Living completely on cash for a period of time has become a popular trend to reset your spending.However, just using physical currency can really reduce impulse purchases. Increase financial mindfulness? Or is it really, really inconvenient? Or both?
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GOBankingRates asked three experts who live a short-term, cash-only lifestyle what they learned from their money experiment.Here’s what happened when they kicked their credit cards to the curb I went all in with cash.
Don’t give in to temptation
Everyone we spoke to found that going completely cash-only creates a psychological deterrent that reduces impulsive spending.
“Using cash for all transactions has introduced a psychological dimension to spending that I hadn’t considered before,” said Olivia Stettler, who used only cash for a month. “The tactile experience of handing over physical money made each purchase feel more important and led to more thoughtful spending decisions.”
Richmond Harris, who lived solely on cash for a year, felt the same way. “When you see bills leaving your wallet, it’s hard to let them go,” he says. “The temptation to spend money impulsively has decreased. Physically counting money adds a layer of awareness that many people find beneficial in reducing wasteful spending.
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better budgeting
Stettler and Joe Manktelow-Pym, who tried to live solely on cash for six months, say sticking to a cash budget is difficult. To stay on the right path, Stettler used a simple method called the envelope system. She divided her expenses into different categories such as groceries, entertainment, and bills. She then placed specific amounts of cash in separate envelopes for each category.
Stettler found the system extremely useful. It helped her stick to her budget, and more importantly, it made her more conscious of her own spending habits.
“This simple but effective method has helped me stay on track and become more conscious of my spending habits,” she said.
The idea is that seeing the actual cash inside the envelope will make you think twice before you spend it. This is like a reality check on your budget, making you consider whether you really need to spend that money.
No interest fees
As Manktelow-Pimm pointed out, there are significant advantages to using only cash. “With cash, you don’t have to worry about interest rates on credit cards or loans. This can save you a lot of money in the long run.”
Simply put, by using only cash, you avoid paying extra interest fees that can be incurred if you use credit cards or loans.
Avoiding interest fees is a huge benefit, but it’s important to weigh the pros and cons and consider your own financial habits and needs before switching to cash-only.
limited purchasing power
As Manktelow-Pym pointed out, living on a cash-only basis has its drawbacks. “When you use cash, you only have a limited amount of money on hand,” he said.
This limitation can be a big disadvantage if you make an unexpected large purchase. Since you don’t use credit or debit cards as an alternative option, your spending is strictly limited to the physical currency in your wallet. This restriction can complicate large purchases or emergencies, making trips to the ATM inconvenient and associated fees. If you’re going cash-only, you’ll need to plan ahead and have a good emergency fund.
Additionally, there are some situations where using cash is simply not possible, such as when shopping online or paying bills.
“In the digital age, that’s a pain,” Harris said. “Online shopping and subscription purchases become a hassle.”
Difficult to track expenses
During her six-month experiment, Manktelow-Pimm found it difficult to track her expenses when using cash.
“It can be difficult to keep track of your expenses when using cash,” he says. “You have to keep receipts and record expenses manually, which can be time-consuming.”
Managing your finances this way requires a lot of discipline, especially since you lack the convenience of relying on readily available bank statements.
Credit score doesn’t improve
And living on cash alone doesn’t improve your credit, Manktelow-Pym found.
“Using cash won’t improve your credit score because you’re not using credit,” he said.
While short-term cash-only living can increase mindfulness, long-term experiments can be fraught with serious problems. But as a regular spending cleanse, he can reset wasteful habits and get his budget back on track by doing one $20 bill at a time.
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This article was first published GOBankingRates.com: I paid everything in cash for months: Here’s what I learned
