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When I was a sophomore in high school, I wanted a CD burner very badly. This was back in the late nineties, and CDs were still a hot commodity (as the iPod was still just a glimmer in Steve’s eye). I went to BestBuy with some friends and found an open box burner for a [then reasonable] $130. I didn’t have a credit card, so I went to the ATM and pulled out seven crisp, $20 bills. I paid for the drive in cash and walked out a happy man.
Holding that much money ($140 was a lot of mowed yards) in cash makes you appreciate the amount–much more than a quick credit card transaction. I still spent it, but it made me really think hard about the purchase. And, it made me really value what I had bought (I made legal copies of all my store-bought CDs, naturally).
This is a personal finance hack that you can use at any age. If you’re having trouble tracing down where your money is going, try switching to cash for awhile. You get instant feedback on your spending as you watch your wallet shrink.
I’ve written before about the benefits of using credit cards, but that’s only after you’ve mastered the art of personal finance and budgeting. Going on a cash-only plan for a few weeks is the perfect crash course to get your finances back in shape.
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You know, this is a good (and often advised) idea. However, I am much to addicted to my bank’s online “portfolio.” It links all my financial accounts together, has all sorts of neat pie-charts to show me where my money is going, and breaks everything down neatly. It’s much more difficult to track cash transactions. If you think about it, a debit card works just like cash. You can’t spend more than you have. If you update your checkbook register after each time you swipe your debit card, you’ll still have a good visual impression of your money whittling down.
This is a good idea, and it does work, mainly due to the fact that you can’t over spend your cash. You can’t overdraw your own pockets or go over the your credit limit on your pockets. So, it is a good idea.
On the adverse side of it, you’re probably not likely to keep up with change too well…. you might lose dimes or pennies or just toss them aside, whereas, when you use your debit card, your exact change is staying right there - in your account.
In the end, it all depends on the situation though.
The comments above hit on the key issue–cash may be good for changing behavior but it’s not as convenient as credit/debit cards.
You can’t beat the visual affect of counting out bills to really appreciate the cost of something.
That is what I recommend people do if they have spending problems. Budget, see where your money goes. Then put cash in envelopes for different things in your budget. Try doing this for two months. When an envelope for eating out is empty, it’s gone.
It shocks people into how much they go out, and where their money goes…
Cash only works if you’re sure you won’t get robbed.