Personal Finance Advice

There is just something about cash that makes consumers stop and think about what they are spending.  Slapping a credit card onto a counter is a lot different from counting out the bills to pay for something, especially when it’s for a large sum of money.  Most financial experts agree that people tend to spend less money when they use cash as opposed to paying with a credit card or debit card, and that’s probably due to the psychological impact that cash can have.

Pay with a credit card, you aren’t immediately losing anything.  Pay with cash and your wallet gets lighter.  You actually witness the money leaving your hands and going somewhere else.  It’s a powerful experience.

Try an experiment for one week.  Instead of using your credit or debit card, use cash for all your purchases and payments that aren’t automatically debited from your account.  That means that your trip to the grocery store will be paid for in cash.  When you fill up your gas tank you will have to pay with cash instead of swiping your card at the pump.  Any impulse buy you indulge in will be paid for in cash…although most people find that their impulse buying comes to a screeching halt when they can’t whip out a credit card.

Track your spending during this week and see if you wind up saving some money.  Most folks who try this find out two things relatively quickly:

1.  Using cash for every single purchase can get pretty inconvenient, especially when you’re in a hurry.

2.  It’s much more difficult to part with cash than it is to use a credit card.

In theory, you might think it would be harder to use a credit card because you know that it’s going to obligate your future income as well as potentially cost you money in interest.  In reality, however, the psychological implication appears to be quite different.  Cardholders have adapted to using credit on such a regular basis that the reality of the situation is lost. 

In other words, cash evokes an emotion in most consumers that credit card usage may not: loss.

This is why some people decide to switch to a mainly-cash system, especially when they are trying to get their finances in order or pay down debt.  Using cash can be a fantastic budgeting tool.  Give it a try and see if you don’t wind up realizing a thing or two about how you view cash versus credit when it comes to your spending.