Cash or Charge? How to spend less money.

Spending cash does help you to spend less money than when you pay with credit.

Numerous personal finance experts claim that spending strictly cash will not only help keep you on a budget but will also help you spend less.  The problem I have is that I hate spending cash.  As a 11 year old I left $40 in a purse in McDonalds and ever since I’ve been terrified I’ll lose the money!  (We went back and found the $40.)  Also, I love credit cards because you never have to worry about how much cash you have, you never have to go to an ATM, and everything you spend is automatically tracked for you in a nice computerized report.  (And I pay it off every month so using credit cards is not a financial penalty.)  But I recently decided to try again for a couple of reasons:

  • I wanted to keep a budget and it’s easier to stick a couple of hundred dollars in your wallet and say "this is it for the week" than it is to track all the money you spend on gas, eating out, groceries, the coke from the vending machine, etc.
  • I think I’m over my fear of losing cash.  I realized a while back that losing the money in my wallet might make me upset but it wouldn’t really devastate me.  ($40 to that 11 year old was a lot more than $200 is to me now.)
  • I was curious … would sticking to cash make me spend less?  Would I treat money differently?

So I’ve been doing this for about a month – every Friday I put a certain amount of cash in my wallet and that’s it for the week.  If I buy gas with my credit card, I actually take that much cash out of my wallet and put it aside.  (Buying gas with my credit card is too convenient to give up.)  And it works.  I’m spending less money!  I’m not sure what I’m spending less on since I tend to track overall numbers not all the details but I don’t feel like I’m depriving myself of anything.  (If I had to guess it’s lunches by myself, snacks and impulse purchases.)  Here’s some of the reasons I think I’m spending less:

  • I’m very aware of what everything costs.  With my credit card that I don’t pay much attention to what anything costs.  Thirty seconds after I pay I couldn’t tell you what I just paid.  (I saw it, I made sure it made sense, and then I didn’t bother to store the information in my memory.)  With cash I pay attention to what things cost and I remember what I spent.
  • I make tradeoffs.  Since I can see how much is left in my budget I can say, "I’d better not eat lunch out if I want to go to sushi on Friday night."  Using credit cards I’d just do both.  (Note that giving out the lunch out if it’s by myself isn’t really giving anything up.  I just need to remember to grab leftovers at home in the morning – Frank always has lots of great leftovers in lunch size containers in the fridge.  See My Man’s Man for more on that.  I haven’t given up any lunches or going out with friends – those events are high on my priority list!)
  • Another theory that I don’t think applies to me is one from freemoneyfinance that says that if you keep $100 bills in your wallet you are less likely to spend them because you don’t want to break them.  I use $100s simply because they take up less room but I don’t think I’m any less likely to spend them than $20s.  But who knows, maybe that can be my next experiment.

What do you think?  Do you spend less when you spend cash?  If so, why?

Photo by velo_city.