The truth is, most of us just don’t have the self-discipline necessary to use credit cards responsibly. We live in an advertisement saturated consumer society that encourages us to spend, spend, spend at every possible opportunity, and everywhere we go. As a result, most Americans are up to their eyeballs in debt with the national debt average in the thousands of dollars per household.
One very effective way to curb spending that has proven successful time and time again is to only use cash. A cash-only budget is often paired with the envelope system, wherein you create a budget ahead of time, placing cash for each budget category into envelopes when you get your paycheck. You then only spend the money in the envelopes and do not spend any more beyond that during the month. This encourages you to only spend what you make, or better yet, spend less than you make, and contribute regularly to savings.
Now that we know some of the basics of a cash-based budgeting system, let’s look at a few more and break them down by category.
You Tend to Spend Significantly Less with Cash
Though many of us have budgets, few of us actually stick with them in practice. This is because it is just so easy to spend more than you make with credit cards, and spend more than you should with debit cards. When you use only cash, if you want to buy something that you don’t have the cash for, you can’t just whip out your credit or debit card and buy the item on the spot without giving it a further thought. Instead, you need to go to an ATM to take out the cash and return to the vendor. Oftentimes simply having this little gap between the impulse to buy and an actual purchase can give you a lot of space to think, and serves to greatly encourage self-discipline. Chances are, more often than not, you’ll change your mind during the time it takes you to go get the cash. And that’s exactly the point. This is a great way to avoid buyer’s remorse.
Parting with Cash Is a More Emotional, Visceral Experience
You might not think about it, but when you spend cash, you tend to feel the amount of money that you’re spending in a more visceral way than you would when using a credit or debit card. With each bill you hand over to the vendor, you can feel your balance decreasing. Just having this tactile cue when making a purchase can often lead to more self-discipline and better buying habits. Watching cash drain from your wallet visually can often be a powerful motivator to spend less and save more. Many people say this is one of the best benefits they’ve experienced from switching to a cash-only budgeting system.
You Are More Likely to Stick to Your Budget and Spending Cash
This one is probably a no-brainer. When you’re using the envelope system, once the envelope is empty, you can easily see that there is no more money left in the budget category and are very likely to stop spending at that point. On the other hand, if your budget exists only in a spreadsheet or on the Internet, and you are spending with plastic, there is no hard limit on the amount of money you can spend, and therefore you are less likely to be disciplined and secure budget.
You’ll Find Out Who Was Really Benefiting from All Those Credit Card Rewards
At first, you may be inclined to think that losing all your credit card rewards and points is a bad thing. However, after spending cash only for a while, you’ll quickly find the amount of money you save by using this method far outweighs any benefits or rewards you ever got from your credit cards. Remember, those credit card companies would not offer those rewards if they didn’t know for a fact that you would spend a lot more than they would ever give you back in return. The credit card companies know that you will and up paying far more in interest payments in the long run than they will ever need to pay you in rewards. This is the whole point of those credit card rewards programs – to get you to spend as much money as possible and boost their bottom line through interest payments and fees.
You’re No Longer Experience Buyer’s Remorse or Purchasing Guilt
Ironically, you’ll find that just having the cash in those envelopes gives you the freedom to spend the money that is in them on the categories that they are designated for. In other words, you’ll be able to spend that money freely without fear of running out or wondering if you are racking up your credit card debt or spending more than you should. The peace of mind that comes with that is hard to overstate.
Even if you don’t think you’ve ever experienced purchasing guilt with your current budgeting system, you will most likely be surprised to find that there actually was some sort of lingering feeling of guilt or remorse whenever you broke your budget or spent more than you thought you should have. Once these feelings are gone, you’ll definitely notice that sense of peace that comes in their absence.
You’ll Experience a New Found Sense of Freedom
This may sound like hyperbole, but once you experience a few months with no credit card bills due, and the peace of mind that comes from knowing that you live well within your means and follow your budget, you won’t want to look back. It’s all about financial freedom, freedom to live the life you want, freedom from buyer’s remorse, freedom from credit card bills, freedom from interest payments, freedom to rest in the knowledge that your finances are on track and under control. It’s the peace of knowing that your goals are being accomplished and you are making wise choices. It’s hard to put a price on that!
“Discipline equals freedom.” – Jocko Willink
Have you made the switch to a cash-based budgeting system? How is it going for you? Let us know in the comments below!