Is it time for you to go back to cash?

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Especially when the economy is going to hell, money is just a quantification of the choices available to you at this moment. And your array of personal choices may not look very good at this particular time. My CPA hat has been in retirement, but I think it is time to put it back on and talk about some financial strategies for those facing impending “hard times.” Pass this on if you know folks who are in forced “downsize” mode.

Cash is still the best budgeter

You are likely not going anywhere soon on those airline points you get from your credit card. The top “budget gurus” almost all recommend reverting to cash for most daily and weekly purchases such as food and gasoline when dollars are tight. Credit and debit card purchases simply do not resonate into the brains of most of us as having the same “financial pain” that spending cash does. They effectively (and intentionally) disguise that choice.

Even if you are still employed, or perhaps especially if you still get a regular paycheck, subtract your required monthly payments from your net pay. Then divide the remaining amount by the number of days in your pay period, get cash from your bank in small bills, and stick that cash into individual envelopes to ration each day’s spending. It is low tech, but you quickly realize that a drink and snack from a vending machine every day can add up to a month’s rent over the course of a year.

If you are afraid of the cash itself being virus-contaminated, then create “virtual envelopes” in a notepad application on your phone, docking the daily balance every time you use your debit card (and don’t use a credit card). Even debit cards “disguise the pain” of spending until the grocery check-out refuses your card.

Even if you can’t re-route of all of your spending this way, try it for food and grocery purchases. Meals out and unused food from the grocery store are huge “money sucks” that can often be reduced considerably, at least in the short run.

For a family, one person likely needs to take on the role of the bad guy here and dole out the cash. If you get good at putting unspent cash today into the next day’s envelope or notepad list, you may find that you have enough cash for a family treat at the end of a week.

Taming the monthly bills

It is usually enlightening to divide each monthly bill by 30 and each annual bill by 365 to see what every day is costing you just to get out of bed. Imagine that amount coming out of your cash envelope every day even before you leave the house to decide whether you are still getting a good deal on those expenses.

If your pay period does not coincide well with when big bills are due, see if you can change payment dates to ease the pain. In addition, some monthly bills are more flexible than you may think. The beauty of the new digital TV services is that you can often turn them off and back on again on a monthly basis. Alternate different services in different months. You can likely catch up on most shows for the month when the service was turned off. An extra $25 in that cash envelope can buy a tankful of gasoline.

It’s hard to say this without sounding like your dad, but a few degrees difference up or down on your thermostat and fewer lights on in the house can easily, again, buy that tank of gas. Every direct debit on your bank account or credit card should be re-evaluated with the same “tankful of gas” standard.

The business world has long known about what I call “penny sucking economics,” where they convince you that their product or service only costs mere pennies a day. Pretty soon, however, you find all those pennies sucked right out of your bank account.

Those credit cards

Back to that idea that “money is choice,” everything you put on a credit card means that you are giving away significant future choices for the sake of today’s consumption. This month you are paying current cash for your past choices plus interest. You may well still be paying for that burger that your charged last year.

Of course, if you have enough cash to pay off your credit card bill without interest monthly, you probably don’t need this post. Credit card issuers play the probabilities, however, and they know who really pays that card off monthly.

The classic “snowball” method for getting a handle on credit card debt comes in a couple of flavors. The basic idea is that you pay the minimum payment on all cards except on the one with either the smallest outstanding balance or the highest interest rate. This card gets as much extra cash as you can throw at it. When that card is paid off, you don’t reduce the amount you spend on your total card balances, rather you transfer that first card’s payments to the next card, and so on until all of the balances are gone. Then you will be back to spending today’s cash on today’s needs, or better, on future needs.

Stay away from payday lenders

While my bank lobby is usually empty, the local payday loan storefront sometimes has two windows open and a line by 8:00 a.m. each morning. I have never heard a payday loan story that ended well. We used to deem this business a crime called loan sharking, or usury if you want to go back to the Bible.

I know that it is desperation to brings every one of these people to that payday lender window. The sad part is that, for most borrowers, payday lenders only make that desperation worse.

Plan ahead

Some bills, like car insurance, come due once every year or every six months. Put them on a calendar or spreadsheet and divide that amount by the number of pay periods until it hits. The more money you can stash away each pay period in some form (cash if necessary), the easier it will be to pay that bill when it comes due.

Other big expenses may seem to be unforeseen tragedies, but they are often inevitable. New tires on your car, for instance, or indeed a replacement car itself. Put those estimates, or a general “disaster prevention” amount, on that monthly calendar.

Every dollar you spend today is a choice you are either making now, or have made in the past, or are deferring for the future (i.e., savings). Financial stress can wreck a relationship or even kill you. It is well worth taking control over your own choices.

Woody Guthrie singing Hard Times:

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