Cash Income: Dos and Don'ts of Cash Management
My first jobs were in cafes and restaurants.
Depending on the gig and the season, income was inconsistent week to week and month to month, generally less in payroll and more in tips. At times, I was earning 100% cash, with printed paychecks showing $0.00 (thanks to taxes).
With unreliable income and cash habits you might call "scattered," I didn't develop a good system for saving or budgeting until I was out of school and dealing with debt.
Here are some simple dos and don'ts, from someone who learned the hard way.
Take these highlights as a few Don'ts of Cash Management.
For most of my teen and college years, if you asked me, I would have told you that I had a system. I thought the system worked. (Spoiler alert, it didn't.) Remember, cash management doesn't have to be complicated.
1. Don't store cash in a random jar or drawer.
Cash income went into my pocket, then home, where I split everything two ways. I put some tips into my sock drawer and the rest in my wallet. Then, if I needed the cash to cover a check I wrote, or if the sock drawer felt overstuffed, I'd take a trip to the bank and make a deposit.
Funny story (well, maybe not that funny). While sharing an apartment in college, one of my roommates stole over $200 from my "secret" bedroom stash, but I had lost track of my money so badly that I didn't even know it was missing until he confessed months later.
2. Don't ignore your checking account.
When I received substantial paychecks, I'd deposit them in the same place I'd put my rare cash deposits – into my checking account. By depositing there specifically, I figured I was less likely to write checks I couldn't cash. The catch is, I didn't bother reviewing my accounts or balancing my checkbook.
I found myself repeatedly overdrawing my account, discovering that I've maxed out my overdraft protection and got hit with fees. I'd just go on using my checking account to pay off my credit card, buy gas, pay rent – and go weeks without depositing payroll. Then, oops! More overdraft fees. They add up quicker than you expect.
3. Don't spend money without tracking it.
My monthly costs were minimal, so I didn't worry about them, track them, or budget for them. They included my rent, cell phone, and fuel for my car – all paid from my checking account. Other spending was flexible, day-to-day costs like food, entertainment, and clothes. As long as I didn't feel like I was overspending, I would probably be fine.
For my flexible expenses, I'd use whatever payment method, based on a whim. Cash, credit, or debit – it didn't matter how I paid because I wasn't tracking it anyway. If a card was declined, I'd just try another method and hope for the best.
Money disappeared and savings did not exist.
I eventually discovered that my money management system wasn't working for me. I had more monthly bills than before, including a new auto loan and student debt, and I kept dipping into overdraft protection due to "insufficient funds." The issue with my money management had been simple – I wasn't managing anything!
Consider these the Dos of Cash Management.
During those early years, I didn't know what money I had, so I didn't know where my money was going. Then, I discovered habits that work.
1. Keep your money secure.
When you deposit money with a financial institution, you get the peace of mind that nobody else can take it – plus, accounts are usually insured and often come with support teams that can help you with theft, fraud, and financial wellness.
I even make regular deposits into a share certificate, where I can't touch it for months and months – making it not only secure from theft, but also safe from my own impulse spending.
2. Track your income.
If you don't know how much money you have coming in, how can you control what's going out? Be specific. Know exactly how much money you have coming in and when it fluctuates. Some seasons may be leaner than others – knowing the trends can help you plan.
On a more personal note, I recently bought a house, and proof of income was a big part of the approval process. Without claiming my full income and tracking it thoroughly, I wouldn't have qualified. I'm glad I did. Which leads me to...
3. Build a budget.
Have a system to stay on top of bills, expenses, and savings. When you budget, you're prioritizing your necessary payments. That way, you'll know exactly what you can spend on a daily, weekly, or monthly basis on everything else.
At first, when I started using a budget, I realized how I was overspending on food and entertainment in December, for the holidays, then again in April and May, apparently excited about the nice weather. Back when I always had cash in hand, I had no idea. If you're like me, you'll catch onto your spending habits and feel empowered to adjust your budget as needed.
4. Pay yourself first.
Cash management means you are in control. As long as you have a good foundation of savings, you're likely to keep that control, even in the face of an emergency. Practice saving money for tomorrow before you spend money today.
By having six months of savings set aside in a savings account, I knew I could handle the unexpected without having to fear my finances. I was suddenly on top of my bills, too, so my credit score started improving. Now, anytime I have money coming in, I'll first make a deposit into my savings before I consider any new expenses.
Once I organized my income, I could track my expenses.
It was a small step that had a huge ripple effect for my finances. If you have cash income, you may want to keep it in one place. Track it coming in, track it going out, and remember, proof of income can help you in the long run. It sure helped me!
- JMS
