As summer approaches we cash our points in for birthday gift cards (we have a lot of summer birthdays in our family). And right before school starts, we use our points to buy gift cards to clothing stores for school clothes.
I like getting paid to spend what I normally would anyway. I have earned THOUSANDS of dollars in gift cards through the years.
While this system is tough for a lot of people because seeing such a high balance remain in your checking account all month may be tempting, if you stick to your budget, this system will work for you!
More Money Tips:
- How to Teach Your Children About Money
- 10 Frugal Habits to Live By (and 5 Things to Never Do)
- How to Survive Financially During a Crisis (6 Tips)
- How to Stop Impulse Buying for Good (In 5 Steps)
- 10 Bad Money Habits That Will Keep You Broke
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