Pile of cash.
In decades past, it was the most common method of payment – cash only. These days, going cash only is relatively unheard of, and impossible with some merchants. However, going cash only has both pros and cons. It is often touted as a great way to get in touch with your cash flow and for good reason. So let’s take a look at the pros and cons of going cash only.
The Pros
No interest! This is perhaps the biggest financial perk. If you use cash to make purchases that you would normally through on a credit card, you are saving yourself some big bucks. As of this writing, the Forbes Advisor claims the average credit card interest rate is 27.81%. Since many folks struggle with paying their cards in full each month, this is a huge savings.
Less spending. With physical, paper money, we may experience less temptation to spend. That money is suddenly very real to us. We can look in our wallet and see that we only have a finite amount of cold, hard cash. If we only have a $100 in our wallet, we become more conscientious of prices and our urge to splurge gets tamed. Physical money has a real psychological impact on our spending. This may be the biggest pro of all in changing our spending habits.
Better budgeting. With physical cash, we think twice before spending it. For some, parceling out their monthly budget in cash is a revelation. Paying electronically we never get a feel for just how much we are spending. When we see the amount of actual cash, it has an impact. For example, even if you use the envelope system for your bills, you begin to see how much of your hard-earned money is really going out every month. This can lead you to think twice before spending. Just because you have $450 per month for groceries, doesn’t mean you need to spend it all. For many, using cash and breaking down how much they can spend each week leads to better shopping decisions. The same with services such as entertainment, communications, delivery services, transportation, etc. Many of these have become impossible to actually use physical cash to pay for these days. Still, using a cash system raises your awareness.
The Cons
Expense tracking can be difficult. If you are only using cash, your expense tracking may be a little more difficult. Instead of importing your spending categories into a budget tracker or other personal finance app, you’ll need to do old-fashioned manual entries. That is, you’ll need to keep your receipts and go through them to record what you’ve spent. Sure, you can still use Excel, Word, or some other form of tracking, but it will be more labor intensive. It will put you in touch with what you are spending.
Purchasing power may be limited. Ok, some may see this as a pro, but paying in cash limits you to what cash you have on hand. You can only spend the amount of actual cash you have, or the amount you have budgeted for a specific expense. If you don’t have ample cash, you will have to pass on that purchase.
Credit score could be impacted. Yep! Unless the vendor you are paying reports your on-time payment, your score may be impacted. If you are paying cash, and not using a credit card, you might not be credited for the payment. Theoretically, this could impact your credit score over time.
Going cash only does have some pretty powerful pros. It will put you in touch with your cash flow and help you be a better spender (and saver). It could, however, dampen your purchasing power and possibly impact your credit score. The benefit of the pros do seem to outweigh the cons of going all cash. If you are struggling with your budget, give cash a try.
Not sure how to start? Call me. As an independent Certified Financial Planner™, I can help you with a savings goal, debt reduction, setting a budget, and evaluating resources. #talktometuesday #education #Hireaplanner #savings #savemore #payyourselffirst #FinancialIndependence #resolution #goal #cash #cashonly