Cash or Plastic?
Congratulations on surviving to the end of the work week once again everybody! I am pleased to bring to all of you lovely people the next entry in our Financial Tip Friday! As I was going about my business throughout the week I stumbled across an interesting money-saving method that several people had written about. These people had shifted from using plastic, i.e. credit and debit cards as their primary form of payment and spending, to a cash budget. A majority of those who had switched over from plastic was attempting to avoid or pay off credit card debt in one way or another. And after looking up some statistics, I could definitely see the appeal in limiting one’s credit card debt.
According to nerdwallet: The average U.S. household credit card debt stands at $15,270. Credit card debt is the third largest source of household indebtedness, behind only mortgage and student loan debts.
I’m sure most of us have either experienced or have a close friend/family member who has had to struggle with credit card debt. It does not seem pleasant by any stretch of the imagination. Take a look at a few accounts of how switching to a cash budget has improved these people’s finanical status and well-being. Also I should mention that none on the accounts I read advocate completely cutting off any use of credit cards, as credit card payments are an important way to build up good credit, which is also essential to being financially healthy. What I’ve done is lay down a few tips on how to get started and stay on track with this lifestyle change should you choose to give it a try.
Determine Your Cash Budget
Seems like most habits that help one maintain or improve their financial health involve some form of an organized budget. Well this method is no different. To switch over to cash budget, you’re gonna have to take a look at your monthly spending to determine how much is spent on various expenses. I understand that cash can be a hassle to use in big purchases, so it is very important you determine what categories could be switched over to cash payments (for example: I determined for myself that groceries, clothes, gas, entertainment, and pet expenses could all be paid with cash).
Organize your Cash
Once you determine what categories you are switching over to cash, make sure not to just take out a bunch of cash and carry it around with you. A neat suggestion that I found online was the Dave Ramsey Envelope System. Dave suggests to divide up your monthly cash balance into various envelopes and write on each envelope what that money is allocated for. Once you use up the money in each respective envelope, then your budget for that category is gone until the next month.
This may seem obvious or redundant, but switching your financial habits, especially if they’re bad habits, can be quite difficult. I know personally how easy it is to get carried away by the ability to just swipe your card for whatever you may decide to buy, but as my kindergarten teacher repeatedly tried to explain to me, one need self control to succeed in life. Don’t be tempted to go pull out some extra cash or start swiping because you blew all of your entertainment money all during a shopping binge or a long night out on the town. Pulling out money that puts you over your budget is pretty much using a credit card without actually swiping for anything. If you choose to switch to cash, then tough out the transition and stick with it.
I am really curious to see what you guys think about this idea. I will be following up on this article as well after I’ve had a little more time to see the effects of this change on will let you guys know how well it worked for myself. I’d love to hear from you guys as well should you choose to try this strategy out. If you want to check out some first hand accounts of how switching to cash has been a financial positive, click here. Hope this has been of some help for your wallets and have an awesome weekend!
Like this post? Check out last week’s Financial Tip Friday here.