Cash can be a great financial tool. It is a wonder that more people don’t use it. There are numerous benefits of using cash over credit/debit cards.
It’s not without its drawbacks. Cash-only may not be the way to go, but there are reasons to make some of your purchases with cash.
The Psychological Factor
Cash is real. Credit is abstract. When you have cash in your pocket you have a hard limit on what you can spend; credit generally doesn’t provide that limit for our everyday purchases. We’re not typically running out of credit to buy the groceries.
People who spend cash are more aware of the cost of their purchases. People who spend cash spend less.
The Budget Factor
Cash makes budgeting easy. This is especially true for items we would most likely use cash for, such as groceries or discretionary items.
Many people have a discretionary budget – the adult version of an allowance. It might be a nominal amount, such as 20 dollars a week for coffee or whatnot, or it could be 100 dollars a week, affording work lunches and other expenses.
When credit or debit are used for discretionary expenses it is easy to run over the budget. Many credit users couldn’t even tell you where they stand on their budget by mid-week.
Cash provides great control.
Spend your 20 dollars by Wednesday, there’s no more discretionary money until the next paycheck.
If you have a budget of 100 dollars per week for groceries, you’ll probably stay within your budget if you use cash. You’re a lot less likely to do so if you use plastic or an e-payment system.
The Interest Trap
Credit has costs. Sure, you can use debit or a payment system but there not without their downsides. Cash can’t get you into debt trouble. You simply don’t spend more than you have.
Credit leads to overspending. Overspending leads to interest charges. Interest charges reduce what you have available for spending, leading to more borrowing and more interest. It’s a trap.
Cash helps you avoid the interest trap.
Anonymity and More
Cash allows for anonymity. Whether it is dropping your change in a donation bucket, throwing a couple bucks into a street performer’s case, or tipping a server, cash allows you to do so without record. Without record for either party.
Our connected world brings us a lot.
But it is also overly invasive. Sometimes we would like a little privacy. Not for nefarious reasons, not that we have anything to hide, we simply get tired of having our every move surveilled by technology. It can be too much.
Cash doesn’t show you ads for the next two weeks. It forgets, and lets you be forgotten.
Of course, cash is also used for illicit activities due to its universal acceptance and lack of record. Don’t do those things.
The Downside of Cash
Cash has its downsides.
It is difficult to buy things online with cash. There are some options where you can pay cash at a physical location, so it’s not always impossible. But it sure ain’t convenient.
Sometimes a credit card is a wonderful thing.
If you need to rent a car, you’ll need plastic. It is not easy to rent a car with cash, often it’s impossible.
Credit’s ability to serve in an emergency is something cash can’t match. If you have a major car breakdown on a trip, credit is the far easier way to pay. You can get by with cash, but you either have to carry a lot, or deal with getting physical cash – without a car to run around in because the car’s broken and ATMs have limits and the banks are never open when you need one. In an emergency credit wins for ease of use.
Cash is not replaceable. If it gets lost or stolen it’s gone. With credit you have recourse. There are limits to your liability. Credit has the advantage here.
The Bottom Line
Cash is a tool. Used properly, it can help people stay within their budget, especially for items such as food and discretionary expenses – areas where people tend to go over budget.
Credit has its place. There are things you can do with credit that would be difficult or impossible with cash.
Credit is also a slippery slope. It is seductive, and we humans have insufficient resistance. Cash simply cannot, however, get you into debt.
Each form of payment has its purpose. If you are trying to stay within budget and struggling with some items using cash may help. But you probably shouldn’t burn the cards unless they habitually get you into trouble. Use both, but use them wisely.