We are nearly a cashless society.  People are carrying less and less cash, and most people could probably get through a week or two without any cash at all!

Cashiers automatically assume that if your purchase is over $50, you’re swiping your card.  We have personal credit card readers, credit card readers at every possible place where you pay for something, we’ve got Apple Pay on our phone and our watch, and we don’t even have to pull out our credit card to buy from iTunes, Amazon, and eBay, because it has our credit cards memorized.  We even have laws about how much of your own cash you can withdraw from your bank account!

Cash is nearly so far removed from our society that it takes intentional effort to incorporate it into your financial plan.  But when it comes to helping you manage your financial goals, cash is king.  The use of cash in our regular monthly budget has helped us to become and stay completely debt free, so I’m a big believer in the power of cash.  I think it’s so powerful that I encourage everyone I coach to at least consider the regular, purposeful use of cash.

Why is it so important to use cash?  Cash can help you do three things that will help you manage your money more effectively.

1) You spend less when you use cash.

Simply put, a credit/debit card (or Apple Pay or whatever) changes the basic nature of a transaction.  The basic nature of a transaction is,  “I give you something and you give me something in return.”  A credit card masks that feeling of having to give something up because you don’t get the sensation of “giving” anything, when you swipe a card then put it back in your wallet.

Many people cite a Dun & Bradstreet study that revealed people spend an average of 12-18% more when using credit cards, but I can’t seem to find the actual study anywhere.  Whether or not that study exists, there’s a few other interesting facts.  Vending machines that have credit cards lift sales 25-30%, according to Bloomberg news.  This article from NerdWallet cites a paper that found that municipalities could charge more for tolls when using electronic toll collection instead of cash payments.  This NPR podcast discusses the experience of parting with money, and why that’s harder than simply signing a pledge to pay in the future.

2) Cash gives you instant feedback on your budget progress.

When you institute a simple but effective envelope system, it gives you immediate feedback on how you’re doing in your discretionary spending categories.  “How much money do I have left in the budget for food/entertainment/clothing?”  The answer is right there in the car, purse, cabinet, or wherever you keep your envelopes, without wondering if Mint.com has all your transactions imported and categorized properly.

You can look in the envelope and see if you can afford to go out to eat or buy that pair of jeans, or if you need to wait until next month.  No guessing, just clear answers.

3) Cash makes it hard[er] to over-spend in your budget.

When you incorporate the regular use of cash, there’s no question when the money runs out.  You can’t go into debt or ruin your budget if you stick to the amount you’ve allocated.  It’s still possible to over-spend if you run out of cash and whip out the debit card, but it’s harder to do, and makes you think twice!

When using solely a credit/debit card for those variable, discretionary purchases like food and entertainment, it’s easy to go over, because it’s harder to total up how much you’ve spent.  Even when you look on your Mint.com app and see you’re at your limit for the month, you can still just swipe away in the moment to get through and then deal with the consequences later.  A commitment to using cash for those types of purchases helps you avoid going over in those budget categories that are harder to track and manage.

Bottom line, we love using cash and it has absolutely been something that’s helped us control those hard-to-manage categories in our budget.  You should give it a try!

Question: What’s been your experience using cash to control your spending?