What Happened When We Started Using Cash Only

My wife and I used credit cards as our primary form of spending for years. A few months ago we decided to make a switch to pay with cash only and honestly, haven’t been happier with things since. Making the switch has provided some benefits that we never would have expected.

Do you pay with cash, debit, credit or a combination of the three? 

Some people use credit cards to pay for all of their expenses, earn rewards and then pay the balance off each month. Others use cash or debit and follow the viewpoint of Dave Ramsey – credit card rewards aren’t worth “playing with fire” that can lead to overspending and possibly, debt.

Also, it’s proven you spend 40% more with credit cards versus paying with cash.

My wife and I used credit cards as our primary form of spending for years. A few months ago we decided to make a switch to go all-in with Dave Ramsey cash envelope budgeting and honestly, haven’t been happier with things since. We paid off our credit card balances and started using debit for bills and regular expenses, and cash for everything else.

Sure, it took some work to make the transition, some behavior change and giving up earning miles and rewards. However, making the switch has provided some benefits that we never would have expected. Here’s a look at 5 of them:

1. We Stopped Spending Ahead

While we’ve always used a budget and tracked spending diligently, we found ourselves spending ahead more times than we knew was probably healthy to do. We would choose to spend ahead in the areas of entertainment or dining out. Or, we would spend ahead on the kids when we felt like they needed something for school or for some other activity.

The convenience of the credit card made it easy to spend ahead a little bit and figure out how to pay for it later, or just balance it out at the beginning of the next month. Doing so put us in a catch – up mode.

Overall, we’re not talking about a lot of debt, and we still had constraints not to spend ahead to an unmanageable amount. However, doing so is never good practice and can add up if you’re not careful. It also started to cause stress in our relationship and we knew that was a symptom of what could become a larger financial problem.

Since making the change to cash and debit, our choice to overspend has simply disappeared. Why? We believe it’s because we’re now forced to solve problems, or to simply wait until the money is available.

2. We Problem Solve More

Paying by cash and debit has forced us to become better at problem solving. As mentioned above, we wouldn’t solve our shortage problem. We’d just spend!

Now we have to problem solve. We have to seriously evaluate the necessity of our expenses, force ourselves into saying “no” a lot and spend only what we have available in our account or cash envelopes.

We can’t use credit cards to bail ourselves out even if it’s a small amount. Our only source, if the gap is truly a need and it’s large enough, is to use our emergency savings account. That’s obviously something we’ll always do our best to avoid unless it’s absolutely necessary.

3. We Experience Less Financial Tension

While we never argued about money or why someone had spent money on something, we did experience tension when reviewing our budget and finding shortages. This led to stressful discussions from time to time.

However, now that we pay with cash and debit, we haven’t felt this type of tension in over 6 months. Why? I think we’re more thoughtful about our planning. It’s simply more difficult to use cash versus the convenience of a credit card. If we don’t have it, we can’t spend it. Easy as that.

4. We’ve Stopped Micromanaging Our Finances

Actually, I was the one who has stopped micromanaging our finances. We used to use money management software and have since transitioned to cash envelopes and a spreadsheet to track our regular expenses. That was a big shift for me.

I used software to track everything to the penny. I found myself tracking and reviewing spending daily and sometimes it would take a lot of my time to review the receipts, enter them into our software, review budget balances, etc.

Our finances have been greatly simplified with cash envelopes. There really isn’t any tracking to do other than thinking about how much we’re going to spend per week. The checking account is super easy to manage because there aren’t many transactions – just the bills or stuff we know we have to pay for with debit (online purchases, etc.).

5. We Conveniently Have Cash On-Hand

I used to swear by the convenience of a credit card. I would purchase everything using my credit card, track the expense and then assign to a budget category. I always knew I needed to carry a little cash just in case I needed it, but I never did. And it was always a pain when the kids were at the park and wanted a cash-only treat, or when we needed money for valet and didn’t have it.

I always reasoned a credit card was absolutely the most convenient and safest way to pay. I no longer believe that. There is a great convenience about having cash that makes it handy to pay for little things and you never have to make an emergency run to the ATM! And a debit card can easily cover electronic purchases in your budget.

Final Thoughts

You already know that to pay with cash or debit is nothing new. Dave Ramsey’s been preaching about the benefits for years. Now I can agree in confidence that it works and does make a difference. It certainly offers more benefits than just staying out of debt.

What do you think about our move to pay with cash and debit vs credit? Would you be willing to stop your credit card usage for 3 months to see how the change impacts your life? Let us know in the comments below.

Photo credit: 401(K) 2012

Last Edited: December 10, 2015 @ 12:49 pmThe content of ptmoney.com is for general information purposes only and does not constitute professional advice. Visitors to ptmoney.com should not act upon the content or information without first seeking appropriate professional advice. In accordance with the latest FTC guidelines, we declare that we have a financial relationship with every company mentioned on this site.
About Jason Price

Jason is a husband, dad, entrepreneur and financial ministry leader passionate about serving people in the area of personal money management. He's been doing so for over 10 years in ministry, coaching, speaking and blogging. Learn more about Jason here, follow him on Twitter or read more of his articles here at PT Money.

Comments

  1. We do a half-cash budget. We use credit for some things (just instead of debt) and we use cash for everything else. It works well for us and we still get to earn miles and rewards by using credit for things that you’d probably use your debit card for.

  2. Please be wary of some of the gotchas with debit cards. Gas stations can put a hold on your account (I’ve seen holds of as much as $100) which could lead to bouncing checks or other purchases when you thought you had enough money to cover them.

    Renting a car or paying for a hotel can be difficult with a debit card and they can put massive holds on your funds as well. Imagine $1000+ hold for a week-long hotel stay. If the actual charge goes through as separate transaction before the hold is lifted you may be in for a world of hurt with your bank.

    Also be wary about disputed transactions and fraud with debit cards. If you have a problem with a purchase the money is already gone from your account and you are trying to get it back. Same goes for fraud on your debit account. With a credit card you can dispute with your CC before you hand over your cash. It may make sense to complete major purchases with a credit card.

    Don’t want to be a negative Nancy but your post did not mention any of these potential pitfalls to using debit cards in place of credit cards. At the very least, someone planning to utilize debit cards for everything should maintain a healthy buffer in their checking account to absorb these sorts of gotchas and avoid overdrafts.

  3. Great article thanks! Cash is really king in this respect. I have banished all my credit cards, somehow, last month and I have never felt freer!

    Keep up the good work!

    Cheers.
    MrRicket

  4. We use credit cards for the rewards and pay the balances in full every month. I think there are some great advantages to cash only, however, I have some of the same concerns about that as negative nancy above. For example, I recently successfully disputed a $187 purchase on my MasterCard and got reimbursed (a company that I had dealt with was refusing to issue me a refund for a service never rendered). Had that been a debit card transaction, I’m sure I never would have gotten that money back. I’ve also had cash stolen from my wallet before, which to this day makes me nervous about carrying too much cash. But, on the flip side, I see all the points you’ve made and think that cash can be a good option for some people, especially since it often helps rein in spending as you mentioned.

  5. You know, when I did the whole “cash envelopes” thing, we spent every penny we had in those envelopes. Now that we have gone back to using our credit card and only spending what we need to, our savings rate has almost tripled. I guess we are the odd ones who don’t spend 40% less with cash?
    I find this to be crazy but would love to know if others have found the same…

  6. I use cash exclusively, except when a card is really convenient or required. My main reason is paranoia! When you buy with cash, your purchases don’t feed Big Data.

  7. It definitely helps you plan ahead. If you don’t want to spend a ton on ridiculous ATM fees, then you better have a good plan in place each time you go to the bank. You’re dead on – cards are simply convenient, but they encourage wastefulness. I wish I had the discipline to use cash only!

    -DP

  8. I’ve used a debit card to rent a hotel room. Worked like the same as credit. Be aware that hotels may place a hold on your account for more than the amount of your bill. This is an industry practice. That said, I switched to a cash budget last spring and I’m so happy that I did, you’re right about the problem solving as well.

  9. Frugal Vegan Mama says:

    I like the concept, but I don’t like carrying cash. $20 max, but usually just a few bucks. If I lose a credit card, I can just call and cancel it. If I lose cash, I’m gonna be really sick to my stomach. I use Personal Capital app to track my savings and spending. We pay ourselves first–retirement and personal savings. I pay off my charges immediately. We adhere to a budget of less than $1,500 a month for a family of four, own our house and have absolutely no debt. We are extreme savers!

    I love the cc rewards. That’s how I pay for my extra stuff that my bonus doesn’t allow for. Credit is great if you can be disciplined enough not to overspend.

  10. I used to pay exclusively with my debit card, until I learned that you have a lot less protection if your debit card number is compromised compared to if your credit card number is compromised.

    As long as you aren’t foolish with your credit and pay it off monthly, there’s really no difference, but you get all the buyer protection that a credit card offers.

  11. I never use a debit card; don’t even have one; I feel the only people benefitting from this is the vendor and the bank. Plus, as Simon mentioned, you don’t get the protection of a credit card (and also extended warranties, ease of returning a product, a way to dispute charges, etc.)

    I used to use credit only occasionally and I always pay my bill off in full every month. Within the last year, after reading a financial review from a person who wrote an article on Vanguard, we re-evaluated using credit cards. Last year we earned more cash back from doing that than ever before. Hundreds of dollars. We simply use the credit card to pay for everything that we would normally write a check for and then just write one check per months (saves on checks too!). And we signed up for a couple of new credit cards that gave us back $200 – $300 dollars after charging $1k within 3 months. Again, no expenses that we wouldn’t normally pay by check (phone bills, utility bills, insurance for the house/car, gas and finally the hardest for me was groceries! -if they don’t charge a fee to use a credit card, we put it on credit.) One CC pays 5% back on certain revolving categories; another pays 3% on groceries; another pays 5% on office supplies, etc. I had to make me a cheat sheet to keep in my wallet and on the desk at home to remember which card to use for what but it is worth it. Hundreds of dollars worth it. The key is only using it for what you would pay cash or write a check for and then paying it off when the bill comes in.

    Hey, we’re making little to no interest on the money in the bank. Why not let the banks pay me to use my credit card….the interest is much better than a savings account :o)

    And, yes, my second best form of payment is cash. Love it. Always keep some in my wallet. But I do still write checks as well to those companies who don’t accept credit cards without a fee.

    The key is developing discipline. I found out long ago that if I didn’t visit the mall I didn’t see things that I might desire. If I DID see something I “wanted” I made myself wait two days and then revisit it. By then I didn’t want it so badly and 95% or more of the time I chose not to purchase it.

    So I advocate using credit cards wisely and paying off the balance when the bill is due. Don’t charge unless you are able to pay for it right away.