The pros and cons of a cash-only budget
The following are the pros and cons of a cash only budget:
Pros:
Cash makes you more conscious of your spending. Paying with cash whenever possible -- rather than with a card of any type -- forces you to be acutely aware of the amount of money leaving your hands. If you have $200 cash for groceries, and you see your grocery budget get slim, you are going to be less likely to spend $1.49 on a personal size soda when you could spend $99 on a larger one.
With cash, you avoid credit card fees. A lot of people spend more because they make late payments, or they overdraw, go over their allotted balances, etc. With cash this is really not a concern. You can't go over your allotment because it is cash.
You don't overspend because once the cash is gone, it is gone. This means you won't indulge as often.
|
|
You will be skinnier if you use cash instead of credit cards. This might not be totally accurate, but a recent study showed that people paying with plastic rather than cash are more likely to order larger orders, upgrade the size of drinks and fries, and eat more often because no money actually leaves their hand.
Your debt does not grow.
Cons:
While you will avoid credit card fees, unless you plan ahead really well you'll still be paying fees for those out-of-network ATM cash withdrawals. And it's not hard to avoid most credit card fees, if you choose the right card and pay the balance in full every month.
While you can't blow your budget by over spending because the cash is gone, it does not mean you will be better off financially. You may not be able to incur credit-card debt, but you can certainly spend the rent money on something trivial like clothes or movies. So you still have to be just as careful.
An all-cash-all-the-time program doesn't seem to be worth the hassle. While true that spending cash all the time is likely to make most people more aware of just how much they're spending, you can get the same results with something like a debit card, or by watching your statement on your credit card.
Cash does not offer the protection or ability to track things like a credit card does. If you pay for something, and never get it, on a credit card you get your money back. With cash, you are out of luck.
Cash can be lost easily. If you lose a wallet with a credit card, you simply cancel the card so no one else can use it. But if you lose a wallet full of cash, you are just out of luck.
There are both pros and cons to an all cash budget. If you have a hard time controlling your spending when using a credit card because of the ease, then using cash might just be for you. However, unless you are careful with your cash, you might find you spend the same, and have no money left at the end of the month for food, bills, etc. It is a personal choice you have to make, and you have to exercise control either way. Learning to be more conscious of your spending with a card will give you the same results as using all-cash with less risk.
