Thursday, September 2, 2010

G.O.O.D. Tip #3: Get thee to an ATM — start paying with cash

I can't tell you how many people have completely freaked out on me when I say that I always carry and pay with cash.

Remember cash? Those green, paper bills you see sometimes? You're still allowed to exchange them for goods and services!

"But aren't you afraid of being robbed?" people ask. Yes, I am afraid of being robbed, whether I carry cash or not. That's why I have pepper spray in my bag and a baseball bat in my car.

Just give me a reason.

And let's face it: I'm not Diddy. We're talking about Hamiltons here, not Benjamins.

The fact is, I've never been robbed (and I'm probably jinxing myself, but, again — baseball bat), but I have gotten into trouble by using my debit card and credit card. It's so easy to overspend when all you have to do is slide that little piece of plastic. It's so difficult to mentally stick to a budget while you're out grocery shopping or bar-hopping.

I use cash to make things easy on myself. Prior to each paycheck (twice a month), I sit down to create my next budget. I list all the regular payments I'll need to make during that period; determine how much money I'll immediately transfer from my paycheck to my savings account; and designate a small amount of money to take out in cash to spend for two purposes: groceries/toiletries and going out/having fun.

Usually I divide the amount equally between these two purposes, but if there are birthdays or other events approaching, I'll lump more money into the fun category.

Once I have this predetermined amount nailed down, I hit the bank after I get paid and withdraw the cash. I divide it up into its two purposes, make note of the starting amounts on a couple of post-its, and keep track of my spending on those post-its throughout those few weeks. When I run out of cash, I run out of cash. That's it.

This method has helped curb my spending for a few different reasons:

  • It's much more difficult to part with tangible money. I tend to think twice about handing over a bunch of cash when I can physically see how much I'm spending. With a debit or credit card, the swipe is equally painless whether you're spending $7 or $70.
  • Having a predetermined "allowance" in cash encourages more frugal decisions. If I have $50 designated for fun stuff that needs to last me two weeks, do I want to blow it all on one dinner? Or would I rather have one beer on Friday night, go out to lunch on Tuesday, buy an inexpensive shirt on Thursday and see a movie on Saturday? With a debit card, I might have spent the $50 on dinner without thinking, then spent more money later on a beer, lunch, a shirt, etc. Cue me at the end of the month asking: "How did I overspend? Where did all my money go?"
  • It's easier to accept or reject social invitations when you know that you have X amount of money to spend (before you get into a situation where you're forced to spend money anyway). If my friend asks me to go get mani/pedis with her and I have $10 left in fun money, I may politely decline the invitation and suggest a less-expensive alternative. Or, I may pull $40 that I have left for groceries/toiletries and cobble together enough cash to accept. Either way, I'm able to think ahead of time about the money required for this particular activity, and whether I'm willing or able to spend it. (If your friends make fun of you for this, work on getting some better friends.)
Above all, using cash puts me back in touch with reality and makes me feel more in control of my spending. I'm a bit of a control freak — hello, I'm a proofreader — so I love the fact that I can look back at any one of my budgets from this year and find those little post-it notes stapled to the page, along with receipts, detailing exactly how I spent my cash.

Dave Ramsey likes to say that rich people tell their money where to go; poor people wonder where it went. Try using cash to help you stick to your budget, and you just might like how it works out.

1 comment:

  1. What you said is so true. It's a lot harder parting with cash than swiping that card. Another trick that I've found helpful in ending the battle with plastic is, stop carrying it. I took them out of my wallet, then when it comes time to pay, it's not an option. I am so glad I found your blog and this post. It really helped me get mind right about my money.


Related Posts Plugin for WordPress, Blogger...