Years ago my wife and I tried a ‘cash only’ budget system because we had a boatload of debt and poor spending habits.
It was a good first step and helped us realign our spending habits. But as far as a ‘system’ it only worked in the short term. We simply couldn’t sustain it long term.
More Difficult to Track Your Spending
My wife called me the other day and told me she was going to have to pull from our savings to cover our credit card bill that month.
That’s something you never want to hear because it means either your spending was out of hand – or something unexpected came up. I knew it wasn’t the latter so I did some detective work.
I got our credit card statement for the month and took a quick glance.
No wonder we had to pull from savings:
- We spent stupid amounts of money eating out that month
- We had also spent a bunch getting our house ready to put on the market.
Because our credit card company breaks down our purchases into categories this took me less than 5 minutes to discover the problem.
But if we had used cash for all these purchases it would have been a lot tougher to find the spending patterns.
“But Curtis, that’s why you save receipts and use a budget.”
Right. Which is exactly why we abandoned a cash only system years ago. Most normal people simply can’t keep up with the constant babysitting that is required for a cash system.
It’s great in theory – but not so much in real life.
I’ll be the first to admit that if you simply can’t control your spending a cash-only system is a good first step. But once you develop the habit of good spending (and it is a habit that can be developed) then using a credit card is infinitely more convenient and trackable.
Sidenote: about the out of whack eating out spending. It happens. My wife and I talked about it – remembered what we went through years ago and have now trimmed completely back to once a month for a while.
The point is we all screw up. We frankly, bluntly got lazy. So that little shock was enough to get us back on track.
So when I say a cash system is good for folks with poor spending habits I’m talking about long term, month after month, consistently spending more than you make.
One of my personal life goals is to live as 80/20 as possible.
I want to maximize my results with minimum inputs.
When it comes to personal finances carrying around earmarked cash is the exact opposite of that.
For example, I abandoned regular wallets years ago and now use a Bellroy slim leather wallet (my review). I love it.
It keeps my finances and life – simple and convenient. The way I like it.
In fact, it forces me to stay simple and minimal – because I physically can’t carry a lot of cash.
I’d either have to carry a wad of cash separately (which introduces a new problem – see below) or go with a George Castanza wallet.
Not gonna happen.
Cash Can Get Lost/Stolen
You hear a lot about the dangers of your credit card information being stolen.
But carrying cash is risky as well
That might be someone in a store watching you pull out a wad of twenties to pay for groceries. Or, having to keep track of $2,000 worth of cash in envelopes at home. How long do you think it will take to have one of the envelopes or a couple of $20 bills get lost?
From experience … not long!
It’s hard physically and mentally to keep track of all that cash.
No Reward Points
“Don’t fall for rewards points! It’s a scam by the credit card companies.”
That’s partly true.
But lets go back to my house renovation story.
I HAVE to make those repairs and improvements no matter what. Whether it’s cash or credit card.
I’d much rather put them on my credit card so I can get reward points.
Let’s say you need to fill your car up with gas.
If you pay with your credit card it’s a simple and fast 20 second transaction at the pump.
If you use cash you have to walk in, stand in line, hand over your cash, wait for your change and then walk back.
One of the other time wasters with a cash system is simply getting the cash to start with.
You can get it in a lump sum and keep it at home but that introduces the lost/stolen issue I covered above.
Your other option is to go to the ATM each time you need a cash infusion – wasted time and inconvenient.
The other problem we had was when we weren’t close to one of our bank’s approved ATM’s we were getting dinged with withdrawal fees.
I’m not here to claim that using cash doesn’t have some advantages. But my wife and I have already gone down that road.
If you simply can’t control your spending then you should go with cash … until you can establish better spending habits.
Once you’ve done that think about moving to one credit card.