Benefits of a Cash Budget – Part 2

Written by Sam   Getting Finances Done

Be sure to check out part 1 about the benefits of a cash budget. In that article I explain how cash is the ultimate tool to help you control your spending and staying within your budget.

In part 2, I explain how budgeting will help save you time in the budgeting process.

How Cash Will Cut Your Budgeting Time By 80%

Think for a second about entering transactions into financial software like Quicken or YNAB. What are most of the transactions? By far the majority of the transactions come from categories like groceries, household, or entertainment.

They are purchases at the grocery store, or walmart, or the corner convenience store. What if you took those transactions away. For most people, there are only a handful or two of transactions left that occur every month. You might have utilities, a cell phone bill, a few gas transactions, but that’s about it.

Most of Your Transactions Come From Just a Few Categories

This is a classic 80/20 example. 80% of your transactions come from 20% of your budget categories. In fact, I would guess that for many people it’s more of a 90/10 rule. 90% of their transactions come from 10% of the categories. If you’ve used financial software in the past, go check this out and see if it holds true. In fact, leave a comment and let me know if it’s true. I know for us it IS true.

Now I want you to think about the time you spend budgeting every month and what that time is spent on. If you’re like us it’s spent on entering and/or categorizing transactions from the previous month. It’s spent tracking down transaction #x and finding out what it was for. Either you don’t remember or your spouse spent it and he/she doesn’t remember. You spend time tracking down missing receipts. It’s all a big mess.

Well all of that craziness doesn’t have to be. In fact, I’m going to give you permission to stop entering every transaction. How can I do that? Well let me ask this: why do you need to enter all those transactions? Do you really want to know how much you spend on milk every month?

Do you ever really care to know on an itemized basis what individual items you purchased in your grocery category? I don’t think that’s the case. If you think about it, all you really care about is spending the amount you want to spend in any given category. Well I’ve just shown that you can accomplish this goal by using cash.

You don’t accomplish this goal by tracking every little thing, if fact, doing so is a lag measure and won’t have any impact on how much you spend next month. You’ll just go through the same process taking a lot of time and experiencing the same or similar results.

One Entry To Rule Them All

To continue reading, please go to the original article here:

http://www.gettingfinancesdone.com/blog/archives/2010/04/benefits-of-a-cash-budget-part-2/