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Budgeting in a world without cash? Here's how.

Techniques like putting spare change in jars or writing down all your expenses in a notebook don't work well when you mostly spend money using credit cards or debit cards. Hamm offers advice for budgeting in a post-cash world.

Let鈥檚 face it: we鈥檙e聽. Many people rarely have physical cash at all, opting to do most of their transactions via the internet or credit/debit card.

I would consider myself, at times, to be in that group, as I use online banking to pay almost all of my bills and use a credit card for gas and groceries, paying off the balance in full (via online banking) each month.

This is drastically different than how things worked even ten years ago. At that time, I paid all of my bills via check and quite a few of my other transactions were done solely in cash.

There鈥檚 a bit of a problem, though.聽The standard advice for budgeting in personal finance books doesn鈥檛 really take into account this transition.They advise keeping track of expenses in a ledger-like format or using envelopes.

Open up virtually any personal finance book you find at the library and you鈥檒l see that their advice for budgeting is in a world before the advent of online banking and before people began operating in a mostly cash-less fashion.

Why would you expect the old budgeting techniques to work when such drastic changes to personal finance have been going on?

When you get right down to it, the core purpose of a budget, then and now, remains the same:聽you鈥檙e simply trying to divide up the money you make into sensible groupings.

When you operate mostly with cash, the techniques for doing that are pretty well established. I particularly liked the 鈥渆nvelope system,鈥� where you physically put the money for each category into an envelope labeled with that category and that鈥檚 all you can spend. You have some cash in a 鈥渇ood鈥� envelope, some cash in an 鈥渆ntertainment鈥� envelope, and so on and you make those envelopes last until the end of the month. The 鈥渆nvelope system鈥� is great, but it doesn鈥檛 transition at all to a cashless world.

The other common strategy is a written budget, where you write down what you鈥檙e going to spend in each category. Then, as you spend, you update each category by subtracting how much you鈥檝e spent, leaving you with knowledge of how much you have left. I actually think this system is harder than the 鈥渆nvelope鈥� method, but it can provide at least some foundation for moving to a system that works in a post-cash world.

厂迟颈濒濒,听the fundamental problem of budgeting in a post-cash world is that the budget is even further separated from how and where we spend money.The old budgeting systems work because they can be used as a tool to physically constrain how you spend money. You can look in your envelope or your budget line and only take that much with you. That doesn鈥檛 really work if your transactions are mostly electronic.

The best solution I鈥檝e found is聽electronic budgeting, which essentially takes the old paper budget and transforms it into an electronic form. This way, you can bring that budget with you wherever you go and use it as the first thing you examine when you go to make any purchasing decision, no matter where you are.

One approach is to use聽an online budgeting tool like聽, which takes your electronic transactions and organizes them for you. Mint works very well, yet I don鈥檛 use it simply because I鈥檓 wary of sharing my personal information with anyone as an extra precaution against identity theft.

A much better solution, for me, is to聽budget using a spreadsheet or, even better, a program like聽.

As I mentioned above, I operate mostly cashless. I also have been budgeting using my own spreadsheet solutions since 2006, but lately I鈥檝e been migrating to聽聽because it essentially does everything I was already doing with my spreadsheets, except I can also use it when I鈥檓 out and about using the smartphone app.

The entire philosophy behind using a spreadsheet or using You Need a Budget is simple:聽you still want something to indicate how much you should be spending in each category.聽The problem is that with electronic transactions, it鈥檚 very easy to separate what you鈥檙e actually spending from your budget.

The ability to literally carry a budget with you everywhere makes this much easier.听驰辞耻听could聽do this in the past with a very well organized check ledger or other ledger book, but it was unwieldy. With an electronic budget, you can quickly see how much you have left to spend on 鈥渇ood鈥� this month and keep your spending within that range using your smartphone 鈥� or, if you don鈥檛 have one, your computer. At a glance, you can make that decision.

The key thing to keep in mind is that聽the basic idea here is still the same as it always was when it comes to budgets.聽You鈥檙e still trying to keep your spending organized within basic categories. This only works if you鈥檙e able to maintain the strongest possible connection between the spending choices you make and your budget. Without cash, it鈥檚 hard to physically constrain the spending. Electronic budgeting, while not perfect, gets you as close as possible to that kind of ever-present reminder of your financial goals.

What鈥檚 next?聽I鈥檇 love to see a bank actually integrate You Need A Budget-like tools into their online banking system.聽The ability to assign spending limits for specific retailers would be quite powerful 鈥� and it鈥檚 something that banks聽could聽do. It would take the 鈥渆nvelope鈥� system and bring it full circle.