Hi hi hi,
I get tons of comments about my budget strategy to only use cash for day to day items like clothing, coffee, lunches and getting my hair did. Readers always say that they keep to their budget and don’t over spend and therefore want to use their cards to pay for their day to day expenses. By using the card instead of cash they can reap the benefits of the award cards!
The reason I get people to use cash is so that we have a stronger connection with the physical cash. Using cash generates that sense of loss when you actually part with it. So that you think twice about plopping down $200 for some clothing or a dinner that maybe you don’t really want. (Decide before you’ve eaten because it’s hard to get out of dinner after you ate it).
I recommend everyone trying to use cash for three months and compare it to the previous three months that they put on their credit cards. Compare and see how you do. Statistics say that people spend 20% less with cash than they do with credit cards. The points or cash back entice you to spend but just losing those $20 bills offsets that desire to buy more shoes, etc.
If you do find that you spend around the same then try paying the card first. If your miscellaneous spending is for example $2,000 a month. Drop $1,000 a pay cheque onto the card and then spend down. Keep track of it with mint.com on your smartphone or in a paper bookie and make sure that you stop at $1,000. You’ll keep your focus on how much you have to spend which is better than just knowing how to swipe.
If you come across your next pay cheque and you still have money left over you can deduct that amount from your next $1,000 and bank it in a savings account. The point, which is lost on most of us, is not to spend everything in our account every time we get paid! Feel the joy of saving some of it. Saved money is freedom, security and respect for yourself. You’re a pretty good reason to save. I know it!
If you are good with your account you can, stay on budget, save a ton more, and get the rewards on your total spend at the end of the year. Win, win, win. The moment you fall off the credit wagon and go over budget – promise to go back to cash. It takes discipline to put everything on your cards. There isn’t a correct way to budget and spend but there is a WRONG way to do it!
Have an awesome week,
Dave
