Pinching pennies is overrated. It’s better to be smart with your money than unnecessarily thrifty.

After all, giving up lattes and avocado toast isn’t going to make you a millionaire.

But to be smart with your money, you need to have a real sense of where it goes and when. What’s the best way to do that? It’s not pouring over your bank statements late at night – it’s the cash-only budget.

What’s a Cash-Only Budget?

A cash-only budget is a budget where you pay for your fixed expenses (rent, electricity, phone, etc.) normally, but you pay for everything else you buy (food, entertainment, etc.) with a set amount of cash.

The point of a cash-only budget is to see what you’re spending in real time rather than over-spending and realizing when you check your bank statement or worse – when your card is declined.

Essentially, you choose a set amount of money to take out of your account every week in cash. Then, you have to make it through the week with only that money.

You should also be collecting your receipts as you go to see where your money went. You don’t do this so you can cut out all the fun things but so you can cut out the excess.

Think of it this way: how many coffees did you buy because you needed and enjoyed them and how many did you buy because you were bored and had time to kill?

The answer could lead to thousands in savings in only a few months. Not convinced? See how Kathleen Elkins of CNBC’s Make It saved $1,000 in two months.

Why Does It Work?

You’ve tried budgets before. What’s so special about the cash-only budget?

First, it holds you accountable in a way that using plastic doesn’t. If you’re down to your last $20, then you need to make every purchase deliberately or suffer the consequences. With a debit or credit card, it’s easy just to dip into the rest of your money, which makes the whole exercise pointless.

Second, it encourages you to make the most of your money. Buying $5 coffees when coffee is free at work? Taking the bus or a taxi on days you could walk? You’ll quickly find that you’re willing to trade those little luxuries for something else, so you’ll make your money work better for you.

Finally, it saves you money. If you’re not saying ‘yes’ to everything and you’re forced to look at what you’re spending, you could save thousands of dollars. You’ll notice that you’ve cut back, but you’ll also enjoy the feeling of saving money without living in total austerity.

Ready for More Money Management Tips?

A cash-only budget is a great place to start if you’re new to seriously managing your money.

Want more money management tips? Join our “Be Money Smart & Build Credit History” newsletter and automatically register to win a FREE month’s rent.