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Managing Money When You Are Paid In Cash

Updated: Feb 1, 2020

Hello Money Talkers! Have you ever heard someone say they get paid cash?! Or are you paid in cash yourself? Anyone that gets paid in cash knows how much money you can possibly make. However, money comes so fast that it can go just as quickly. That is why how to effectively manage money when you are paid in cash is this week’s topic. Some people that are paid in cash “get it” and others don’t, so I want to share my tips on how to make the most of your cash income.

So what jobs are paid in cash? A lot of jobs are actually paid in cash, whether it be tipped employees, independent contractors, self employed people, or business owners, all are paid in cash. Usually these types of jobs are paid on a daily basis. I would know about getting paid in cash. I have served and bartended and gotten paid tips in cash everyday after my shift for about six years and this past year I became a Realtor and we also get paid cash for every transaction when it closes. Bartenders, Realtors, servers, hosts, exotic dancers, nail techs, make-up artists, and even “street pharmacists” are paid in cash daily. This seems like a good thing, but unfortunately a lot of people that are paid in cash encounter some major issues managing their money.

I know it sounds like a dream come true, getting paid in cash for the work you put in daily. However, unfortunately, this method of payment can cause some problems. I would personally say that the top four issues with being paid in cash everyday is tracking your money, saving your money, taxes, and retirement savings. So let’s delve into these issues and how we can solve them.

The top issue with getting paid in cash is tracking your money. When you receive direct deposit your money is in your account so you can literally see every transaction you make: “$40 at Chevron”, “$11 at McDonald’s”, “$5.50 at Starbucks”. However, when you are paid cash it can be difficult to track because the money is cash in your wallet, and then you spend it on random shit, giving you no way to remember how much you spent or what you spent it on. So in order to improve your tracking you can do one of two things, deposit all of your cash right away, or use an expense tracking app. If you deposit all of your cash right away and use your card for all transactions you can keep track of it on your bank statement or bank app. You could also use an expense management app to keep track of what you spend. Using apps such as Everydollar helps the user by allowing them to input their cash transactions, income and expenses, to allow them to keep better track of their money.

The second major issue with getting paid in cash is saving. Everyone who gets paid cash or is in the biz knows that we make money and we spend money. I know personally that if I make $300 in one bartending shift I can go out on the town that night and blow money and I can afford it. I also know that if I make $9,000 in on a real estate transaction I can make a downpayment on a new car.

The money comes so fast we tend to spend it just as fast as we earn it because we can make more just as fast.

The problem with this logic is that, while I can make $300 in one shift, I can also make $40 in one shift; and while I can make $9,000 in one real estate transaction, I can also not make a penny for a whole month. People that are paid cash can make fast money, but we also need to be aware that sometimes we don’t make as much money as we expect to make. With that being said, we need to be wary of spreading out our income to cover expenses and putting away the appropriate amount towards saving before we use our play money. While it is OK to spend money when you make money, you should never overspend at the detriment of your bottom line.

The final issue, that many cash employees don’t even realize is an issue, is taxes. When you are paid in cash, taxes can be tricky. Usually people that are paid in cash are either tipped employees or self employed. Depending on what type of cash earning employee you are, the different problems you will have.

If you are a tipped employee you are taxed on the amount of tips you claim each shift. You might think you are slick and getting over on the government by not declaring all of your tips so you are only taxed on what you claim. This tactic could be good, if you don’t need to show proof of funds for any special purchases. However, if you need to look like you make good income and declare almost none of your tips to get away from paying taxes then you will not be eligible for loans. If you are trying to buy a car or a home you have to declare enough money to look like you make steady income. So always beware of how much cash tips you need to declare depending on your future goals.

If you are self employed your tax situation is a little different. Self employed people get taxed on all they money they make. You need to declare all the income you make or fear the IRS if they come sniffing around. I suggest you always set aside 30% of everything you make to put towards taxes that will be owed. I also suggest creating an LLC or a PA to protect yourself from lawsuits and to receive additional tax benefits. Just always be aware that now you run a business and are liable for the taxes owed on the profits that that business makes.

The final issue there is with being a cash earner is retirement. You usually have no employer retirement fund options to exercise, let alone a match on a 401(K). But just because a retirement plan may not be available to you through your employer does not mean that you do not deserve a good retirement. You are your own boss now, so you don’t need to rely on someone else to provide for your retirement, you provide that for yourself because you deserve it. Create a Roth IRA or a Solo IRA for yourself and contribute as much as you can afford to, preferably up to the match. Why only use this option when someone else provides it for you? Shouldn’t you want more for yourself then some random company you work for? So start saving for you own retirement!

Now the number one benefit of being paid cash daily for your hard work is just that, daily cash being made. What I like to do is every month I set aside the money I need to pay my bills first. Then I set aside the money I want to put into savings. Anything left after paying my bills and separating savings is my "fun" money. Any fun money left over at the end of the month goes into savings as well.

Basically, while being paid in cash can be a dream to most, sometimes it can be a downfall. Cash paid employees beware to always track your income and expenditures. Make sure to always save as much as possible. And while these issues don’t become evident to most until it is too late, always make sure to prepare yourself for the taxes you will need to pay on your income earned and to prepare yourself for retirement. Being paid cash can be a liability or an advantage, depending on how you choose to handle it, so choose wisely.

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