It’s all very well coming up with a plan for your finances and matching where, when and how you spend your money versus your goals but where does cash fit in?
Well we think cash is important and we suspect that you enjoy the feeling of having plenty of it in your pocket, handbag or wallet.
We think cash is important for many reasons.
Our relationship with money goes back a very long time. When we were very little our first experience of money was handling cash. Even at that tender age, regardless of whether you were a budding spender or a saver, you were probably giddy with the endless possibilities of where, when and how to spend your £1.50. Sweets, books, toys? In other words, you were considering your lifestyle goals, i.e. where, when and how to spend your money while you were barely potty trained. So, it shouldn’t be too scary to go through the same exercise of planning how you spend your money today. Should it?
When we got a bit older the cash in our pockets represented a big chunk of our wealth and we probably learned that it wasn’t the smartest thing to spend it all at once, however tempting. We knew that we were likely to need some money tomorrow or the day after. It goes without saying that sometimes we blew the lot and struggled through the next few days. Either way, managing that cash probably helped us to nurture some sense of financial discipline.
Following the Knapsac budgeting method, cash is just another routine expense item within the plan. We prompt you to consider all the small purchases that you make during the week and take out enough cash to pay for those items while leaving yourself a small cash buffer. My cash goes on coffees, snacks, lunch, babysitting and the cleaner for my flat. A Knapsac budget will always make sure that these items are not double counted in the rest of your expenses.
Every financial plan needs some element of discipline. But you need to keep reminding yourself that there is wonderful payback for the discipline. In other words, you get to realise your goals, whether they be the sweets, the books, the toys, the car, the holiday, the meal out or the sabbatical.
How you treat the cash in your wallet is your plan’s first line of both discipline and encouragement. Assuming you are following the Knapsac method, you will be mindful that the cash in your wallet has been set aside to pay for your chosen weekly cash items. Your buffer will allow you some flexibility. When you succeed, you will be confident that you can apply the same discipline to the remainder of your plan.
It’s important that you don’t give yourself a hard time when spend more cash than you intended. This will undoubtedly happen from time to time. Just take out the extra cash that you need. Again, if you are following the Knapsac method you will have set yourself a safety valve which is an amount of money to dip into for surprise amounts or items. When you take out the extra cash just adjust your safety valve amount by the value of the extra cash. Or if Knapsac are managing your budget we’ll do it for you.
If you’re regularly spending more cash than planned, you should probably review and update your weekly cash list. This process of reviewing and updating is the lifeblood of your plan. Whether you are updating your weekly cash list or your other expense items, it is time well spent as it sharpens your plan, makes it more realistic and improves your forecasting accuracy.
The flip side of the coin may be that you have some cash left over (yes it really may happen) at the end of the week. You have options. Carry the extra cash in your wallet until you find that perfect little treat. Alternatively go out immediately in search of that perfect little treat. Or take out less cash than you had planned the following week. This may sound like the boring option until you remember that it gets you closer to the sweets, the books, the toys, the car, the holiday, the meal out......