Today I was sitting at my desk pondering what subject I should write about next. I have a list of subjects to choose from, but none of them were jumping out at me. As any of you who are writers know, if you don’t feel something about what you are writing about, it comes out flat and lifeless. It seems that when I write, how I feel about the subject flows into the words I write; its as if the keyboard is an extension of my thoughts and emotions.
So I decided to browse some news sites to see what was going on and look for inspiration. If you are an artist or writer you know that sometimes you need some external inspiration to start the creative juices flowing. (I am actually both: I write this blog and express my artistic side with my camera; feel free to see my other side at JeremyFultonPhotography.com) I came across an article that mentioned the future of credit cards and started my thoughts on the differences in spending habits when we use credit cards verses when we use physical cash.
I used to use credit cards for EVERY purchase; I was doing my best to collect all those reward points my credit card company was offering me! It seemed like a great idea: pay off the cards every month and get free gift cards every 3-6 months. What I didn’t account for was that between the points and lack of feeling associated with plastic spending is that I was spending a lot more that I realized. I can recall, now, several months where I had to dip into savings to cover the card balance. But those points were so ‘wonderful’ I didn’t even think long term about my spending habits.
It turns out I wasn’t alone. It turns out that a lot of research has been done on spending habits over the years. Carnegie Mellon actually conducted a study using an MRI machine to measure the pain centers of the brain when purchase decisions were made. One conclusion of the study was that spending your own money (i.e. cash) activated the pain centers where delaying the payment (i.e. credit cards) did not.
Spending with cash is painful! Have you every noticed for yourself how you react emotionally when you are counting out actual greenbacks at the register?
Even McDonalds knows that you will spend more if they take your plastic. Remember back when you had to have cash at the drive through? When McDonalds started taking credit cards, their average sale per transaction when up 40%! Many businesses followed their example and now you can buy just about everything with credit! They all know that we are less likely to worry about the cost of an item, and more about its features, status, and ‘quality.’
In researching for this post I read many articles, interviews, and a couple of paper summaries; they all agree that we will spend more when using credit over using our own money (cash/debit) when making purchases of all sizes.
“So,” you may be asking, “What do I do?”
Cash.
For your budget categories that you tend to be freer in your spending, cash is king! My wife and I personally use cash for ‘blow money’, eating out, and groceries. We use an old system called “the envelope system.” We withdraw money from the ATM each pay period in the amount we budgeted for and put that cash into physical envelopes (you can get a modern system here). When we go out to eat, we only use cash from that envelope; when it’s gone we eat in. Same for groceries; when the envelope runs out it’s time for leftovers and goulash.
It has really helped me reign in my spending habits, especial when going out to eat! Back when I was on the “points system” I could easily spend over $400 a month on eating out! Yet my retirement was hardly getting funded; how terrible is that?
There are other benefits to using cash over other forms of payment beyond just keeping your spending in check. When you pull out cash, it has immediacy; it tells someone you do have the money to spend. The seller of a service/item knows that you are there and want to spend, and that you don’t need a credit check. You can walk away. This gives you power. Power over price.
Almost all prices are negotiable, to some extent (maybe not so much at Taco Bell), and that fact is more evident when you pull out a few Benjamins. The vendor may give you a discount just for using cash (they pay 2-4% in fees to credit card companies). You can also negotiate the actual price, esp. on large ticket items or dealing with individual sellers (like with Craigslist). I know several people who have had success bargaining with cash, including a friend who paid half price for a hotel room just the other day! This is a win-win deal for you; you are not going into debt to buy something, and spending less on the item/service!
I’ll cover the myth that you need a credit card in a later post (I’ve traveled the US and visited Spain, France, Andorra, and Israel with my debit card). So, what’s holding you back? Why not try it for a month and see what happens? You can always go back to using your credit card if I’m wrong!
Let me know what experiences you have had using cash in your life below:
The first time I calculated how much I needed to have saved at retirement, my jaw about hit the floor! To maintain my current lifestyle I will need to be rich!
