One Way To Save 5% Each Month



save money low income spending planThe word “budget” tends to intimidate people.  Who wants to feel limited in their spending?  Plus, it may feel overwhelming to learn how you are truly spending your hard-earned money.  BUT knowing exactly where your money goes is critical to achieving financial independence.  So read on, and let’s overcome your budgeting fears.


Instead of the dreaded B-word, let’s talk about a Spending Plan.  This means that YOU have control over how you spend your money.  


If you want to spend $1,000 on eating at restaurants every month, you can, as long as you have enough money at the end of the month to cover all of your other bills.  The choice is yours.   Enjoy spending your hard earned money — just know where it is going with a Spending Plan.


The Spending Plan that you put together will reflect the things that you VALUE in your life.  Remember that there is always a trade off between living for the here and now versus for the future.  Many times, delayed gratification will bolster your long-term goals of pursuing your passions and interests.  


Value Spending

Value spending is simply allocating money towards things that bring you joy and are meaningful to you.  What good is it to live and die with a ton of money if you’re miserably penny-pinching all your life?


Value Spending on Food

food, year in review spending planPersonally, I like to spend money on restaurant food.  My monthly restaurant bill is roughly $240 while my monthly grocery bill is about $190.  Because I like to spend more on eating out versus eating in, I have established my Spending Plan to align to those values.


Value Spending on Traveling

I also really enjoy travel and experiences.  Because I was so focused on paying off my mortgage and filling up the house with nice things, I didn’t travel much in my 20’s.  I mean seriously, what 25-year-old bachelor needs an 8-person dining room table with a matching China cabinet?


iceland spending planOnce I got married, my wife and I traveled a bit.  But we ended up having our first child on our third anniversary, so that put a damper on our future travel plans.  There is so much that I still want to see.    


So how to do you put together a Spending Plan?


Crawl, Walk, Run

The best place to start is Personal Capital.  As I have mentioned before, all of your accounts will be aggregated such that you can have a clear idea of your net worth.  Additionally, all of your income and expenses will also be itemized.  Let’s go ahead and call this “cash flow”.


resources 2017 great expectations financesIf you haven’t set up a Personal Capital account, I’d highly advise it.  For those who decide to eschew technology, you’ll need to write everything down manually to derive the expenses that you incur on a monthly basis.  


So, looking at last month, were you cash flow positive (green) for the month, or were you cash flow negative (red) for the month?  This may be a splash of cold water for some.


Now that you have an idea of your monthly spending, let’s actually create a Spending Plan.


Zero-Based Spending Plan

I prefer the Zero-Based Spending Plan because it is very simple to use.  Click here to see an example.  Each month, every dollar that you make should fit into a category of your designation.  If you have a paycheck that does not fluctuate, this means at the end of the month, you should not have any leftover money.


debt free life spending planMost importantly, if you are married or dating someone, I highly encourage that BOTH of you get involved with the Spending Plan conversation.  I can’t emphasize this enough.  Communicate.  The number one thing couples fight about is money.  Breakdown these barriers, and start the conversation TODAY.


Cash Envelope System

Once you create a Spending Plan, try using a cash envelope system.


spending planThis method encourages one to take out cash each month and place it into various envelopes allocated towards different spending areas (e.g. Food, Clothing, Entertainment).  When you use up all the cash in your envelope for a specific category, you are done for the month.  


Of course, there are some expenses that you won’t be able to pay in cash, such as mortgage, electric, gas, water, etc.  The envelope system, however, is excellent when it comes to discretionary spending like eating out, buying clothes, and general entertainment.


Why It Works

spending planThe reason why the cash system is so effective is because studies have shown that when consumers are more likely to spend less with cash than with a credit card.  A credit card swipe is much easier than fishing out coins and bills.  Plus, with cash, one’s spending limit is much more tangible and real.  There is nothing more restrictive than not having enough cash to pay for something.


Technically speaking, the envelope system revolves around the loss aversion theory.  People prefer to avoid losses over acquiring equivalent gains.  Some studies have even show that losses are twice as powerful psychologically as gains received.


It’s no wonder that businesses don’t make a fuss over credit card usage because of the fees involved.  Anything to get you to buy more is always beneficial for them.


Cash Is King

real estate spending planSome believe we are moving to a cashless society.  When I was doing research, I thought I was going to find a lot of data supporting this theory as well.  Do you know what I actually found?  I was wrong.  46% of the U.S. population pays non-recurring bills with cash.


Do you realize that most German consumers exclusively use cash to pay for things?  82% of them to be precise!  Some researchers hypothesize this is because Germans value their privacy and don’t want merchants to monitor their credit card transactions.


While researching, I also found that Germans hate debt.  This is why only 35% of Germans actually own their home versus rent.  This totally surprised me, but when given the nature of the German culture, hyperinflation in the 1920s, and World War II in the 1940s, it’s understandable why cash is king to them.  


Negatives of Cash

Now, I’d be remiss if I didn’t talk about the three major downsides when it comes to paying everything with cash.  


  • Manual Entree into Personal Capital

You’d have to input all of your expenses into Personal Capital or your preferred Spending Plan software.  This can be a hassle if you are forgetful or just find it tedious.  However, if you get into the habit of collecting your receipts, taking 15 minutes on a weekend to input really shouldn’t be that bad.


  • spending plan great expectations finances roller-coaster salary negotiationsCarrying Large Amounts of Cash

Carrying around large amounts of cash may make you nervous.  One way to alleviate that is to divide your withdrawals into amounts that you make you feel comfortable for the envelope system.  So instead of withdrawing everything once a month, you could break it down into biweekly or weekly withdrawals.


  • No Cash Rewards

You wouldn’t be able to earn any cash rewards like those from your credit card or gain any sort of points when you make purchases.  For people that use their points to travel, this could definitely be a negative aspect.  


With that said, studies done by the US Consumer Financial Protection Bureau have shown that debt decreased by about 5% for groups of people who primarily paid cash for purchases over a six month period.


So readers, do most of you use a Zero-Based Spending Plan?  For those with varying paychecks, what kind of budgeting software do you use?  Are any readers willing to switch over to the cash system in order to potentially save 5%?  Share your thoughts below.

Mustard Seed Money

Welcome to the website. A mustard seed is a very small seed but astonishingly grows very large over time. My hope is that through your financial journey that your small investment in time, money and faith will grow beyond anything that you could ever imagine.


  1. We switched to cash budget for groceries, gas, restaurants, and “other” for a year to get our spending in check. it really helped get us out of debt and on to the FI path.
    After that year was us we moved gas and groceries back to credit cards. We left the other two cash because those were the ones getting us into the trouble. I think it’s been two years since we started.
    I still laugh when the teller has to cancel the credit card reader when I try to hand them cash.
    Budget on a Stick recently posted…Why I’m paying off the mortgage while saving for Early RetirementMy Profile

  2. I can’t tell how much we save by paying cash, but it seems to work to our advantage.

    I’ve noticed it’s easier to save in the long run when you know exactly how much you can afford to spend, instead of having your card always available. And since I’m a frugal-freak, I seriously dislike seeing money disappear from my wallet 😀
    Adriana @MoneyJourney recently posted…12 retirement lessons I learned from my grandparentsMy Profile

    • Thanks for sharing Adriana!!! That’s awesome to hear that cash has made such a huge difference in savings. I love hearing your experience with knowing how much you can afford instead of using a card. Great stuff!!!

  3. My wife is paid about half salary and half commission. The commission can vary wildly month to month. We budget based on her most probable worst case final year salary. That number tends to be more stable. We might have a month that goes red but it is almost always surrounded by green months. So far she has always made more than we budgeted for her to make for the whole year so we come out ahead and happily surprised.

    As for the cash, I did it for about 6 weeks exactly as you and Dave describe it. I found no benefit in the daily stuff I was buying. Gas, groceries, eating out, etc. The thing that was awful and why I quit was managing the cash. At the beginning of the month, I had these nice perfect envelopes with like 5 x 20$ bills in each. After two weeks I would have a lot of change and 1’s and 5’s. I just found it unpractical to have a wallet and these bulky heavy envelopes.

    One area where I love using cash is on vacation. We budget say $500 for all of the alcohol, gifts, and events and are able to kind of visually budget as we go.
    Grant @ Life Prep Couple recently posted…How to Lose Weight – The Not So Secret First StepsMy Profile

  4. I love my zero-based budget (ahem, spending plan). I get to spend guilt-free because the money is just sitting there waiting for me to spend it :).

    I’m not at all a fan of using cash. I’m worried about losing it (and then do lose it sometimes), I then have to manually enter those transactions as you stated, and then it’s one more thing to think about having to pull the money out of the ATM. It just doesn’t work for me, but tracking my expenses carefully does work for me.

  5. I’ve never used cash as a budgeting plan. The fact that I can see transactions almost instantly online helps keep my spending in check. Plus when you have multiple people in the house like we do, it is good to see where everyone is spending and how categories are adding up during the month.

    Tom @ HIP
    High Income Parents recently posted…Caring for a Disabled Family MemberMy Profile

  6. I use a zero-based budget through YNAB. It was my first real experience with budgeting, and it has been eye-opening. With a zero-based budget you can actually set your priorities at the beginning of the month and then see if you can stick to them. It helps align your spending to your values. You don’t have to be stingy, but it forces you to recognize when you’re spending more on things that you don’t care about than things that you do.
    Matt @ Optimize Your Life recently posted…You Always Have a ChoiceMy Profile

    • Thanks for sharing Matt!!! I think that was the biggest eye opener for me. Making sure that my spending aligned to my values was huge for me. Definitely allowed me to get things in line.

  7. I have seen other PF bloggers recommend Personal Capital as well. I’m intrigued but haven taken the plunge yet. I think I will need to at some point since I’m also interested in seeing aggregated numbers of where our money us going.

    Mr. FAF and I don’t have a budget. We just try to spend as little as we can. We use our credit cards for purchases and pay them off at the end of the month. The numbers unusually stay in a range we are comfortable with.
    Ms. Frugal Asian Finance recently posted…A Day In The Life of Ms. FAF – Workdays EditionMy Profile

  8. Great post MSM!!! Did not know those things about the Germans!

    I can’t see myself using cash because I just lost $5 today (fell out of my pocket on the bus) and with the way I lose things I would be very broke, very soon. Much more than 5% poorer haha.

    I don’t mind counting or doing manual transactions though. I think you need to balance both. When I’m going shopping with friends I lock up my card and use only cash. For any other situation like groceries and gas, I get 2-5% reward back.

    I do agree with David Ramsey though, credit is no one’s friend!
    Lily @ The Frugal Gene recently posted…Fledgling Pledging For The Million Dollar ClubMy Profile

    • Thanks for sharing Lily!!! I definitely have some apprehension when it comes to carrying cash. But if it helps me save a couple of bucks. Definitely worth it to me 🙂 As long as I don’t lose it!!

  9. When it comes to your money habits, cash can make you feel the pinch when you hand them over for purchases. However, if you don’t have the discipline to spend less than what you make, a cash system is just a process.

    I personally am going the opposite way, I actually prefer to use a credit card to do all my purchases if the vendor accepts it. I use it for three main reasons: building my credit history, getting a free short-term loan and to earn a free cash reward.

    Also, most car and hotels require a major credit card for deposits. If you don’t have one, it’s going to be difficult to rent a car or book a hotel room.
    Leo T. Ly @ recently posted…What’s The Financial Benefit Of Growing Your Own Food?My Profile

    • Thanks for sharing Leo!!! There are a ton of benefits when it comes to credit cards and if you can keep your spending in check it seems like it’s worthwhile. We pay all of our bills with credit cards for the fraud protection and the cash back 🙂

  10. I started doing something new, I’m exporting the expenses using the bank and then I put for each type of payment a type. If it’s home, etc.. and I keep track of every payment that I made that month.
    The question is how frugal do you get, because the more you go, the more you have to take from the comfort.
    Alex @ Asset plus recently posted…Second time to financial independenceMy Profile

    • Thanks for sharing Alexanderu!!! I definitely agree that there has to be a balance between comfort and a little discomfort. How much that is? I guess it depends on the person 🙂

    • Thanks for sharing Dave!!! I know spending plans aren’t always easy to stick to. But I’ve found it’s like a muscle. The more you exercise it the easier it gets 🙂

  11. I like your concept of Value Spending. The term I use for the same idea is Happiness Return On Investment (HROI), but your term is short and sweet. 🙂

    Anyway I’ve been frugal for so long that it’s hard for me to do Value Spending. I have to constantly remind myself that it’s OK to spend money when it brings me or Mrs. Freaky Frugal a great deal of happiness. Kind of a strange problem to have, right?
    Mr. Freaky Frugal recently posted…Adventures in negotiating rentMy Profile

  12. I save an automated amount every week, usually use cash for small things like coffee and late afternoon snacks…..but am cognizant to try and not make it a habit. I come in under-budget every month based on my personal cash allocation which is nice. At the same time, I usually see a deal on a commercial or billboard (like Dunkin Donuts new Frozen Coffee which right now is only $1.99, beats Starbucks $4 something if you ask me 🙂
    smm recently posted…How Do I Protect My Investments?My Profile

  13. My wife and I were in Paris about two weeks ago and decided to withdraw cash because it was cheaper than the penalty for using our cards. Having a limited amount of money in our wallets really helped us keep down our expenses. We spent way less than we expected, but were still able to eat out and get souvenirs and just have a good time!

    I use Personal Capital to pull all my accounts into one place and then Excel to record my expenses each month. I find that doing it in Excel makes me more aware of what I’m spending.
    Matt Kuhn recently posted…4 Most Common Fears of Retiring Early and Why You Don’t Need to WorryMy Profile

  14. One super-easy way we save (at least) 5% each month is the order in which we grocery shop. We hit Walmart first to get everything we can, then hit Publix for what else we need (often produce related) then we hit Trader Joes for a few specific items (their Honeycrisp apples are the cheapest in town).

    Plus I use Savings Catcher, so I almost always get cash back from the weekly Walmart trips.
    Financial Coach Brad recently posted…Meal Planning Service: 5 Ways A Meal Planning Service Can Improve Your LifeMy Profile

    • Would it be a good investment to plant a honeycrisp apple tree? I feel like I should. Like a fruit 401K. In 30 years that tree will be grown and have alllll the honeycrisp!

      • Hahha…if you love honey crisps and you plan to stay at your place for 30 years. I could see it as a worthy investment. Who knows what organic honey crisps in the future will be 🙂

  15. My guess is as society more and more moves to cashless well see a change in behavior where people become more frugal with cashless and more spendy with cash. I’m already there. I think twice about paying with card knowing I must pay for it later. I find I’m more free with my cash as I’ve already removed it from the accounts where I track spending. So psychologically it becomes no big deal to me. I don’t usually carry cash for that reason.
    FullTimeFinance recently posted…Power of a Well Written Letter on a Bad ExperienceMy Profile

    • Thanks for sharing Full Time Finance!!! That’s really interesting about being more free. I think I feel that way with small bills. But larger bills I find really hard to break. Like do I really want to break this $100 for just anything 🙂

  16. I didn’t know about the German’s either! Too bad it’s more than culturally acceptable here in the U.S. to use debt for everything.

    We don’t do a zero based budget, or a budget for that matter, since we’ve been tracking our expenses to the penny. But I am guilty of using my debit card too frequently. Some weeks I do a $50 cash challenge at the supermarket and I’m fine with my purchases. I absolutely spend more with my debit card.
    Mrs. Groovy recently posted…Paul McCartney Wrote Some Crappy Music: More Trash-Talking from Mr. GroovyMy Profile

    • Thanks for sharing Mrs. Groovy!!! I think it’s amazing that the Germans do this as well. I wish the US wasn’t so dependent on debt. I do wonder what housing prices would look like if we didn’t have rely so heavily on debt 🙂

  17. I typically pay cash for anything $20 or below. Since we live in a very small town and my wife & I loathe each Wal-Mart visit, we do spend a lot online with our credit card for the convenience of online prices and having the items come directly to our front door.

    I have started using PayPal transaction that debit from my checking account for small purchases so it is like paying with cash still.
    Josh @MoneyBuffalo recently posted…How Our Toddler Saved Us $250 on VacationMy Profile

    • Thanks for sharing Josh!!! I hate going to the store to buy things when I can buy things online and have it delivered to me. Although I need to watch it since spending can certainly get out of control if I’m not paying attention 🙂

  18. I like to spend money eating out as well. I know it’s not the most frugal thing to do but I enjoy it so I budget for it. Also, cash rewards are nice if you are smart about being able to pay off your credit card in full every month to not incur interest. Might as well take the free money if it is offered to you.
    Dividend Daze recently posted…Small Savings, Big ImpactMy Profile

    • I definitely agree if the credit card companies are going to incentivize things that I am already spending money on. I might as well take advantage of the cash rewards 🙂

  19. You write “46% of the U.S. population pays non-recurring bills with cash.” However that number was from 2012 data. The study you cited provided a link to a 2015 update.
    In that 2015 study, they found “For non-bill purchases, 43 percent of diarists cited debit cards as their preferred payment instrument. For the remainder of participants, the shares of people citing credit cards and cash were roughly even, at 27 percent and 26 percent, respectively (Figure 12).”
    In 3 years between data points, the amount cash payments for non-bill transaction went down by 20%. The writing on the wall is clear: cash is dying. You are an old man and I know you are an old man because you carry cash. People in their teen and 20s don’t carry cash. Many of them don’t even carry credit/debit cards. They expect to pay for stuff with their smart phone.
    One day in your lifetime, you will find it difficult to get cash. Bank branches will be few and far between. ATMs will not be readily available. Businesses will make it difficult to transact in cash. Governments will discourage you from transacting in cash.
    Getting back to the post, the cash envelope method is one of these Dave Ramsey techniques which sadly confirms the ignorance of society. I find the debt snowball and the cash envelopes to essentially assume that people cannot think logically or possess self-discipline in their spending. Sadly, studies back up Ramsey’s methods.
    People! Use your brain. It’s always financially advantageous to pay off the loan charging the highest effective interest rate! Instead of stuffing envelopes with cash, put the cash into a bank account that earns interest and use some old-fashioned self-control to control your spending at the point of sale! If the only way to control your spending is to count pieces of green paper in your pocket, your problems probably go deeper than just overspending.

  20. I tried the cash envelope thing. I stopped doing it as soon as I started. I couldn’t fore-go the credit card rewards. The thing is, I never had trouble with staying within my budget constraints due to my frugal nature. I’m at a point in life where I’m not itemizing every expense any longer. We have a healthy dual income and a good amount saved up. We cash-flow everything now and we outsource food and/or eat out pretty much exclusively. The trade-off of money with time is not what it used to be in the past.

  21. Great information I’m actually going to create a budget so I can keep better track of my spending. Personally I prefer using credit cards, but i’m willing to Give the cash envelope System a try

  22. We did the cash envelopes for while until we got spending under control. We know use our credit card to get the rewards and pay it off each month. It would be interesting if we went back to cash for a month or 2 to see how “well” we are doing. I also would switch back if I were to gain 5%, as this would be more than the CC rewards.
    FIbythecommonguy recently posted…A move is comingMy Profile

  23. We spend money our money on similar categories, food and travel. If we splurge on things its normally in those two categories. Outside of that we use our budget to manually track our expenses. We try to come in under budget every month, but there always a few months where gifts for holidays or birthdays puts us over. I know people who use the cash envelope method and think its a great idea if it works for you, but we use our credit cards for everything. Our thinking is we are earning something to pay by credit card (even its 1% sometimes) which is better than earning nothing using cash!
    Courtney @ Your Average Dough recently posted…How Do You Differentiate Yourself?My Profile

    • Thanks for sharing Courtney!!! I’ve had some friends do it as well with great success. For others it didn’t work quite as well. So whatever works best!!!

  24. I’ve never been much of a budgeter. I have tracked my spending for a few months to see exactly where everything was going, but I have always been good at not spending too much.

    I think that budgeting is basically mandatory for those living payday to payday or paying off massive debts. But if you are doing well financially, just stay at a reasonable level of spending on things that matter to you.

    The goal of a budget is to not need a budget.
    MrDoublingDollars recently posted…I’ve Made $25,000 Posting on – So Can You!My Profile

    • Hahahha…I would definitely love to be in a position where I no longer need to budget. For that matter i’d love to be in a position to not worry about spending either 🙂

  25. Personally I’m in favour of the debit and credit cards, like to keep the “paper” trail going so I can see and allocate where the money went. Cash disappears to quickly…
    Team CF recently posted…May 2017 Cheesy IndexMy Profile

  26. I used to be terrified of any type of budgeting or spending plan. It always felt so restrictive – until I learned that I was doing it FOR us and not TO us. We use cash a lot of the time, but mostly we just work to spend as little as possible. Sometimes I get a little spend happy when I have too much cash in hand. 🙂

  27. Maybe I am the odd-one here, but cash is a burden if its in my pocket because it is not working to earn more cash. I use my credit cards for every expense I possibly can because of the reward points. In my mind, my CC spending is akin to the Gold Standard and the cash in my checking account backs what I may purchase on my CC. No cash, no running a deficit = sleep well at night.

    Since 95% of my transactions are routine, I have organized the CC website to categorize the activities into expense line items that get imported into my budget.

    Its a mental disciple that doesn’t happen over night, but it helps keep my cash in accounts earning more cash until required to pay down CC and once paid down, I want points to cash in for value (i.e. airfare, hotels, holiday presents).

  28. No matter what you call it you need to have a plan for your money. What’s the saying, you can afford anything, not just everything? Debit is the preferred choice you can only spend what you have in the bank, and forces you to keep track often. It also keeps a great record to review and adjust.

    • Valid point, MMP. My CC method, without question, has risks and requires more discipline than how others approach the same topic.

      Now I am starting to understand what my father meant by “quit going around your elbow to get to your arse”

  29. After reading Dave Ramsey’s The Total Money Makeover, my wife and I started implementing the cash envelope system. It actually worked quite well cause you’re so focused on your spending, but eventually it wasn’t sustainable for us. Now we just use our credit cards and have spending alerts. But you’re right, it’s definitely not as effective. Maybe we could just use cash for what we spend on the most – restaurants like you!
    Passive Income M.D. recently posted…The Best Real Estate Crowdfunding SitesMy Profile

    • Thanks for sharing Passive Income MD!!! It can definitely be a challenge to focus only on spending over time. For some people its super easy but for others it gets a little boring. I can definitely understand that 🙂

  30. I’d like to think that once you recognize a psychological factor (such as one spends more using credit and less with cash), you can try to neutralize it with clear headed thinking. Being aware of human tendency is a start.

    Here are my favorite perks about credit cards.
    -> minimum 2-5% cash back on every purchase.
    -> ease / time savings of shopping online. i can’t remember the last time i entered a physical store other than a grocery store. even that is starting to change. i spend almost 0 minutes per day driving to a store, parking, looking around, etc. if time is money, this is way more than 5% savings.
    -> fraud protection. these days, almost no questions asked and you can get a charge reversed or at least paused in a dispute.

    Bottom line for me: If the only benefit of cash is psychology, all I need to do is change my mindset to reap the rewards I’ve outlined. Just my opinion! –R
    Rich @ recently posted…Rich Is Preparing To Move. He Enjoys Moving. Wait … He’s Paying HOW MUCH On Rent???My Profile

    • Thanks for sharing Rich!!! I definitely agree money is all mental. Now the hard part is executing on the mental aspect of things. At least it is for me. For whatever reason breaking a $100 bill is much harder than swiping a card but maybe I need to adjust my thinking. I’ll definitely how to incorporate your techniques 🙂

  31. I like using a combination of cash and credit card. $800 per month in cash, and the credit card varies between $1,500 and $2,500 per month depending on the time of year. I have always paid of the full balance every month and budget all expenses.
    Martin Stone recently posted…Recipe For Saving In MayMy Profile

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