The Family Wallet

Many personal finance experts tout the benefits of going to a “cash only” spending system. They say that making this switch will provide all types of benefits to your financial life from helping you budget more accurately to encouraging you to spend less. And, for the most part, they’re right. But can you ever switch to a truly “cash only” spending system?

The answer is that you probably can’t. Mortgage payments aren’t easily made in cash. Many people don’t have a local mortgage holder that they can hand cash each month. Utility companies and car lenders are other vendors that are notoriously hard to pay using cash. You could spend as much as a day driving around town making your monthly payments, if you are even able to get drive to all of your vendors.

Despite the inconvenience, using cash rather than credit cards can work wonders on a family’s budget because of the psychological effect it has on the spender. While signing a credit card receipt after a shopping spree is relatively easy, handing over a wad of cash is much more painful. You see your bank account balance dwindling and the money in your wallet diminish. The perceived difference in the effect of your shopping is the reason why paying with cash is so preferential to using credit cards.

Perhaps, however, the key isn’t to switch to a truly “cash only” system of payment. Maybe a better plan would be to switch to a “no credit” system of payment. You are still avoiding that disconnection from the cost of your purchases that is associated with using a credit card, but you don’t have to chase every one of your vendors around town. It’s the best of both worlds.

Next month, promise yourself that you will pay absolutely nothing with a plastic card. You can begin by using your bank’s online bill payment, or actual checks from your checking account, to pay all of your regular expenses. Your mortgage payment, utility payments, and credit payments will all disappear from your account in a timely manner. Then, you can divvy the remaining money into cash amounts that you plan to spend on food, entertainment, and other variable expenses. Once the cash is gone, you are done spending. You’ve just mastered the “no credit” system of payment.

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Filed under: Money Management