Updated on 09.16.14

Using All Cash To Kick The Debt Habit

Trent Hamm

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.

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  1. morydd says:

    I find I spend more when keeping cash around. This is because I use online banking, so when I use my debit card, the transaction shows up in my software automatically. I then have to enter a category for the transaction which helps keep me honest. (A major step in this was eliminating a “miscellaneous” category.) I understand how cash can work for some people, but by using one card, and one card only, I find I’m more responsible.

  2. I agree but for some people it’s already enough of a task to budget with the cash system. It’s a big deal that they could even do that, so to ask more of them is to risk falling into bad habits.

  3. EP says:

    I grew up with everybody having a credit card and I got one at age 18. I have the opposite approach to cash – when it’s in my pocket, I spend it. I have a great bakery nearby where I tend to drop my cash. If I only have credit cards on me, I don’t feel nearly as tempted to pop in and grab a cookie or some nice bread. If I go out on a Friday night with cash it’s surely been spent by the time I get home and I have found only bringing my credit card limits my spending.

  4. MVP says:

    It’s unfair for you and the first commenter to imply that those of us who prefer to use a cash-based budget system are somehow irresponsible or naive. You have a system that works for you. Our system works for us, so don’t knock it just because it didn’t work for you. Your point is basically like saying if one is trying to lose weight, he/she should still be able to have a house full of junk food and have no problem leaving it alone. C’mon!

  5. I’m a big proponent of the envelope system. Personally, I use the online budgeting software Mvelopes (http://www.mvelopes.com/) which emulates the paper envelope system but works with thousands of banks, credit cards and even old fashioned paper money.

  6. Gayle says:

    The point is to have a system that helps you develop self-discipline. As your discipline, knowledge and abilities increase you are able to make changes in your systems that will not undo what you have already accomplished.

  7. Mark says:

    I agree with EP, whenever I have cash in my pocket I end up spending it on little purchases like convenience store items. However, when I do not have cash, I tell myself “I can’t stop, I don’t want to charge $2”. I would do terribly with a cash based system.

  8. Sean says:

    (EP, Mark, etc) I don’t get why you’d have problems overspending carrying cash vs. plastic. If you just carry a wad of cash around, it’s really no different than carrying a card because you don’t have an additional system in place to check your spending. (That’s what the envelops are for!)

    If the only reason you don’t impulse as much with a card as you do with cash is because you’d feel silly charging $2, then you’re in serious danger – because that feeling of “silly” is likely to fade away with time. When I got my first (only and last) credit card, I used to think it was nutty to use it for anything less than $50. But as time went on, that idea slowly eroded to the point where I felt funny if it was for $5 or less – but anything over was fair game.

    If your spending is only being curbed by the fragile sense of what is and isn’t appropriate to charge to plastic, then you’re treading on a very slippery slope!

    Use plastic if you want – but have a SYSTEM to curb your spending and NOT gut feelings!

  9. Dannalie says:

    I am having a horrible time with cash flow right now. So I am using money orders to pay my bills. It seems to be working better for me because I always know how much money I have in the bank.

  10. Erin says:

    For those who can’t handle having cash in your wallet, but do want to tempt yourself with plastic, here is an idea that used to work for me when I used the cash only method (I now used a debit card and an excel spreadsheet). I had an envelope that was for “entertainment”. Just because I was budgeting to keep my spending in line with my income did not mean that I could not have some enjoyment. It was the money in that envelope I used to go out with friends or to treat myself to a cookie, but when that envelope was empty, I was done until the next payday.

    It was something that worked for me. Just thought I would suggest it.

  11. Sandy says:

    Over the years, we’ve used this system. Early on, when money was really tight, we’d use it exactly how Trent describes. During the last several years, while we put nearly all purchases on the credit card, and pay it off every month, I use this method toward something specific. Say, if we want to go away for the weekend, I put $20 here and $10 there and in a few weeks or months, depending on what “it” is, the cash is there to pay for it with out taking out of regular cash flow. Then, the money goes into the checking, and we put it on the card (but we’ve prepaid the thing or activity).

  12. Erin says:

    PS – the wording was suppose to be “… but do NOT want to tempt yourself …”.

  13. Megan says:

    I can see both sides of the issue here.

    For most of my life, cash has been expendable, but it’s not that way on accident. If I pull a $20 out of an ATM, I expect to use it on non-necessities, eating out usually.

    However, there was a short period of time when I began to pull myself out of the debt hole during which I used cash for everything. Every time I got paid, I pulled out the money I’d need for gas and groceries, and I understood that this money was all I got to spend.

    I eventually reverted to using my debit card, simply because it’s easier to swipe a card at gas stations than it is to have to go in and prepay, and it’s easier to track my expenses.

    It’s all about how you think about your money in the end, which system you use is purely preference.

  14. wqbang says:

    Spending cash introduces an emotional component to a financial transaction. It is also very difficult to spend more than you make when using cash.

  15. margo says:

    Here’s my problem with the envelope system, which I have contemplated instituting (but never have):

    Its just not as convenient, and my natural laziness would do me in faster than my poor money-control.

    I loathe going inside the gas station to pre-pay. I tend buy my books and clothes and Christmas gifts online. I like the easy summary my online banking provides for me so I can SEE– without doing extra receipt shuffling and counting and recording– where my money is going. And last but not least, I don’t see the point of regular trips to the ATM, its just another hassle or errand that can fall by the wayside in the normal hustle and bustle.

    I do give myself a small amount of cash each month for things like eating out with coworkers and friends, having a drink after work, or treating my fiancee to a movie. This is separate and distinct from my “clothing and frivolities” budget which remains on my debit card, and I just keep a running total (rough) in my head, and I try (and generally succeed) at staying under the monthly limit on those items.

  16. ghogiel says:

    I’m a financially / economically conservative person myself. The credit card (cc) has its merits that shouldnt be discounted as it can be a quite useful (and sometimes powerful) tool if you’ve got a firm grip of your financial situation (know your habits, weaknesses and strength).

    Here’s how I see cc in my life (I live in Australia — not that it really matters):
    00. The cc I’m talking about here is cc w/ no fees and 0% interest (as long as nothing’s overdue).

    01. Being accepted anywhere, anytime. It’s powerful when finding a bargain in the Internet, like last time I bought a plastic model kit for about 40% cheaper directly from Japan, this is esspecially nice when you know that your local currency is strong against their local currency.

    02. #01 can also be achieved w/ cash, too. Try googling ‘VISA Debit’. I havent used it myself, as there’s no need for it yet. But it might be useful if I have kids in the future.

    03. cc can actually protect your cash from bleeding too (read: leverage tool in a very small/personal scale) ! Here’s an example:
    – i’m on mortgage to pay my tiny little home
    – i’m on variable rate and can make unlimited extra repayments.
    – the balance of these extra repayments counts as an offset to the overall mortgage, thus effectively reducing Interests (calculated daily, as per normal)
    – gas/electricity/water bills, car registration/insurances, internet/phone services can be paid w/ cc (but I avoid some of these institutions that incur extra charges for cc).
    – I paid these bills very close to these bills’ due date.
    – I paid off my cc very close to the cc’s due date.
    – ‘Time’ is the keyword here. For me, cc actually buys (maximises) time to keep my cash inside the repayment account, effectively slashing away interests which my lender could otherwise charge me.

  17. plonkee says:

    I’m another person who finds spending cash easy but spending on plastic less so. I don’t think that’s a fundamental problem, everyone has to work within their own limitations.

    For some people, cash is the easiest way to go even when they can manage plastic well. I don’t think cash only forms *training wheels* for everyone, not everyone finds a cash only system clunky.

  18. Anne says:

    I don’t think it has anything to do with cash vs credit card beyond the obvious fact that cash WILL dry up eventually. It’s a matter of keeping track. if I just use my card without thinking, I charge more than I can pay off right away. If I just pull out a wad of cash and drop it here and there thinking that all I have to write down is that I pulled out $xx from my account, I’ll waste it just the same.

    I use my credit card almost exclusively so that it pays me back, so that my purchases are protected, so that I have a permanent archive of them for me online automatically. The trick is that I use my checkbook to keep track of my checking account balance by subtracting what I’ve put on my card as though I’ve used it straight out of my account. Then I pay it back the balance back in full (which is already accounted for in my checkbook), usually 2x a month to avoid any grace period fees.

    This is no different than the “guns kill people” argument. People kill people. People put themselves into debt, not credit cards.

  19. Red says:

    The reason it’s easier for me to spend cash is that I check all of my expenses through yodlee daily, and something is “spent” when it disappears from my account. IE, I can get away with spending cash on something and not being able to account for where that money went.

    When I pay with card, I have to face up to that decision twice, once when I pay, and again when I check my account balance daily. This makes me think twice about a purchase as I realize I’ll be held accountable for it later, vs. a cash purchase where I’ll probably forget where I spent my money over the next week or so.

    This being said, the envelope system would probably work as well, since accountability is built in, just front-loaded.

  20. Nicholai says:

    My wife and I have taken a hybrid approach to this. We have a spending plan spreadsheet that outlines our general income and expenses by category over a month. We use Quicken to track expenses and print spending reports for our monthly money talk. And we have a handful of physical envelopes for things like household items, gift purchases and clothing. Our fatal flaw was on entertainment and dining, because we knew (from keeping good records, ironically) that we had money to spend on nights out and nice lunches.

    In November, we started using a cash allowance for that as well, and it’s helped us keep our entertainment spending in line. That small step saves us about $200 a month that is being poured into extra principal payments on our car loan.

    I used to knock the envelope method for being too low-tech, but using cash selectively is really working well for us!

  21. Andre K says:

    Since I write down every expenditure the moment I make it, no matter how big or small (as per Dominguez’ and Robyn’s FI system), the medium of money spent makes absolutely no difference. As soon as I write down “$5.61” in my notetaker wallet, I’m forced to reflect on what I just spent, and know that I’ll be forced to reflect on it again once I enter it into my monthly tabulations. This plugs the hole the previous poster (Red) identified, where cash expeditures would otherwise not be reflected on my account activity.

  22. vh says:

    Seems to me that far from riding around on training wheels, a person who can hang on to cash without having it run through her fingers like water is very self-disciplined!

    If I have cash, it disappears (seemingly instantly). At the end of a day or so, I don’t even know where the money went. But if I have to go to the trouble of writing a check or hauling out a credit card and signing it, I’m more likely to reject impulse buys. The extra hassle creates just enough pause to think it through.

    And as others have noted, a credit card gives you a paper trail, it makes returns easier, it can give you a little kickback, and some cards provide an extra warrantee on products.

  23. When I got out of debt a couple of years ago now, that’s exactly what I did. I cut up my credit cards and switched directly over to the envelope system. I didn’t even cary my debit card around with me. I never spend more than I had intended and got out of debt in just a matter of months.

  24. I for one hate cash. It is dirty, smelly, and gross. There is some statistic out there which says the majority of paper currency has trace amounts of cocaine on it. Probably most $1 bills have spent a lot of time in stripper’s G-string. Ewww!! Coins stay in circulation forever and who knows all of the nasty places they have been. I use my debit card for every transaction and think it’s definitely the way to do. Keep everything electronic and you don’t have to the mess with the physical artifacts of a bygone era.

  25. jtimberman says:

    “The cash-based system is like training wheels on the bicycle of sound money management.”

    I guess I’m still in training, right?

    For the last three years, by living on a monthly zero-based budget and a cash envelope spending system, my wife and I were able to pay off our non-house debt (well over $50k, which includes student and car loans). We haven’t had an active credit card since we started and in fact, the only time we use our Visa debit card is for online purchases.

    But we’re still in training. We just haven’t gotten this discipline thing down. Note the sarcasm.

    Sorry Trent, I’m going to disagree with you on this one. I strongly believe that responsibly budgeting every single month and spending cash instead of using plastic is a far better plan for overall financial responsibility and discipline.

  26. RNA says:

    I agree with jtimberman and other cash carriers who found this entry insulting.

    I’ve managed to save a huge amount in the last 10 years since I left school, and all because I use cash for everything except gas and the monthly bills which I pay electronically out of the bank.

    I never needed the envelope system because all my contributions to savings, tax-deferred and taxed investment funds come out before I get any for bills, entertainment, etc.

    I think it’s more useful to summarize the merits and potential problems with each system, rather than trashing one that you found tedious.

  27. Jim says:

    A cash system works really well for me. to each his own.

  28. NCN says:

    Wow. These lines are pretty harsh –

    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’ve been credit card-free for more than 3 years – and in that time, I’ve paid off more than 11K in debt, fully funded 6 retirement accounts, and purchased a new automobile, for cash.

    WHY is it MORE responsible to BORROW MONEY and then HAVE TO PAY IT BACK than it is to SAVE MONEY and USE IT when I want to buy something.

    If a person wants to use a credit card, more power to them…
    But, I choose not to use a credit card, and I’d venture to say that I’m doing just fine…


  29. Jessica says:

    Hey Trent, I tried out the envelopes system a couple of times too. It seemed so inconvenient to me as well. Every time that I forgot my envelope or to get the money out, I would take money out of my checking account. Then I had to deposit $5-$10 to make up for it.

    I am glad to say that I no longer feel out of control when it comes to my money. I can go into a store and be perfectly happy with not buying anything.

    I feel that part of my new found financial confidence has come from reading your blog. It is very inspiring…so thanks :)

  30. jmacdaddio says:

    I went from using credit cards for most purchases to using debit cards (aka cash) then back to credit cards for nearly everything. Like wall street, I like predictability and using credit cards lets me accurately forecast my cash levels several weeks in advance – once the billing cycles end I can then enter the amount into my spreadsheets as a known amount and plan accordingly.

    For some reason I never associated a credit card with money that I could access – to me it was just a more convenient way to pay for stuff. The problem isn’t credit cards since most of us don’t get in trouble with them. It comes down to whether an individual has the tools in place to control impulse purchases. Credit cards remove a barrier to impulse purchases, and I think addressing the issues behind the impulses is the only long-term solution.

  31. J.B. says:

    I practice the envelope system with gas, groceries and personal discretionary spending money. When it’s gone, it’s gone. It works great for me to have a visual and know what I’m doing and spend responsibly.

  32. I pay everything by credit card that I can. First off, might as well get the cash reward at the end of the year. Moreover, it is actually, in my opinion, EASIER to budget. You get one statement at the end of the month that told you how much you spent that month. If you see a big number you can’t afford, you know you better do something abut it next month.
    For this to work, you have to treat credit cards as another form of payment, not as credit.

    I’ve never made a budget, but just been very cognizant of how I spend my money and not spending more than I can afford. It means I now have zero debt and enough in savings to stop working for a few years if I wanted to.

  33. Morphia says:

    I will never again own another credit card no matter what anyone says or how superior they may feel because they have them and can “use them responsibly” or whatever.

    I use my debit card or cash for everything. I have a great bank so my debit card has the same fraud protection that a credit card from my bank does.

    I no longer live from paycheck to paycheck and I’ve saved a sizable emergency fund for the first time in my life.

    I’m also a recoverying alcoholic but this doesn’t mean that I walk around with a bottle of whiskey in my pocket to prove that I have the “willpower” to drink responsibly or not to drink at all.

    For me having a credit card is like playing Russian Roulette. Since I got rid of the cards my life has never been better.The best thing I did since I stopped drinking.

  34. Tim says:

    cash, credit, whatever system isn’t the issue. whatever gets you to change your behavior is fine; however, just realize there are downsides to a cash based system like you’ve just shut down your credit history and getting a loan in the future could be more costly or not possible without continued credit history.

    for my life, i could not live without credit cards, because of what I do and traveling frequently. my concept of credit cards has changed, though. whereas i use to be in the mindset that if i had credit available on my credit card, then i had money to spend. when i ask people how they view credit cards, normally this is the mentality that comes up. again, it’s behavioral. there is nothing tempting in credit cards if you adjust your thinking about them.

  35. Jessica says:

    I have to say I totally disagree with the training wheel analogy. I LOVE working with cash. It’s so much simpler to the the math with. I pull out in 20s for my expenses and the leftover change gets put into a change jar. I don’t have to calculate like “okay I know I spent 3.46 on breakfast and 1.48 on coffee, so I have 16.84 left in my account” (totally random numbers) I look at my wallet and I have X number of twenties left.

    I’ll admit that my biggest two categories (groceries and spending money) often get merged, or I’ll borrow from one or the other, but I often carry these two together in my wallet instead of my plastic folder thingy. The other categories get sloted away at the beginning of the week.

    I’ve learned that I can’t trust myself with credit card or even overdraft protection because I hate starting the week out being in the hole. I still manage to borrow from myself, but in more even amounts (IE 20$ instead of 29.07)

  36. katy says:

    All these comments are valid; thanks Trent for a great post.

    In Debtors Anonymous, we learn to use Spending Plans. We don’t incur unsecured debt, no matter what. That has given me freedom. I take out my weekly cash and use a debit card.

    I just got a new job, too! Now I can rise above my longterm underearning – and allocate more to my spending plan categories. Thank you DA and G-d.

  37. Ryan says:

    The important thing is to have a budget and stick to it, whether it is an envelope system or a simple excel spreadsheet. In my case, I prefer credit cards due to the rewards. I end up earning $300 a year in cash back and enough gift cards for all my siblings at Christmas time.

  38. Mark says:

    @ Sean –

    The “silliness” of charging $2 is not the only system that curbs my spending. I use software called You Need A Budget, that is basically an electronic envelope system. It works great, but it is much easier to track my spending when there is an electronic trail (i.e. credit/debit transaction that can be downloaded). When I withdraw, say $20 from the ATM, then I find if much harder to track and put into a category.

    I have actually gone to a mostly “cashless” system because it helps me keep a better eye on my spending. I get upset when I can’t use a credit/debit card somewhere, because I rarely carry any cash.

  39. Nate says:

    We use a hybrid system, gas and groceries go on the debit card and everything else comes out of the envelopes. We find this is actually much easier than credit cards.

    I realize most people check their online accounts daily, but that’s too much of a hassle. I do an ATM withdrawal twice a month, fill the envelopes and we’re done with it. I never have to worry about having enough money in the account because it’s in the envelopes.

    I guess each person has to find what’s best for themselves.

  40. Susann says:

    Guess what? I went “Cash Only” for almost 10 years. Yes, it sucks. It also teaches you to spend only what you can afford to spend — and once I got that lesson through my thick head (took about 18 months) and paid off my debts, I realized I LIKED living that way. I finally got a credit card this past summer, and put it away for emergency use.

  41. CheapGirl says:

    I think it’s funny any got insulted by this post….the whole point was what worked for Trent & his view that all-cash was more inconvenient for his life than plastic & how to responsibly go back to plastic after being what I call a “plastic addict”.

    The problem behind credit cards is that you normally have a much HIGHER limit to be spent in a month than what you have available in your bank account to pay it off with. For those with a swipe-it-and-forget-it debt problem, going to cash IS indeed training for controlling your spendings. If cash is just inconvenient for you, then you have to control yourself before you should trust yourself with plastic.

    If cash works for you & has no inconvenience factor, by all means do what works for you. I think the gist of the post is to 1) stop the maddness of useless debt spending 2) get a way to control yourself and 3) continue to do what works for you for debt control but in a way that’s feasable for life.

  42. Diane says:

    We use cash for everything except gasoline and medical expenses both of which are reimbursable by my husband’s employer and our FSA account. Every payday (we are paid once a month) I put $350 into an envelope for food, $300 into another envelope for “House” (this covers entertainment, food eaten out, and things like light bulbs, furnace filters etc.) Then I take a $70 allowance for the month and my husband takes $300. It hurts to spend cash so I am very frugal and never run out before the end of the month. I remember someone on TV saying that we all have an innate respect for cash. Just try and tear a five dollar bill in half! Can’t do it!!

  43. Ryan S. says:

    Count me here as someone who doesn’t use cash unless he has to (I am actually quite uncomfortable carrying more than $30 with me at any one time). However, I realize it takes lots of discipline to not overspend and I’ve had to put in my own mental safeguards to try to make sure I don’t. For many, using cash all around is their best answer, at least in the short term, but if you can exercise financial discipline (in which case you wouldn’t be in debt :) then there are multiple advantages to credit cards. (I actually have a post about this on my blog :)


  44. Paul says:

    In answer to the question that is posed in the title to this article, a simple YES.

  45. Eric says:

    Perfect! Then the Spend Less Than You Earn mantra HAS really become a part of my life! Just last night I rec’d an offer in the mail for a 1 yr subscription to Kiplinger’s for only $10. I thought about it all night then realized, I get plenty of personal finance info from all the various PF blogs I read as well as mainstream websites. $10 is easily affordable but I’m just as well off without the subscription. Perhaps more so. At the very least, it’s less clutter in an already too cluttered house.

  46. Ms. Clear says:

    I really only use my credit card (we have a bunch, but only use one) for online purchases. I’m not comfortable using my debit card online. We’re very security conscious, and I know there’s liability protection, but I worry about bounced checks should some crook get into my checking account.

    I prefer cash or debit spending for normal household expenses. The only electronic billing I have set up is for the credit card, due to the exorbitant late fees that could occur due to a postal snafu.

    I don’t play the credit card “rewards” game, because I believe it’s a scam in most cases. Nor do I carry much of a balance. If my balance is over $1000, I’m not happy. Ideally, no balance at all would be better, but we’re a one-income family right now. Having paid off over $6K in credit card debt, I feel that my current system will NEVER land me back there.

  47. I’m the type of person who tries to go cold turkey when trying to break a bad habit. I’d probably go entirely to cash if I found myself having problems with debt management. But just like battling weight, fighting debt can be tough, but determination should win out in the end.

  48. Sophie says:

    @Ms.Clear about playing the cc “rewards” game

    Some rewards cards may be scams, but ours is totally legit, and we have the cash to prove it. We’ve ‘earned’ $300 to $500 a year for the last seven years – which we take as a credit to the card or as gift cards (our choice) – just for using our 1% cashback card. Paying cash (or swiping a debit card or writing a check) makes no sense to us, it’s the equivalent of saying “no, thanks” to free money and we’re not rich enough for that…yet! =)

  49. Ms. Clear says:

    For every person who makes a token sum using credit cards, there are thousands more who become conditioned to “debt slavery” and never get a damn dime back. Credit cards companies do not have my best interest in heart. I’m not even interested in making money off them. If I lie down with dogs, I’m sure to get fleas.

    Paying cash and debit is not turning down free money. There is no such thing as free money. Pay cash and debit is about living within your means and not spending what one does not have.

    I don’t care what other people do, but the superior attitude is a little bothersome.

  50. CPJC says:

    I like using my credit cards (and I pay them off in full every month). For me it is a way to track my spending electronically without any hassle by looking at the statements online.

    I have a cash budget for my daily coffee (the $1.50 type not the $4.00 type) and for lunch when I don’t bring it.
    I can reconcile my ATM withdrawals and my credit card statements much more easily.
    I don’t think a cash-based system would work for me as well. And, for those small $2 impulse purchases…well my technique is to go home. And if I really need it, I will go out again to get it or remember to get it the next day. Otherwise, the $2 stays in my pocket.

  51. Macinac says:

    In my opinion the key is reducing your wants and needs. If you don’t want a 51-inch plasma TV then neither your credit card, nor your checkbook, nor your cash envelopes will ever hear about it. If you acquire few needs your income will magically grow to satisfy your costs. I have never succeeded at any kind of budgeting, but I have no debt because the temptation just mostly isn’t there. Some of this can be attributed to cynicism. I think the marketeers are out to manipulate me and get me to buy stuff I don’t really need, and wouldn’t even know about without advertising. With the help of that sour attitude I manage to keep most of the temptations at bay.

  52. RobertW says:

    I’m squarely in the plastic camp, but I see advantages and disadvantages to both. I’ve found that carrying only a credit card has all but eliminated my minor spending, I guess the “silliness” factor gets to me. But on large purchases, it takes a lot more work to go to the bank and take out $1,400 for a plasma TV than it does to swipe and sign for it.

    I used these advantages for my benefit, since I wasn’t buying big ticket items. I was nickel and diming myself to death through vending machines, coffee and breakfast in the mornings, etc. If I carry cash, I for some reason don’t consider it something to be saved – I revert back to my childhood thoughts that cash should be spent to make me happy. It changes my mindset and if I start the week with 40 dollars in cash I end the week with a few cents and nothing to show for it (except some gum at the gas station, 20 cups of coffee from the cafeteria, 2 DVDs that I’ll only watch once, etc).

    I can really see how a cash only system would help someone who buys moderately expensive things like video games or expensive kitchen gadgets on a regular basis. Take this example: You have 50 dollars in cash and you stop by bed bath n beyond and see a really nice all-clad saute pan for $110 on sale. If you have to drive to the bank to get enough money to buy your new pan, I think you’re less likely to actually go back and buy it. But depending on how you work, you might “reward” yourself for not buying it by picking up a 40 dollar bathmat instead because you’ve got the money on hand. I often fall into this kind of trap, and then go back and buy the pan later anyway. I realize that the ultimate problem is my ability to control my purchases, but I can use the psychology of cash vs credit cards to keep my spending down. But that’s just me.

    I also find that carrying only credit cards makes it very difficult for me to simply drop a couple bucks in a vending machine, and it keeps me from going inside the gas station store altogether. I used to buy something every time I got gas or passed the vending machines on my way back to my desk. Having no cash makes it impossible for me to buy that mountain dew. The water I get for free from the fountain is better for me anyway, so it’s a win-win for me. But again, that’s just me. I can see both systems working well for different types of people.

  53. kitty says:

    I agree that “the key is reducing your wants and needs.” I think you can spend too much with cash too. You may not spend more than you earn, but if you spend everything you earn, you’ll have no money when something happens and will end up having to borrow. If, on the other hand, you condition yourself not to want stuff you cannot afford, you’ll not be tempted to buy it – regardless of how you pay for it. If you think before making every purchase, whether it is $1000 or $10, you’ll not make too many of these purchases.

    I’ve never had credit card debt. Sure I’ve made some stupid purchases here and there and maybe could’ve saved a bit more when I was younger, but I’ve always known where to draw the line. I grew up in cash-only country and didn’t have a card for the first few years in the US. I only got the first credit card after I started working and got a bank account. By the time I got my first credit card, my spending habits were well established. Just having it in my wallet didn’t make me go on a spending spree. So maybe using cash to clearly understand how much one can afford before using credit cards makes sense. But if you aren’t sure you’ll be able to control your spending with credit cards, you certainly shall stay away from them.

    “Pay cash and debit is about living within your means and not spending what one does not have.
    I don’t care what other people do, but the superior attitude is a little bothersome.”

    I think superior attitude goes both ways. I think the decision to avoid credit cards is a valid one as is the decision to use them and pay the bill in full. But your statement clearly shows that you think everyone who uses credit cards is not living within your means. This is just not true. A lot of people use credit cards and pay off their balances in full. Your statement “For every person who makes a token sum using credit cards, there are thousands more who become conditioned to “debt slavery” and never get a damn dime back. ” is wrong. 42% of the credit card users pay their balances in full: http://www.send2press.com/newswire/2006-03-0302-002.shtml. This may not be a majority, but it’s almost half. Additionally, this is really free choice. Credit cards just give you the ability to borrow money and they clearly warn you that if you don’t pay in full you’ll pay interest. Buying stuff you don’t need is still your choice.

  54. mbhunter says:

    Agreed on the addition comment. That goes for anything really, whether it’s sweets, TV, anything. If something is actively being kept away from you, you’re not dealing with it, and what I’ve found is that it usually makes you want that thing more rather than less.

  55. turbogeek says:


    I’m not nearly as offended as some, but I have advised several people to follow my example and use a system that is more cash-based. Those of you who posted that you use a debit card system with diligent record keeping are simply doing the “virtual cash” approach. I can agree with both, but have found that paper cash has worked better for me.

    On both sides of this point it boils down to this: those who actually spend their money at the time they buy something tend to have better control of their finances. Thos who rely on time delays for payment (delay debit, or credit) to take place some time after the purchase are more likely to overcommit or misplan. There are, clearly, exceptions on both sides.

    The thing I see that (almost) all the posters on this thread have in common is this: you are all likely to remove the cost of a thing from your future financial plan from the moment you make the decision to purchase it. You don’t even wait to make the purchase, you’ve run a balance of your accounts in your head while still driving to the store — — and you’ve taken that money out of the equation prior to actually spending it. That’s planning. That’s not normal for most people. I love it.

  56. boardmadd says:

    Hmmm. nmot sure I can add anything here that hasn’t already been said, but I will say a few things in favor of the envelope system. It’s good in the sense that you really do get a handle on where the money goes without getting too nit-picky.

    I like the idea that, once the money for a particular enveloe is emptied, then no more spending in that category until the next pay period. At times, it’s just not convenient to carry the cash where I need to go or for what I need to do, so I use a credit card or debit card for that purpose and track the purchase, effectively popping the money from that envelope into the “next payday” envelope. The idea is that I then only pull out enough to fund the areas, using the money I already have out and redistributing it.

    One of my little tricks for short term saving is to go to the post office, buy a single postage stamp to send a letter, get my change in dollar coins, and then drop those dollar coins into a piggy bank. When the bank is full, take those dollars and go get what I was setting the money aside for. Is it inconvenient to carry around a ton of dollar coins? Absolutely, but again, it forces me to make that deliberate step to put aside what I need to so I can get what I want without worrying about where the money is coming from and what else it can be used for. The expression on people’s faces when I hand them a fistful of dollar coins is often hilarious (I’m sure they must hate me at that moment, but oh well :) ).

    The point is, it makes you think. If you think, you are less likely to spend on impulse. If you take the impulse out of the equation, you ultimaterly save more. To me, that’s the end goal.

  57. Andrea says:

    I’m definitely more comfortable with a debit card than I am with cash. Cash never seems like “real” money to me. I have to be very careful about withdrawing and saving out cash for places that do not take plastic (the local folk dance, the belly dance workout class, etc) and have to label each bill with the date it can be spent as well as with the purpose (for example, Friday 7/16 contra dance, Saturday 7/17 workout class, Monday 7/19 folk dance … ) Otherwise it dribbles away.

    On the other hand, I know precisely how much money I can spend every month. Once I allocate money for savings, the mortgage, the utilities, saving for irregular expenses, and regular monthly expenses (including an entry for the cash I will need), then I see how much I have left per week. The rest goes into savings. Each week I transfer that week’s grocery, pet, gasoline, and other money to my account. If I spent less than I allocated, then I transfer only enough to bring the total up to the next week’s allocation.

    Even when I am super busy and don’t bother transferring money, I still know to the penny how much I have spent on debit and how much I have left for the week. Cash just evaporates; debit (carefully used) leaves a trail.

    As with any method, this is clearly a YMMV issue. I am in awe of the people who have self control over cash!

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