Years ago, before credit and debit cards became so prolific, consumers bought with cash. While some of the more expensive purchases were made with a check or a credit card, the overwhelming payment for goods and services was cold hard cash.
Thanks to technology, payments have switched to being mostly credit and debit card based and rarely are purchases made with cash.
While there are advantages to using credit cards instead of cash, there are three distinct benefits that going all cash provides. And these benefits can have a major impact on your finances.
3 Huge Benefits of Using Cash
#1. Spending Control
When you buy everything with a credit card, you can very easily get yourself into trouble by spending more than you have. Take it from me, as I have firsthand experience with this. I am sure many reading this have also opened up a credit card statement and thought, “wow, I spent that much?!”
When you don’t see the cash leaving your pocket, it is easy to spend more than you have. We tend to forget about a purchase here and there when wanting something new. When the credit card statement comes, we quickly remember those purchases we selectively forgot about.
For most people, this isn’t a big deal. But for others, it can be. Before you know it, you could be looking at a mountain of credit card debt that you now have to dig yourself out of.
If you pay for everything with cash, you never have to worry about getting yourself into credit card debt. It just isn’t possible.
So save yourself the headaches and stress and just pay with cash.
#2. Easier To Budget
When you use all cash, it is much easier to set up and follow a budget. You can use the envelope system, where you place cash in various envelopes, each with its own purpose. When the envelope is empty, you can’t spend anymore in that budget category.
Or you could use a modified version of this system. You can overspend in one category, but you have to take money from another category that has a surplus of cash and use that cash to cover your overspending.
I will give credit to the credit card companies however as they have started to categorize your purchases for help with this issue.
However, it is far from perfect. You may pick up a quick snack from the gas station while getting gas and have your credit card company lump that in with gas instead of dining out.
Or you might buy personal care products at the grocery store and have lumped in with groceries.
The easiest budgeting solution is to use cash and track your budget yourself. This doesn’t mean you need to follow a manual budget on a spreadsheet. You can use programs to budget. But using cash as your payment method will make either budget you pick easier to follow.
#3. More Savings
When you pay with cash, you will most likely end up with change. While some readers may dislike change, I actually enjoy it. I take my change and place it in a jar. At the end of the year, I head over to the bank, count it up, and get cash. I usually average around $500 each year. I then take that money and invest it or throw it into a savings account.
You could do whatever you want with the money. Invest it, build an emergency fund, make an extra debt payment, etc. The point is, when you pay with cash, you can save this leftover money.
Again, I will give props to technology. If you do spend with a credit or debit card, you can use the free app Qapital to round up your purchases. It works the same way as I described, just digitally.
You make a purchase for $14.89 and Qapital will round up the purchase by $0.11. This $0.11 gets transferred from your checking account to a goal account at Qapital. You can then transfer the money back whenever you want. You can learn more about Qapital here.
Going to an all cash spending plan has many benefits. I encourage you to try it out, just so you can see how your spending habits change. Even if you are disciplined with credit, you can still learn a lot about yourself by going the all cash route.
When you start spending only with cash, you will find that you question your spending a lot more and end up spending a lot less money overall. You’ll realize that you don’t like watching cash leave your wallet.
So give an all cash diet a try. You may be surprised at how quickly and effortlessly it improves your finances.
Hi, my name is Jon and I run Penny Thots. I blog about many personal finance topics, but my specialties lie in investing, paying off debt, and achieving your financial goals. You can learn more about me on the Author Page.