If you’re feeling financially anxious—shocked by bills, worried about credit card balances, or just generally perplexed about where your money is going—Erin Lowry has a solution.
She knows a thing or two about personal finance. She’s the bestselling author of Broke Millennial, and dispenses advice on everything from paying down debt, making money while self-employed, setting micro-goals, and negotiating a fair salary. She managed to save money on a $22,000 salary in her first year in New York.
“A juice cleanse is about people trying to reboot and take control, but it’s usually not sustainable in the long run,” Lowry says. A cash diet is much the same. In order to reboot and take control of your financial life, use cash—and only cash.
Feel the pain
Lowry recognizes that people might be wary of going all-in on cash in our increasingly cashless society. Like subsisting only on smoothies, “for most of us, using cash all the time every day is not feasible long term,” she says. You can’t use Amazon, Uber, or Venmo, or buy things on credit. (And, truthfully, cash is really filthy.)
But research shows that we have a powerful emotional response to paying for things with cash. Just looking at an image of cash releases chemicals in our brain that make us happy. We’re more attuned to the value of $10 when forced to fork over two $5 bills than when paying with plastic. Having to run to an ATM to get more money to pay for another round of drinks also forces you to think twice about whether it’s worth it.
How it works
🍹Step 1: Calculate your cash flow
Figure out how much comes in and goes out every month. (Hopefully the difference is a positive number.) Set aside what you need for things like bills, debt, and savings. Whatever is left over is your expendable income—that’s now your cash diet.
Of course, unexpected, big-ticket purchases, like a medical emergency or car repair, can come up, and you may very well need to pay for those with plastic. That’s fine—the cash diet is meant to address anticipated, routine spending.
🍹Step 2: Set up a withdrawal system
Your cash diet has to last at least a month. Any shorter, and Lowry argues you won’t have enough data to truly track spending. Say your expendable income, for things like groceries, transportation, and entertainment, is $800 a month. Split that in four and take out $200 in cash at the start of each week. You can only pay for things in cash, no exceptions. 1
Lowry doesn't live under a rock, so she knows that sometimes it makes sense to buy tampons or toilet paper in bulk online. If you make a purchase online or grab an Uber, make a note of it along with your other expenses. Then, deduct that money from your cash budget. Next week, when you go to get your weekly $200, take out $168, or whatever the amount was you spent electronically.
🍹Step 3: Track every dollar
A cash diet doesn’t work unless you track every expense, and that’s harder to do if your bank doesn’t do it for you. Lowry’s response is to suck it up. “I think it’s so much easier than people think to just take out your phone and jot down what you bought in your notes,” she says. “It takes two seconds, literally.” This also makes every purchase a little more painful—and that’s the point.
🍹Step 4: Look for patterns
Lowry argues we do a lot of mindless, habitual spending, which is what a cash diet can help reveal. It’s easy to overlook that you buy a bottle of water every day or a pack of gum each week. Often, you’d rather put that extra cash to use elsewhere.
Lowry is not suggesting you cut these things out of your life: “I’m never going to ax something like the latte, for instance, because I actually buy a latte almost every day. I love them, they bring me joy, and it’s part of my budget.”
We all have habits that aren’t really about the thing we’re buying. People grab coffee outside the office because they want fresh air, or go out for drinks because they want to spend time with their friends. “It’s about aligning yourself with what you actually enjoy and value,” Lowry says. And cutting out all the other expenses that can add up unseen.