Tuesday, January 24, 2012

My Cash Based Life

Switching over to a cash based lifestyle was one of the most distinct and critical components to my total money makeover. Living on cash and saving up to pay for things revolutionized my perceived “standard of living” and encouraged me to never carry a credit card for the rest of my life. But continuing in the back to basics fashion, here’s a few tips to help you get started.

Get a liquid emergency fund

First and foremost put some cushion between you and life. If you swear off credit and don’t have some padding, your only option will be to utilize the evil and deceptive snake known as credit. A fully funded emergency fund should lie anywhere north of 3 – 6 months of expenses.

Go on auto-pilot with as much as possible

Automatic deductions and payments can make saving and paying bills a no brainer. We pay rent, utilities, utilize donations, save for insurance premiums and pay for gym memberships all through automatic payments and deductions. The less involvement I have from the second my paycheck hits my account, the less tempted I am to skew the money elsewhere. In setting a budget before the start of every month I tell my money where to go. And in doing so I prioritize saving, spending and giving.

Know your weak spots

I have long since abandoned the ideology of “what you don’t know can’t hurt you,” and have adopted “what you don’t know will kill you.” I found a little gem the other day when my wife and I were cleaning out our apartment for pre-spring cleaning. It was my old checkbook, and the dates on it were when I was pre-Ramsey. My monthly credit card bill used to tally around $1,600 every month. I blew money and overspent on entertainment and groceries. This happens no more. While I do not recommend keeping 20 envelopes with cash in your secret hiding place, I would recommend breaking it down to no more than half a dozen. I have envelopes for monthly entertainment, groceries, clothing and giving (on hand if there’s an immediate need). The best safeguards I put in place were where I could protect me from myself. When I paid with a credit card I overspent and with cash I am more conscientious of how much I spend.

The overall message here is to live below your means. It took courage to take a real look at my financial mirror. I saw a fat person on the road to diabetes and amputation. Now, three years into flexing my financial muscles, I’m in marathon shape and never going back to my old lifestyle. It was hard getting those first steps together. But little by little, with focused intensity over a period of time, you too can earn financial peace.

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