Posted by Mike Smith :: March 26, 2008 @ 6:20 am

If you've tried many different budget methods and can't seem to find one that works for you, you might want to try something drastic: going on an all-cash diet.

The idea of using cash is so old-fashioned that it might be just what you need to get yourself out of your financial funk. Using cash has its downsides: no interest on the money, having to go to the bank or ATM to get it out, and the liability of carrying a large sum around are a few that come to mind. For those downsides, there is one major upside: when you live on an all-cash diet, you can't spend more than you have.

There are some aspects of our financial lives that require money in forms other than cash. A few examples include paying your mortgage, booking a hotel, or taking the proceeds from a person-to-person loan on Lending Club. Even these items can fit into your all-cash exercise. If you are taking your entire paycheck out in cash, then you will probably have to deposit some of it back into your account to cover checks that you write for your mortgage, etc. It may seem like a futile exercise to take money out, only to put it back in later, but this will give you a good sense of how much each of your expenses is really costing you. Seeing a huge portion of your paycheck getting deposited to cover your mortgage may lead you to rethink the type of house you're living in. Using cash, if only for a short while, can really help you to see where you're living beyond your means, and where you’re not.

There are many cash-based budgeting methods, but the most well known is the envelope method. Here's an overview. The same reasons that it’s better to give a kid a piggy bank than a savings account apply here as well. Sometimes holding money in your hand can help you appreciate its value more and get you to make smarter spending decisions.

Once you get better at money management and tracking where your cash goes, you can slowly migrate back into the cashless society. Meanwhile, the lessons learned from your all-cash diet can easily be applied to your regular finances.