One common tactic adopted by people who are in severe financial straits is an all-cash lifestyle. They tear up all of their credit cards and move strictly to a cash-based personal finance plan, cashing each check and living strictly off of that money.
I personally feel that this is a good immediate response to the revelation that you’re in serious trouble with your personal debt. It forces you, in a very dramatic and obvious way, to become more responsible with your day to day money management – there are only so many $20 bills to go around, after all.
In fact, for a few months after my financial meltdown, I used this very technique myself. I actually used the “envelopes” technique, where you literally place the money for each piece of your budget into a specific envelope just for that purpose, and then took money out of that envelope when you needed to spend it.
After a few months of this, I came to loathe the process. It was inconvenient, clunky, and made for significant work for me personally. Gradually, I moved back to the convenience of plastic, and I’ve been fine with it ever since.
What I finally came to realize is that if I couldn’t maintain any financial self-control with a credit card in my pocket, I really didn’t have the debt problem fixed after all. Consumer debt and unnecessary spending is an addiction, and if I didn’t have the willpower to go through a normal week without falling into the trap of poor spending choices, then I really hadn’t made the appropriate mental leap yet.
The cash-based system is like training wheels on the bicycle of sound money management. You can’t speed along and move efficiently with training wheels, but they make it very hard to fall off while you’re learning to properly balance yourself. Eventually, though, you take off those training wheels and ride like an expert.
I’ll be the first person to advocate trying a cash-based system for a few months. In fact, if you’re struggling with controlling bad spending habits, I really recommend trying it out. Just do everything in cash for a few months and watch your money supply tangibly dry up and replenish itself over time. You’ll start to see the connection between the paycheck and the spending in a way that you didn’t see before and it can be very valuable.
After a certain point, though, it’s time to take the training wheels off and see if you can ride responsibly and safely on your own. This means that you allow yourself to try using all of the financial tools at your disposal – and this includes the convenience and buying protections of credit cards – but use them in a safe and responsible manner.
You’ll know when the spend less than you earn mantra has really become a part of your life. It’s when you recognize that even though you can easily buy something, you’re better off if you don’t. It’s when you walk out of the store, credit card still firmly in your pocket, and into the fresh air of financial freedom.