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For home and business owners the idea of operating on a cash budget is almost foreign. The days of going to the bank to cash a weekly paycheck and carefully allocating a set amount to cover the bills is a thing of the past. The number of homes and businesses that operate without a set budget is astounding.

Technology, savvy advertising and lack of education about finances has made us a society reliant on credit cards, loans and the “rob Peter to pay Paul” mentality. Americans are saving less money than ever before and have more debt than decades past. It’s a dangerous approach to money as one unplanned expense or crises could lead to complete financial ruin.

Crafting a cash budget can seem like an overwhelming task. It requires discipline, dedication and constant revision. Many financial advisors suggest tracking every penny you spend for one month before creating a budget for weekly, monthly and yearly expenses. Not only does this exercise paint a clear picture of what you spend but also exhibits where cutbacks can be made. Setting goals and formulating both a short and long term plan to reach said goals is important.

So often we focus on the day to day expenses and monthly obligations we have. Paying the rent or mortgage, purchasing groceries and household necessities and maintaining a vehicle usually take priority. For many, paying off loans and credit cards must be factored in. We often learn the hard way that a life without a budget is what keeps us in debt. We also fail to realize a few life changes can have a powerful impact on our financial health.

A popular and effective method to create a cash budget for your home or business is called the Envelope System. Simply defined, the Envelope System has several categories and what you earn each pay period is allocated to an envelope until every cent is accounted for. It is essential to pay yourself first, even if just a small amount, so a cushion is available to you should an emergency arise. There are hundreds of software packages on the market that create a virtual envelope system with the ability to sync up with your bank account and automatically create charts and graphs. A visual portrait of your budget can be eye opening. Budgeting software assists us with the big picture of annual or semi-annual bills. Instead of charging a large yearly bill or not being able to pay it at all, budgeting software curbs that common problem by creating a monthly envelope to set aside money for large expenses. Allocating $100.00 per month to a car insurance envelope is far more sensible than having to come up with $1200.00 to pay the annual bill. As budgeting becomes a habit; reviewing your obligations and spending habits with a fine tooth comb is a terrific way to plug the holes, maximize your income and rid yourself of high interest debt.

No matter what entity you are trying to manage the concept of a cash only budget possess the same fundamental traits. For business owners though it might take some adjusting as equipment rental, payroll, quarterly taxes and payment terms with clients can create obstacles and the need to forecast for both growth and downtime. Essentially your ending cash balance for the first month would be the starting point for month two. After several months of careful cash flow management you may find the need to adjust the credit you extend to customers or the pricing scale for the goods or services you offer.

Business owners new to the cash budget plan can benefit from the expertise of an accountant for a complete cash budget analysis. A cash only budget for a business can be far more complicated than a cash budget for a household. Accountants are well versed in the ever changing tax laws and may be able to lessen tax burdens to increase cash flow. For the small business owner who carries the business with minimal help, an accountant can provide relief with a cash management plan. Few business owners have expertise in all facets of running a business. Relying on an expert can save you thousands of dollars each year.

Budgets often have a negative connotation as they stir feelings of being cheap or extraordinarily frugal. On the contrary, a budget can actually increase wealth for the long term and offer a true peace of mind for the short term.