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What is a Cash Budget?

A cash budget helps ensure that one has enough funds to cover expenses.
A cash budget can be tracked with a ledger.
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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 25 September 2014
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A cash budget is an accounting device that is used to effectively monitor and manage the immediate cash flow of a home or business budget. Many people choose to employ a cash approach as a quick and easy way to monitor the financial condition of the household or a small business on a daily, weekly, or monthly basis. Generally, cash budgets are used to manage short-term cash flow by creating an organized means of keeping up with cash receipts and balancing them against cash disbursements during the accounting period.

Part of the genius of a cash budget is the simplicity of the approach. Often, it is possible to employ this principle by using a basic spreadsheet. Creating columns that make it possible to record basic information, it is possible to tell at a glance how much money came in for the period, and how much went out. This is accomplished by recording each cash receipt and cash disbursement on the spreadsheet. Often, the date, amount, and a brief description of the transaction is all that is necessary.

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The cash budget is such a simplistic tool that even people who feel they lack any real accounting acumen can employ this approach. Because it is possible to track the cash in and cash out in the same format that is used for a standard check register, most people will find that the process takes very little time. A simply designed budget will provide a helpful look at how well the entity is doing in staying within the approved expenses for the period.

It is possible to keep a cash budget in a simple accounting ledger, or design one using spreadsheet software. Most accounting software programs are also equipped with a simple budgeting feature that will gather data from within the database and provide a quick snapshot of the period under consideration. For persons who do not need a professional level accounting database but do not feel competent to design a cash budget template using a spreadsheet, there are several free downloadable budgeting programs available.

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Discuss this Article

anon206051
Post 6

Well written article. Do we record due expenses in cash budget also. For example, if $10,000 is due in december 2011, should I record it in the cash budget? I am student.

Crispety
Post 5

Icecream17-I love Dave Ramsey too. I just wanted to say that cash flow forecasts are important in business as well.

An analysis of cash flow statements or the statement of cash flow lets a company know what type of income the company is bringing in after expenses.

The cash flow statement is critical to the health of any business because negative cash flow denotes a problem with lack of profits or exceeding expenditures that has to be changed in order for a company to stay in business.

Companies usually have cash flow forecasts in order to help them manage any potential cash flow problems.

icecream17
Post 4

Cafe41-It is critical that you and your spouse are on board with the budgeting. A great motivating tool is to have a countdown towards eliminating a major goal.

This works very well. As a matter of fact, many people have paid off substantial amounts of debt with modest incomes on the Dave Ramsey show.

His plan is based on what he refers to as “Baby Steps.” The Baby Steps refer to the order in which you eliminate debts with your cash budget and set aside savings for an emergency.

He adds that saving $1,000 in the bank and then tackling your debt smallest to largest will create a momentum that will allow you to continue with your cash budget and eventually be debt free.

I heard a couple on the show that paid off $70,000 of debt in 18 months with a household income of $60,000.

Dave Ramsey feels that once you are totally debt free including your home, you can live your life free of worries and actually enjoy yourself.

He should know because he became a millionaire in his late twenties but mishandled his money and had to file for bankruptcy. His experience with the bankruptcy is what fuels his passion to help others get their finances in order.

cafe41
Post 3

Sneakers41- He does not want people using credit cards and feels that that is the root of most people’s financial problems.

He adds that consumer debt is so prevalent that it could only be eliminated by cutting up the credit cards.

He believes in cash flow budgeting so much that he does not accept credit cards when purchasing his programs or books on his site.

A great way to start a cash budget is to sit down with your spouse and put together a reasonable monthly budget.

Once the budget is set you would then go to the bank and withdraw the amount of your monthly budget and place the allotted amounts in various envelopes with their corresponding labels.

For example, if you are budgeting $500 a month for groceries, you would have an envelope labeled $500 for groceries. You would do this for every category on your list and not exceed the amount in the envelope.

When the money runs out in that envelope you are done with that category for the month. If you follow this plan cash budgeting will be easy.

If you have an emergency and need additional cash, you would simply reevaluate the monthly cash budget and see where you can adjust the money first to account for this new expenditure.

sneakers41
Post 2

Anon30982- That is a really good idea. I think that putting together a cash budget with Excel really helps keep track of your cash budget report.

A cash budget spreadsheet can be updated monthly and can be adjusted to add any unforeseen expenses. Using a cash budget makes it easier to spend less because you have a finite amount of money to work with.

Dave Ramsey, the financial expert recommends cash budgets to everyone.

anon30982
Post 1

Cash book Is a tool for cash management.

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