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Friday, July 15, 2011

A guide to Budgeting: The All Cash Method

This method of budgeting is basically simple: you pay cash for everything. No credit cards at all!

I think there are pro's and con's to this method so let's look at them:

You never go into debt because you are only using cash
You are more aware of your spending because you physically see less money
You live by the rule that once its gone it is gone

Using credit cards correctly helps build credit allowing for lower interest rates on big purchases such as cars/homes. With this method you do not build your credit score.
You do not have any credit cards for emergencies, if you run out of cash you are stuck.

I see why people use this method, and I am proud of them for having so much self restraint. But for it to work you need a large emergency fund in liquid form. The emergency fund would have to be at least the amount of your credit card limit.

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