Cash is King, Isn’t It?

by Ryan Yates on November 21, 2011

Do you have what it takes to live Cash Only?

Is your budget completely out of control? Are you losing money each month? Do you dream of paying down your debt faster?

The solution to all three of these problems is to lose the credit cards and debit cards and use cash only.

After all, cash is king, right?

The Cash-Only Movement

There is a growing belief among some of the top financial minds that living a cash-only life will help keep your spending under control.

The idea is that paying cash controls your spending habits better than using credit or debit cards.

And when your spending is under control, your formally wasted money can now help you thrive financially by paying down debt quicker, building a strong retirement portfolio, and saving for your children’s college.

All of this by replacing your credit and debit card swipes with bills and coins.

I’m inclined to agree.

But like any financial strategy, you must exercise perseverance and self control if you want to reach your future financial goals.

Spend Less

For anyone trying to get a handle on their financial situation, spending less is probably on the top of their list.

Studies have shown that consumers will spend about 15%-20% less when using cash instead of credit or debit cards.

One of the major reasons is point-of-sale budgeting. Think about it, your credit/debit card doesn’t get smaller each time you use it. And there’s no “Low Budget” indicator built into your card like those batteries from a few years ago.

It’s much easier to over spend when you swipe a card vs. handing over paper bills. When you swipe a card, nothing changes. But when you spend cash, the lump in your wallet lessens, and you can see it and feel it.

Using cash helps you to think twice before making a purchase. Thinking twice aids in self control and spending more wisely. And who doesn’t love that?

Know How Much You Spend

Budgets are great (and necessary, in my opinion), but if you only consult your spreadsheet spending plan once or twice a month, you probably won’t catch overspending in time to stop it.

Paying cash for your monthly purchases gives you real-time feedback about how much money you’ve spent and how much money you have left.

Most people wind up in a financial crisis because they just don’t know how much they’re actually spending. Even small purchases can add up over time and cause havoc on your monthly budget.

Instead of using cards, withdraw a set amount of cash each week according to limits you’ve set in your budget.

You’ll be surprised how using cash for your purchases will eliminate over spending.

My Confession

Can I stand up in front of everyone and shamefully admit a dark secret? I’m too afraid to live a cash only life.

Even though I have a pretty good handle on my spending, I firmly believe that I would spend less each month if I replaced the cards in my wallet with cash.

I guess you could say that I subscribe to the Use Credit Cards Wisely way of thinking instead of Cash Only.

But as I was doing research for this article, I’m pretty sure that I decided to subject myself to a 30-day cash-only experiment. Be sure to stay tuned for the results, it just might be life changing.

Which rationale do you subscribe to: Using Credit Cards Wisely or Using Cash Only?

Photo By Packmatt

{ 17 comments… read them below or add one }

krantcents November 21, 2011 at 1:41 pm

I use credit cards wisely, however I agree that cash only will reign in overspending.

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Ryan Yates November 22, 2011 at 12:43 pm

I try to use credit cards ONLY for our monthly budget. But every time I overspend, it takes me one step further towards Cash Only. I just don’t know how many more steps I need to get there.

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Flexo November 23, 2011 at 11:20 am

I tried a cash-only experiment for a little longer than a month a few years ago (and blogged about it, naturally). I did spend less, but I knew that I would. Nevertheless, I eventually resorted back to credit cards, but only because I was in a financial position that allowed me to sacrifice a small part of my future savings.

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Ryan Yates November 24, 2011 at 11:02 am

Yea, I’m pretty sure I’ll spend less too. I’m curious about the psychological effect it will have on me. But I’m even more curious about the overall effect it will have on my wife, since she’s signed up to go cash-only with me during the experiment. Should be fun!

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hegemony November 23, 2011 at 1:32 pm

This is silly. Cash is a terrible means of exchange for the consumer. Credit cards offer protections from nefarious merchants and many offer cashback rewards. The key is to always pay your balance in full. More importantly, it is much easier to track spending when you use a credit card. Cash disappears too easily. Also, what happens if you cash gets stolen or lost? You’re SOL. Credit cards, when used smartly, offer consumers many advantages over cash (and over debit cards).

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Ray Butlers November 24, 2011 at 10:53 am

Indeed. Many people are not old enough to remember when few people had credit cards and cash was needed for nearly everything. People are also apparently not old enough to remember that “free” banking is a new invention designed to attract new customers. Banking is hardly free, though. Cash is the MOST EXPENSIVE means of payment. There’s the cost of risk (you could lose 100% at a moment’s notice with no hope of recovery), the cost of trips to the bank (time is not free), the cost of having few negotiating tools regarding returns and customer satisfaction.

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Ryan Yates November 24, 2011 at 11:06 am

@Ray Butlers, yes there are different risks with using cash. But I’ve known too many people who can’t be trusted with credit or debit cards. Ans sometimes all of the instruction in the world can’t get them to quit swiping for stuff they don’t need. It’s definitely a great debate, probably won’t ever be solved.

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Ryan Yates November 24, 2011 at 11:03 am

You bring up a great point @hegemony. I don’t think there’s a cookie cutter answer for everyone across the board. There are definitely risks with cash only and with cards. When it comes down to making a decision, everyone needs to compare the pros and cons with their personality, their spending habits, and their financial situation. Thanks for the comment.

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Lauren November 23, 2011 at 2:02 pm

I am not on a cash-only basis but for the majority of purchases outside things I need to write checks for (rent, utilities, car insurance, etc.) and the occasional online purchase of necessities (light bulbs, toothpaste, required clothing) I am. And I have been for a number of years.

I always find it very interesting when people say cash is terrible because it is easily stolen. Well, yes, it can be but if your cash is stolen you are limited to the amount you had on you. If your credit card is stolen you may not be out any dollar losses but the ensuing hassle is enormous.

I actually have come to like handing over cash. The transaction is clean and quick. I make much better decisions about purchases, and I rarely waste my time. I am even considering using the old-fashioned envelope method, though I tend to do it in my head (if I buy X product now I will have to give up buying Y product for another month or two).

I wish you the best of luck in your journey. I suspect you will become addicted to it. There’s a real freedom in choosing to spend your money when it is in the form of real money with all its limitations–and freedoms. Good luck!

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Ryan Yates November 24, 2011 at 11:10 am

Thanks Lauren. One HUGE risk with credit cards is identity theft. We had a scare with this, but it was caught in time before any cards were issued. I doubt anyone can get your identity if you only deal with cash.

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Ray Butlers November 24, 2011 at 11:14 am

But with credit cards, you have Regulation E, which protects you from liability. It’s a pain, but you will recover nearly all. If you lose your cash, it’s gone. Identity theft stories are often exaggerated by the media and the most heavy-hit victims are careless. And you are much more likely to be a victim of someone you know than a complete stranger.

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Ryan Yates November 24, 2011 at 11:22 am

I’ve had friends with small identity theft cases and major identity theft cases. You’re right to say that they’re not all the same. But sometimes it’s more than just a hassle. Either way, you’ve always got to be careful no matter what type of payment you use.

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stesmo November 24, 2011 at 12:23 pm

While going cash only, you may want to look into marking your bills for the Where’s George project. (Yes, it’s perfectly legal). This may make it more interesting, as well, as you’ll be able to see where the cash you’re spending ends up.

If you end up not participating, please enter any George’d bills you run across at the website. A cash-only month means you’ll be getting a lot more change and may run across a few. :D

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Ryan Yates November 24, 2011 at 12:33 pm

Sounds fun, I guess it breaks the monotony of spending. Where’s the craziest place one of your bills has ended up?

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stesmo November 25, 2011 at 2:59 am

Samoa, South Korea, Panama and Romania are probably the farthest bills we’ve seen. Usually, it’s a pretty low chance someone will enter your bill, though. It is interesting to see on the map the concentrations where bills are entered. We live on the west coast, so we’ll spend George’d money at a gas station and then watch as someone reports the bill a couple hundred miles away down the I-5 corridor.

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ChazE December 1, 2011 at 9:00 am

My wife and I were cash only for the first 25 years or so of our 32 year marriage. Now we use mostly credit cards for the cash-back rewards, but I would guess that we only spend five or six hundred bucks more each year than we would if we were back on cash (an insignificant amount to us these days), because the cash-only mindset stays with you when you practice it long and hard enough. We are both smart enough to realize that our strong financial situation was achieved by living well below our means and within a fairly rigid budget.

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