Looking Back at Our First Cash Only Christmas

I guess I didn’t really know how it would go, but this Christmas came and went just as quickly as the others before it. However, the big difference this year is that Christmas won’t be lingering in the form of credit card debt or budget regret. I can’t even begin to express how good that feels!

We didn’t plan all year long and we didn’t start saving last Christmas, but we did sit down in November and make a plan for Christmas- and we stuck to that plan. We took a portion of the money that would have gone toward extra debt payments in December and budgeted $800 for Christmas. That included gifts for everyone on our list, cost of food for hosting Christmas dinner at our house, and a little extra padding for unexpected expenses. I am happy to report that we came in under budget, by about $90.

This is the first Christmas I can remember that we didn’t use a credit card and didn’t over spend. Working with a budget for every person on our list was quite liberating. It made it easy to decide what to buy for someone- if we planned to only spend $25 on someone we wanted to make sure we got the best value we could for the money.

What to do if you took on debt to pay for Christmas this year:

If you had to use credit cards to pay for Christmas this year, don’t beat yourself up over it now. Recognize the mistakes you made and take action TODAY to prepare for next Christmas and to be ready to handle it with cash. If you don’t have one yet, open a savings account for Christmas. Call it your ‘Christmas Fund‘ and only use the money for Christmas. Decide now how much you need to spend for next Christmas and divide that total by 11 or 12 (decide if you want to count this month or start in January or whatever). The best advice is to set up an automatic transfer each month for your monthly Christmas Fund contribution so that you won’t even have to think about it. Personally, I don’t like to set up automatic payments or transfers for non-essentials so I will manually move the money each month- decide what works for you here and what you can safely commit to doing.

An example– I opened our Christmas Fund yesterday (with ING Direct) and funded it with $50. I chose $50 because I always start my new ING savings accounts with $50 (no particular reason for that). We have decided to budget $1,000 for next Christmas, which leaves $950 to save from January through November (11 months = $86.36 per month). That’s it! Next Christmas is taken care of! Of course I need to make that transfer a part of my monthly budget, but we can afford it so that won’t be a problem. So whatever your budget may be for next Christmas, decide it now, plan for it now, and get started TODAY! I promise you won’t regret it.

Remember, by preparing for next Christmas now, not only are you taking control of your money and making it work for you, but you are reversing the damaging effects of interest that you would be paying to a credit card company and actually earning interest all year long on your savings account. Compound interest working against you is the enemy of financial freedom and wealth. Compound interest working for you is your greatest ally in changing your financial future and becoming wealthy. This distinction is probably the greatest difference between the poor and the wealthy- don’t let this be another year that you move in the wrong direction.

Best of luck and Merry (cash) Christmas!  🙂

How to Track Your Spending and Budget

Once you’ve made a budget, and are working to live below your means, you need a way to track your spending.

I used to use Quicken to track my spending, but there hasn’t been a good Mac version for quite a while so I started using Mint (since acquired by Intuit, the makers of Quicken) to track my spending. Mint works well for me because once you add your financial institutions everything gets updated automatically. Mint handles the track your spending part of the puzzle for me and for the budget part I now use YNAB (You Need a Budget). Before making this change I used my own spreadsheets and that’s still a perfectly good option to do this on the cheap (even though I used Microsoft Excel for the spreadsheets, Google Docs is a free option):

Budget Tracking Spreadsheet Screenshot

What’s important of course is not which tool you use, but finding a tool that works best for you and feels comfortable so that you’ll want to (be willing to) use it regularly.

In addition to using a tool to track your spending, have a regular ‘budget meeting’ with your spouse, your kids, or anyone who helps you to stay accountable. Make sure that you are scheduling a time to discuss where you are at with your spending, how the month is shaping up with your money and any areas of concern. Communication is critical, and frequent updates help you to stay on top of things. If you keep up with this you shouldn’t have any ‘surprises’ or mistakes that lead to bank fees or bounced checks or anything else. This is not a time to place blame on anyone if mistakes have been made, but rather a time to discuss what went wrong and what went right in a comfortable way. You need to be a team!

Tracking every dollar spent and assigning it to a category may not work for everyone. It works for me because I’m the computer nerd in the house and I like to collect and analyze the data. If you aren’t wired this way, consider much more broad budget categories that you fund at the start of the month or with each paycheck. Maybe you put $100 in your pocket (or an envelope) for food and that covers your groceries and eating out for the week. You don’t have to track all of those dollars, but you do have to commit to the fact that this is food money and you aren’t going to mix in dollars from other categories and spend it on unrelated things.

You may think the budget process I covered is too tedious, but I would recommend trying to track every dollar for a month or two and see how it goes. At the very least, you’ll have a better understanding of where your money is going. If that’s not for you, just be honest with yourself about where you are assigning your money and don’t stray too far from your plans.

9 Steps to Get Out of Debt:

Get Out of Debt in 9 Steps # 2(b) – How to Make a Budget

In the previous step, I covered why you should make a budget and now it is important to talk about how to make a budget. As with any new thing you endeavor to do, the best advice is to start now and start with something, don’t worry about making it perfect on your first try.

No matter how you start, just get started- start on paper or start with a spreadsheet, whatever works for you. Start by writing your expected net income for the month at the top. Don’t just take your average salary for the year and use that. Look at how many paydays you will actually have this month and how much money you expect to earn. Admittedly, this is more difficult if you have a variable income, or if you expect large commissions or bonuses from time to time. There is a slightly different approach to budgeting for variable incomes that I will look at later.

Assuming you have a mostly fixed income, follow this basic format:

Cash on hand: $500
Net Income: $2,000
Total: $2,500

Mortgage: $1000
Utilities: $200
Groceries: $300
And on and on…
Difference– calculated field subtracting your expenses from your income.

Download this sample spreadsheet if you want an easy way to get started (Excel file, opens in a new window). The categories included are mostly what I use now, but you will of course change them as appropriate for your needs. Remember, this is supposed to be a simple starting point. I have come up with something a lot more complicated that I use now, but it didn’t start that way and I only made changes as I saw needs develop.

If you have a variable income, the same concept applies, but you need to go about it in a slightly different manner. Start by making a list of your expenses for the month and rank them in order of most important to least important. Then list your income, base income and cash on hand (whatever you know you will have) and start applying that to your expenses. Keep working your way down the list until you run out of money. I’m not an expert at managing a variable income. I have worked as a freelancer in the past and relied on a variable income, but I didn’t budget or spend my money wisely at the time. 🙂

The first time I created my budget I realized I was deeply in the red! It was over $1,000 negative. Of course, the only way to spend more than you earn is to use credit cards or savings, which is why stopping the credit card spending is critical to getting started on getting out of debt.

Ideally, your difference in income and expenses will be $0.00 or slightly positive. The idea is not to spend every dollar you have, but to allocate ‘extra’ dollars either to savings or debt payments. For example, if you work hard at cutting your grocery spending for the month, change your allocation and send that extra money to debt or savings.

Making your first budget is a huge step toward taking control of your finances. However, it is highly unlikely that your first month of living on a budget will go as you planned. Don’t let that discourage you! Just track your progress, update your budget weekly, and make changes as needed. You will get better at this each month, but it takes time to get it right.

In the next step I will look at how to raise some extra cash to give you a nice head start on getting out of debt.

9 Steps to Get Out of Debt

Get Out of Debt in 9 Steps # 2(a) – Why You Should Make a Budget

Step 2 is Make a Budget, but I thought I should break that step into two parts- first explaining why you should make a budget, followed by how to make a budget.

We have all heard that you should run your finances like a business and all businesses have budgets right? Well, I imagine that any successful business does have a budget, but I’m not an accountant and I don’t know about you, but that advice never resonated with me. Let me tell you why I, a person who never had a budget before and never planned my finances ahead of time, think you should have a budget. It comes down to one word for me- empowerment.

You may think that making a budget will be boring, time consuming, difficult, nerdy, restrictive, or any other number of negatives that seem to surround the word budget. Guess what- I thought all of that before too, but since I’ve started living on a budget I can tell you that most of those words do not apply.

  • Boring – Yes, unless you love math and details this will probably be a bit boring.
  • Time Consuming – Yes, it will take a lot of time, especially at first, but it will get faster each month.
  • Difficult – Somewhat difficult at first, but once you’ve set it up the first time you are basically done with only minor tweaks left to make here and there.
  • Nerdy – Subjective, but nerds are a bit more popular these days so it isn’t all bad. 🙂
  • Restrictive – Not at all. I have found it to be exactly the opposite!

I think the greatest hurdles most of us face when it comes to budgeting are the fear of the budget restricting our fun and the amount of time we will have to spend managing it. These are valid concerns and it does take time to properly manage your budget, but the time commitment is far outweighed by the empowering benefits and control you gain after making a successful budget.


I’ve used this word a lot now so let me talk about how I find a budget to be empowering. If you are anything like me, your finances have probably been out of control for a long time. A budget is the only way to take control of your finances, and it feels really good to take back control of something that I couldn’t handle for so long.


  • Make faster decisions – Can we afford XYZ this month? Just look at the budget and you will have your answer.
  • Resist temptation – can I afford a video game this month? The numbers don’t lie. You can lie to yourself about how good or bad your finances are, but if you have it all on paper the truth is easy to see.
  • The power to say no – Having a hard time saying no to friends or family who want you to spend your money? It’s a lot easier to say no if you know for a fact that you can’t afford to spend the money and as an added benefit you can blame your budget for forcing you to say no.

If you still aren’t convinced, I can only encourage you to give it a try. Commit to at least two months and see what you think. I’m speaking to you as someone who was skeptical, but I am now convinced of the benefits of having a budget.

It’s nice to know why you should start a budget, but you still have to take the time to make a budget. In the next part, I will cover how to make a budget.

9 Steps to Get Out of Debt