Living on Less Than $28,000 A Year: How our family of six survives (and even thrives) on an income that is less than half the national median income, and what the government calls “below the poverty line” (less than $29,990 annually) for our family size. [Read other posts in this series here.]
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Today we’re talking about the Great Cash Debate-Do you spend less when using cash than when you use credit?
If you’ve read very many financial blogs or magazines, then you are probably quite familiar with the cash versus plastic debate. Using credit and debit cards is convenient, but studies have shown that using the plastic rather than cold, hard cash can cause you to spend more.
Dave Ramsey cites a study by the Journal of Consumer Research which found that frequent users of debit and credit cards not only spent more money at grocery stores when using plastic, but they also bought a lot more junk food than customers who used cash.
The Confession
I have to admit that even though we have taken Dave Ramsey’s Financial Peace class and understand the philosophy that “cash is king”, I have been slow to convert. We are 100% on the no credit card plan, but it just seems so much easier to whip out my debit card rather than stopping at an ATM to get cash for my shopping.
As with some other money saving ideas, I thought that the savings were not great enough to balance the inconvenience factor.
The Experiment
In the interest of science (or to interest my readers 
), I made a decision to try a cash-only approach with my shopping. For the last two weeks, I went to an ATM on my way to the store and took out the cash for my shopping. I must admit, it has definitely helped me to reign in the budget.
Both of my grocery shopping trips (see last week’s shopping here and the previous week here) were under budget. I realized that when I am not using cash, I tend to think that it’s okay to add things to the cart that we don’t necessarily need. When I had cash in my wallet, I could easily see that I would not have enough money left for my next two stores if I spent more at the first store.
Last week when I took my grocery money for the week out of the ATM, I also took cash to purchase some nonfood items we needed from Walmart. Again, I ended up putting a couple of items back because I didn’t have the money. I could have used my debit card, but I had to stop and think about it which helped me to decide that we really didn’t need those items anyway.
The Future
I have come to the conclusion that using cash definitely helps me stick to the shopping budget, so I will be taking the grocery and other shopping money out every week rather than using my debit card. Sure it’s a little bit of a pain to stop at the ATM, but I now see the savings from using cash only.
Even though I am a new “cash convert” for shopping money, I will still use the debit card for gas because I hate going inside to pay. I can see how using cash could help me to drive less and therefore save money, but I already limit my errands to certain days, so I don’t think it will save me much more. Who knows? There might be a “cash for gas” experiment in my future.
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What about you–do you use cash? Does it help you stay within your budget?
next post: Life (and financial) Lessons From Horse Camp
Click here to read other posts in this series.
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I just came upon your website (through Pintrest
and one thing to beware of when using a debit card at the pump is that sometimes your bank will put a hold on your account until the transaction goes through. We found that out the hard way. We got $20 in gas, then went to Walmart, but the card was turned down. Embarassing, since I knew I had money in there. (not alot, but enough to cover what I had purchased). So we wrote a check, then went to the bank the next day to find out the problem.
My favorite teller told me about the hold and that it should clear up in a few days, but warned me that using outside pumps can create this hold. Now, I only use cash or go inside at the gas station.
Your bank may work differently, but it could cause you the same problem I had.
Thanks for the warning Jennifer.
Several stations around my area will knock 5 cents off per gallon if you use cash rather than a card, so I tend to do cash for that.
Re the CC, I am on a REALLY limited budget, and I have found having a CC has actually helped me save money…I don’t use it for food or general shopping, but I no longer pay late or even re-connection fees because I was late on bills while trying to round up the cash, and I am able to grab a much needed item while it is on sale, because I don’t have to wait til next week when I might have cash, etc etc. As long as I don’t whip it out to pay for my latte every time I feel like one, or yes, over load my grocery cart because I feel like I have more time to round up the money, I am calling my credit card a MAJOR help with my budget.
On top of that, I like earning the points, to go towards plane tickets, so I can actually afford trips to visit my family!
First I was to say I love your blog and have found so many helpful tips to budgeting so I can prioritize my life better. I too have recently started using cash for groceries and it is keeping me from overspending. I have started trying to use cash for everything and its quite nice not having to keep up with as many debit card receipts.
Thanks so much Christan! Welcome!
I’m definitely pro-credit card use. Obviously, keeping only cash forces you to stick to your budget. But if you can get yourself to do that without cash, the perks of a credit card can really add up. I keep a strict budget, but pay for everything (except rent & utilities) on my credit card. Since I’m careful to stick to my budget based on my income, I always have enough in my bank account to pay it off in full. Every few months, I cash in the points for a new appliance, a gift card to a clothing store, or cash towards my bill. I’m able to save money that would have gone those expenses. I have a Chase Freedom card and recommend it as one of the best points programs around. And if you’re paying off the entire balance every month, there’s no need to worry about interest payments!
One of the ways I stick to a budget is by telling myself “not today” or “not this week” when I want something that will push my grocery or clothing spending too high for the month. I remind myself that after the next paypay, I can buy it (if I still want it!) and I’ll have to make due without until then.
But if you’re not swayed, I think it’s important to have a credit card, even if it’s truly for emergencies only. You never know!
I am glad that you have found a way to make credit work for you Melissa. Unfortunately, most people aren’t as disciplined as you are.
The way that we deal with emergencies is to save cash into a separate account. Having to pay cash makes us think twice about things that might seem like an emergency, because we don’t want to spend the money.
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