October 24, 2015

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This post is part of the How I Do Money series. Click here to see more posts.

One of the most common pieces of financial advice I see on various blogs and in finance books is to make purchases in cash. The theory goes that, psychologically, it hurts more to part with a wad of bills than it does to swipe a card and pay with invisible money. By using cash, you aren’t tempted to spend money you don’t have on a credit card, and you may not be tempted to spend money at all. You hear lots of people say that they got out of debt by switching to an all cash diet.

All I can say is that this would never ever work for me. Here’s why:

1. You can’t lie to Mint when you only use cards


Mint is an online finance tracking site that was one of the biggest factors in me learning how to spend less than I earn. You hook it up to your bank accounts, credit cards, loans -- you can even track the value of your home and vehicles! -- and then every purchase you make gets automatically recorded in Mint and subtracted from your budget. Mint is amazing in that you can’t hide from it. If you went over your food budget because you went out for lunch every day this week, you can’t just start over next week and pretend it never happened. With big glaring red lines and email alerts, Mint makes you feel it when you screw up.


Mint does have a way for you to enter cash purchases -- but it’s not super intuitive. You get dinged twice: once for when you withdraw the cash from the bank, and once for when you enter the purchase, unless you tell Mint to “hide” one of these from your budget. You would also have to remember to go into Mint and write down every. single. purchase. you made with cash. When you’re used to your purchases showing up automatically, that’s a big difference in effort.


I find that when I have cash, I lie to Mint. I either end up hiding it from my budget or moving it around so that it doesn’t look like I spent as much in one category or another as I did. If someone gives me cash or I get paid in cash, I’m way more likely to blow it on something that I wouldn’t want to have to face on my budget for the rest of the month. Cash feels way less real to me than credit cards because of this, and I am therefore less responsible with it.

2. I love me some credit card rewards

Since I started using cash-back credit cards in 2013, I have made over $1,500 in credit card rewards. This is literally free money.

Well, free money with a caveat -- this money is free so long as you pay your balance in full every month and so are not paying any interest. Credit cards offer this cash back to lure you in, in hopes that you’ll overspend and end up paying way more to them in interest than they pay to you in rewards.

Since I paid off my credit card debt, I’ve been able to use rewards to stick to a tight budget. I get 2% - 5% back on almost every purchase I make. Unfortunately my three biggest expenses every month -- rent, student loans and auto loans -- are paid via automatic withdrawal from my checking account, with no option to pay via card, or no option without paying a fee that is higher than the amount I would make in rewards. But the rest of my bills -- electric, cable, phone, groceries, gas, etc. -- I get cash back on them all. It’s like having a constant coupon for everything in your life.


Again, I repeat, DO NOT USE CREDIT CARDS LIKE THIS IF YOU ARE PAYING INTEREST ON CREDIT CARD DEBT. This is only financially sound if you have no credit card debt.

3. As a millennial, I’m way more comfortable with digital than analog


I’ve talked before about how I really think that the millennial generation has different ways of going about things because we’ve grown up with computers. I genuinely trust my bank to track my expenses more than I trust myself to remember to fill in a ledger or record cash purchases. I trust my online systems to work. I trust my cards to protect me in the case of identity theft. If I lose my wallet full of credit cards, or if it was stolen, it would suck, but I wouldn’t actually lose any money. I’d cancel the cards and get new ones. My banks would refund any stolen charges. If I had a wallet full of cash, that money’s just gone. Poof. No one is going to insure that for you.


And with Apple Pay, Venmo, Paypal and other totally digital payment solutions, I may soon not even have to carry a wallet. Already I pay for my gas via the Cumberland Farms mobile app (and get 10 cents off every gallon!) and use Uber instead of cabs, which automatically deducts from a card via the app. Cash just feels old school.

4. If I need cash to buy something, I probably don’t need to buy it.

All my most important purchases are made either via direct withdrawal or at a store with a card swipe. I’ve found that 99% of the time, when the thing I’m looking to pay for must be bought in cash, it isn’t something I really need. The $5 per hour parking garage downtown? I can just keep driving until I find a better spot. The farmer’s market? Well, lots of carts take cards now, and I can probably sign up for a local farming co-op and get food in bulk instead, while paying with a card. Yard sales? I probably shouldn’t be shopping at all.

So that’s me. Do you like to keep cash in your wallet? Or have you switched to cards and digital tools too? Let me know in the comments.

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