This Move Can Shape Up Your Finances Fast, but It Requires a Trip to an ATM

hands holding dollars cash money
Carmen Mandato/ The Penny Hoarder

People often think they spend more money when they have cash in their hand. But Erin Lowry, author of “Broke Millennial” and the blog of the same name, says that isn’t true.

“You realize what you’re spending when you’re using cash, but you also see the money dwindle in your wallet,” she said. “Studies have proven there’s a psychological component to using cash that doesn’t exist when you’re swiping a card.”

Seeing that money leave your wallet in exchange for worldly goods is the first step toward putting the brakes on unnecessary spending, she said.

“There’s a tactile experience of using cash,” Lowry said. “You probably aren’t that in tune with your finances if you’re going digital.”

Some people check their balances daily or set text alerts, but she suspects most people don’t keep a watchful eye on everything they’ve automated.

If it’s been a while since you flipped through a short stack of crisp dollar bills, it might be time for a cash diet.

We asked Lowry to tell us how it’s done.

What’s a Cash Diet?

organized stacks piles of dollar bills cash money
Tina Russell/The Penny Hoarder

Lowry gets it: We live in a digital world where it’s unlikely that you pay for most of your fixed expenses, such as rent and utilities, in cash. But a cash diet for your day-to-day expenses can be like hitting the personal finance reset button.

She uses a nice, round example of $800: If you have $800 left after you pay all your bills for the month, you can take out $200 each week to spend on groceries, going out to eat, taking in a movie or whatever else you’d normally swipe on a card.

“Put it in your wallet, and go about your week spending in cash,” Lowry suggests.

When you’ve exhausted your weekly cash stash, you’re done. She recommends doing it for an entire month.

Online shopping isn’t forbidden on a cash diet as long as you account for that spending.

Take dog food, which costs less when Lowry buys it online.

“If you buy dog food on Amazon and it costs $20, take $20 out of your wallet and put it into an envelope to roll over for the next week,” she said. Instead of taking out $200, you’d take out $180 the next time you withdraw your weekly cash.

Not Ready for a Monthlong Cash Diet? Start Small

If a month seems like an eternity to stick to cash, Lowry recommends striving for a two-week cash diet.

But don’t just spend cash and then forget about it. Instead, keep a log of everything you spend cash on for those two weeks. Lowry calls it the “tracking every penny” method of budgeting.

“The true goal is to understand where your money is going,” she said. “When you spend on a credit card, you can see the outlet or restaurant, but your credit card statement doesn’t itemize those charges.”

At the end of two weeks, you have the data to consider how you’re spending your money and make changes.

Lowry does a quick cash diet when she’s hyperfocused on a financial goal or when she feels like she’s been flippant about spending money.

Even when she’s not on a cash diet, she sits down every Sunday to check on her spending. “It helps curb that feeling of checking your credit card at the end of the month and feeling like, ‘How did I spend that much money?’”

Lowry warns that a cash diet is not a sustainable budgeting style. “There are the rare few who can do it forever, but we’re in a digital age, and it can feel tedious,” she said. A good budget, she said, doesn’t feel cumbersome, or like a chore.

Every cash diet will be different.

“Your life is constantly changing,” Lowry said. “The way you interact with your money needs to be evaluated when your life changes.”

Lisa Rowan is a senior writer at The Penny Hoarder.