Paper Money is for Monopoly

Screen shot 2009-12-03 at Dec 3, 2009, 10.10.43 PMHave you heard people say “Don’t use plastic because you tend to spend more money when you do.”? That is another piece of financial wisdom I have decided to ignore. I never carry cash on me, and when I do get some greenbacks, I take it straight to the bank to deposit. A lot of PFers, Dave Ramsey included, preach the wonders of being on a “cash only” system. Their main argument is this: People tend to spend less when they pay with cash because giving tangible money tends to ‘hurt’ more than swiping a card.

I am absolutely, positively, 102% against the ‘all cash’ plan. It just doesn’t work for me. I’m a pretty disciplined dude, but dollar bills are my kryptonite. They sit in my wallet, taunting me, whispering from my right butt-cheek “Hey Ninja, why don’t you put me to use and walk over to Rite Aid and buy a tub of  ice cream?” Seriously, cash is evil. If I have it on me, it will most likely be spent on unnecessary, unbudgeted, and unsmart things (I love making up words).

For me, it ‘hurts’ a zillion times more to put it on my credit card. I pay my CC balance in full each month. Do you know what that means? I get to watch the damage accumulate over my 30 day billing cycle. As the balance grows, I become more and more frugal. Paying between $1,000 to $1,500 each due date, totally motivates me to minimize my spending so I have to pay less on my CC balance. Seeing the damage in its entirety, as opposed to incrementally, influences wise spending choices.

I’ll be honest. I don’t have the discipline (or the desire) to work an envelope system. With the envelope system, you put X amount of cash in the “groceries” envelope and use that as your guide for the entire month. If you run out of grocery money, you starve (or borrow from another category envelope). If you have the discipline to stick to your budget ALL OF THE TIME, than the envelope system is definitely something you should consider. But if you haven’t noticed, I’m kind of a bada$$ and I sometimes like to spend outside of my budgeted parameters. Envelope system = good for people who have a lot of discipline. Envelope system = ineffective for 99% of the US population.

What about you all, Do you prefer using cash or a card? How much cash do you keep on you at any given time? Do you think you spend more when you swipe? Anyone out their like-minded and struggle to keep cash in their wallet?

38 thoughts on “Paper Money is for Monopoly”

  1. I’m with you on this one Ninja. I can’t track my spending with cash and it disappears! I also use a Credit Card to make an ‘impact’ – i.e. I know how much I owe and what for – that way I can have a ‘word’ with myself about the stupid purchases…

    • I’m with you guys. watching that balance grow and knowing that I will have to (well not have to, but I don’t want finance charges) pay off that balance every month on the CC makes me start to think twice about some purchases.

      Cash, on the other hand, burns a hole in my pocket until it is spent.

  2. So-called financial gurus (whose main goal is to get you to part with your own money) come up with all kinds of silly ideas about budgeting, cash, credit card usage, and the like. If you discipline yourself to live within your means and charge no more than you can pay in full each cycle, then it doesn’t matter one bit whether you pay in cash, checks, credit cards, or jalapeños.

  3. I use my credit card for pretty much everything and then pay it off each payday. However, I always have cash on me, usually around $150. I like having cash on me in case the credit/debit machines aren’t working for some reason, which has happened more than once at a supermarket. Or if I’m at a place that I feel uncomfortable using my credit card. There is one particular gas station that some of its customers had their credit card numbers skimmed from the machine (I go there because I had gas coupons, otherwise I would avoid it). Also, if I’m paying for my gas and there seems to be alot of sketchy people around I’ll just pay with cash rather than pull out my credit card. And as my boyfriend likes to remind me – you never know when the car might break down and you need to pay cash for a tow truck (unlikely since we keep the car well-maintained, but you can never guarantee that something bad won’t happen).

    Bottom line is I use mostly credit but always have cash on me. Remember these words people: It’s better to have and not need than need and not have.

  4. I agree that cash isn’t necessarily the way to go if you’re trying to manage your finances. However, I always carry cash, because some situations just call for it. Sometimes a freak storm knocks out power, and stores don’t get their credit card machines back up for a few days. Sometimes your coworker invites you to some restaurant that ends up being cash-only. If you don’t have cash, you’re unprepared.

    So I’d amend your post with “and keep a hundred bucks in your wallet for situations where you can’t use a credit card. But never use it unless you can’t use your credit card for some reason.”

    • This is reasonable, though I am more likely to keep only $40-50 in cash at any time. My barber takes only cash, and so does the half-decent Chinese takeout near my home. Once on the exit line at a self-park garage in New York, I was told the credit card machine was down, and fortunately I had the cash needed.

  5. I prefer using a card for 90% of my spending Ninja, but this spring I discovered an exception. By only using cash for eating out I’ve cut my spending by half. Like you I can’t keep track of a whole envelope system, but using cash for only one thing seems to make it different.

    I take out cash once a week or so and when it’s gone, it’s gone until the next week. So you may want to try using cash for only one expense to see how it goes.

  6. The envelope system? Who has time for envelopes everywhere? ? My wife usually handles our finances, but one thing I’m entirely with you on is NOT HAVING CASH! If I have cash, I think, “Oh, I got a couple bucks in my wallet, I’ll just grab a quick Mountain Dew, no problem.” But with the credit card, and seeing the giant balance every month, I just can’t do it. My mind goes, “Wait and get some water at home.” My wife and I spend way less by NOT using cash and using our CC instead!And the threat of a large monthly bill keeps us in line 🙂 THANK YOU for finally saying this!

  7. My old lady and I use our credit card for everything. We pay it off each month. I am like you, I have less problem spending cash than I do swiping my CC. Besides, if the CC company wants to float me a loan for a a billing cycle AND give me airline points I’m totally for that. But I also realize some people can’t do this and there really is no one correct way to do everything.

  8. I prefer the credit cards for the cash back and for the record of what I spent on.

    I carry some cash as a backup though.

  9. My husband and I use cash for many expenses. Groceries, personal care type items, dining out and entertainment. We each also have a very minimal amount of money monthly for personal spending money, just for those quick stops at the gas station for a soda or an unplanned lunch out with a friend. It works very well for us. Sometimes one category will run low on money so we’ll figure out why we went over budget then add a bit more money to that part of the budget. Cash works so well for me because if I have a bill bigger than a $1 I don’t want to break it as I know I spend 5 one dollar bills a lot faster than a 5 dollar bill. Crazy, but psychologically that’s how my brain functions.

  10. I use my credit card on everything just to get the 2% cash back rewards. It’s also a lot more convenient to track purchases and pay. Plus, if my wallet is stolen I won’t lose a ton of cash, just the couple bucks that are in there.

  11. Ninja,

    I have read your blog for a long time and have always meant to leave a comment regarding the idea of charging everything and then paying off the card at the end of the month.

    I think that perhaps you are missing the point of the cash only system. If you truly budget your money each month and therefore have a specified amount set for each category (expenses AND savings), then the cash system should work just fine. While I understand that many people prefer the “put in the card and pay it off each month” system, it is not truly “budgeting”. For a long time I used the same idea that you do, pay off the card and put the rest in savings. However, with that mindset you are not setting aside a specific amount to save each month, instead you are just saving what is left over from your spending. Therefore you are “paying yourself” last.

    The other problem that we had (and many others may not) with the credit card “budget”, was that even though we tracked our expenses each month for several categories and actually set spending limits on those categories, it was way too easy to go over because the credit card is not real money. When the cash is gone, you cannot go get a pizza. With a credit card it is easy to rationalize and say “oh it’s only another $10, I’ll still pay it off at the end of the month”. Then before you know it you have added several hundred extra dollars to your credit card. It was when we decided to focus on have an actual savings amount each month as opposed to using what is left over, that we converted to the cash system and started making real progress on our savings goals.

    I am obviosly not going to question your ability to save because you have shown that you guys save a lot more of your income than the average family. I am also not advocating that everyone use the cash system because I realize that although it works great for us, many people prefer to use credit cards. All I am trying to point out is that there is a definite difference between using cash and paying off a credit card every month. It is not just about spending less while using cash because it hurts more, it is also about spending less because you can’t spend extra if you use up all of your cash in a specific category that month.

    • this is a big point. I don’t think Ninja has any hardship paying his CC bill every month whether it is $1200 or $2200 a month. We do. Every last penny of our income is budgeted towards necessities, not wants like pizza and entertainment. We live on $2800 a month, for a family of 5 and our mortgage is $1200 of that. So I can’t just put it all on the card and pay it off every month. I have $450 for groceries to last a month, so I can’t just splurge and pay more than my budget. If I do that with a CC its so easy to see that food budget creep up, and all of a sudden we are paying $600 a month for food. I can’t afford to do that because if I do something else doesn’t get paid. Ninja can.

    • The thing with budgets is the discipline to keeping to it. Using cash makes it obvious — out of cash, no more money to spend. But, if you’re tracking your spending, you can use credit…….you just have to admit you’ve run out of money and stop spending even though credit is available.

      For us, we have 2 weeks spending limit for food, necessities, gas — yes, coincides with payday — we don’t break it down into categories…..we just keep in the back of our minds “if we want to continue to eat, don’t spend so much on other crap until next payday”.

    • There is no reason why you can’t make payments on your credit card any day of the month, not just when the statement arrives. I am always charging purchases on my credit card; then I use my online banking site every few days to move money from checking to pay down the card. In that way when the statement closes, the balance is usually just a few hundred dollars.

  12. I do usually carry a little bit of cash — there are always some instances where cash is more convenient, like vending machines and Texas BBQ places. But other than those, I never seem to use the cash in my wallet; I get reward points for using my credit card, and we pay it off in full every month anyway. Plus it’s easier to track in Quicken so we can see how we’re actually spending our money!

  13. man I am the exact same way. I cant carry cash or soon enough it will all disappear, and I wont know where any of it has gone, and I wouldnt have done that with a card. There are some situations where I know that I will need cash, and when those come up (like getting a haircut) I get the cash, and head straight for the haircut place.

  14. I like using my debt card better than cash. I still use cash when I get it, but I find that I don’t keep track of it.

  15. I’m an all-credit, all the time person as well. At the end of the month, you can see where your money went and know how much “life” cost you. Plus, free points/cash back/rewards. The money doesn’t magically disappear when it’s cash, but I’d rather be able to look at the $4.03 I spent at Tim Hortons, than know that the change pile in the car got smaller by an unknown amount.

  16. I use credit cards all the time, but I am starting to wonder if an envelope system might be good for me. I used to go line by line through every transaction on my cards every month, but now I don’t do that anymore and I think I spend more on my credit cards than I probably should.

    I love the convenience of automation but it might not be keeping my personal spending down.

  17. I always have about $40 in cash on me, mainly for the unforeseen debit/credit card system being down at the store, and I really don’t like using a debit card to pay $3.64 for a couple of cups of coffee while Hubby and I are out running errands. We use our debit/credit cards 90% of the time, and we keep an eye on what we’re spending.

  18. I agree with you that I feel more “pain” swiping a card than using cash. Cash calls out to me to be spent – I just want to get rid of it!

    But I disagree with you regarding who the envelope system is good for. I think the envelope system is very helpful for people who DON’T have the internal motivation to stick to their budgets and useless for people who either 1) naturally stick to their budgets or 2) don’t really need to stick to their budgets. You (and I) are in the second category – the budget is a tool but if we rationally decide to break it it’s because we can pull the money from somewhere else that makes sense. We aren’t derailing our financial lives by breaking the budget. The envelope system is good for people who really, really need to stick to their budget to keep their plan in place but can’t do it without literally staring at an empty envelope.

    • I want to clarify that we fall into category #2 as well so our using the cash system is not out of pure necessity. While I did say that it was much easier for us to go over budget when we used credit cards, we also were not on a strict zero based budget like we are now. I have trouble conveying my point in writing as it is much easier for me to explain it verbally but I still think that my point was slightly misinterpreted. What I am trying to say is that there are basically two ways to look at the situation, regardless if you use cash, debit or credit.

      #1 – Buy/pay for whatever you want during the month and then take what is left over and put that in savings. This is the way it seems that the “pay it off” crowd handles their budget (and how we did it for many years). It could also be how a cash based system would work if you cashed your paycheck each month and spent whatever you wanted and then at the end of the month deposited the remaining cash into the bank. It is the same thing regardless or cash or credit.

      #2 – Have a budget that assigns every dollar you make to a category so that all your money is spent before the month begins (a la Dave Ramsey, etc…). You could theoretically still use credit cards for this approach but it gets tougher as I explained in my first post because it is easy to go over in a category. If you then don’t adjust for that overage in another spending category, then your savings takes a hit.

      It seems based on the replies that a lot of people are not really “budgeting” per se, they are more following method #1. There is nothing wrong with that if you want to handle your finances that way. However, if you are following method #2, it seems easier to me to use cash for a lot of things (ie. groceries, spending money, gifts, etc..) so that you maintain integrity in your savings goals. I guess what bothers me is the idea that “cash is good for those without self control” attitude that prevails among the credit card crowd. While that is one reason that cash is good, the real point I was trying to make is that Ninja’s “budgeting” system isn’t really a budget. It is a spend what you want and put the rest in savings plan. That works great if you make enough and/or are frugal enough to do it, but for a lot of people that is not realistic.

      As an example of what I am trying to convey, Ninja does his net worth updates each month. Some months it seems that he is surprised by the change in certain categories (ie. savings). If he were truly budgeting, he would know what his savings should be at the end of each month (obviously not taking into account investment fluctuations). If someone sets a goal of saving $100,000, they should know when they will hit that goal if they are budgeting out their savings instead of using the “leftover” approach. If I allocate $500 a month to savings, then i know at the end of the year I will have $6,000 in my account (barring any big surprise expenditures during the year). I understand that many people don’t care about setting a savings goal(s) but Ninja is very vocal about having big savings goals.

      I apologize for the long rambling post, I will try to clarify more if needed.

  19. FriendlyFed and Thousandaire, I second your comments. My last two years have been a treadmill getting nowhere on our savings. Hopefully,the last two months of extremely high credit card bills will finally force me to quit buying so much little stuff which adds up quickly. Even though I can “afford” it, it sets me back when it comes to the big picture, carefree and fun retirement sooner than later.

    • I really like being able to say that too!

      Plus, I know when I put it on the credit card that my husband will see it, so I’ll usually skip unneccessary stuff, while if I have cash, I end up spending it on stuff I normally wouldn’t.

  20. Not yet mentioned, but the credit card set should be aware that, effective with Dodd/Frank in 2010, merchants can now legally set a $10 minimum so long as they do so uniformly for all cards they accept. (Prior to this legislation, minimums were a violation of the merchant’s agreements with Visa, MasterCard, etc. Now they are valid, in case you feel inclined to dispute a minimum.)

  21. I use credit for the majority of my purchases so I can collect the points, but I also always pay the balance every month. I always try to carry $20 cash though wherever I go, as I might run into a situation where the machines are down or it is not accepting my cards.

  22. Right now, I use the envelope system. I got myself out of debt back in January. About a month later, I started using my credit card and paying it off each month. But then one month, I didn’t pay it off because, working only part-time, I couldn’t afford to. Unfortunately, I didn’t stop using my credit card that month, and $6,000 later, $6,000 I only have a vague idea of where it was spent, I’m back to envelopes to dig myself out of a hole one more time. Swiping the credit card is way to tempting to me right now when I am still in the process of searching for a new job that I am paid what I am worth and they value you me enough to give me the hours I deserve. Until I find a new job, and until I dig myself out of this hole, my credit cards (AND my debit card) are off limits!

    The cash in the envelope system works for me though. I like paying with cash, especially since there are a ton of places in the area that charge me the credit card processing fee they agreed to eat with the credit card companies. It keeps me in check, and I end up spending a whole lot less than my budget even allows because I hate to part with those beautiful green pieces of paper in my wallet.

    One day I hope to be back to credit/debit usage, when I am making plenty more than necessary, and when I know I can be disciplined enough to pay of that pesky bill each month. Until then, it’s cash only for this girl.

  23. It is nice to know that there is someone else who agrees with me. Using a credit card responsibly and paying th eentire balance every month is what I do every month. I find if I carry cash, I tend to spend it.

  24. I agree! To me, it’s the same if I use a credit card or cash. I’m not likely to spend more if I use a credit card, because I know it’s still money that’s being spent and will be paid off at the end of the month. It’s just easier to use a credit card. Plus, it racks up rewards (though there are many drawbacks of rewards cards, they can be great if used wisely). Great post!

  25. Another vote for credit cards from me. Rewards from responsible use of credit cards are too good to pass up if you’re good at paying off the balance every month and not overspending. My wife and I have an Visa (3% back on all Amazon purchases, 2% on gas/restaurants/drugstores, 1% on everything else). Our newest card is actually a card with an annual fee – the American Express Blue Cash Preferred. There is a free version of the card (3% back on groceries, 2% on gas & department stores, 1% everything else), but for $79/year, the cash back gets bumped to 6% on groceries, 3% on gas & department stores, 1% on everything else. The change in cash back more than outweighs the annual fee.

    After this month, we will have redeemed $300 on the Amazon card and $200 on the American express (includes the $150 bonus for spending $1000 in 3 months). Haven’t paid a cent of interest. Cash can’t do that.

  26. I use cash mainly as plastic didn’t feel real and I’d spend it a lot quicker. With cash, I see it and don’t want to part with it. I’m getting myself to the point where I can use plastic more resonsibly which is always a good thing.

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