In pursuit of financial independence and personal fulfillment

I’m wired wrong – I spend more with cash than with credit

One of the oft-cited tricks to break people of their consumerist spending habits is to pay for everything with cash instead of credit. The theory goes — and research and other people’s experiences have shown — that people spend less when they have to fork over actual green vs. swiping plastic.

I’ve seen the opposite effect for me.

If I’ve got money in my wallet, especially more than $30, I have no problem paying for things with cash. Stupid trinket from a street vendor? Sold! Delicious ice cream treat from the corner store? I’ll take two! Bag of M&M’s from the vending machine? Peanut or plain?!

However, if I have to break out my credit card, I stop to think about it.

How my money system works against the cash theory

It’s taken me awhile to figure out why I seem to act counter to what behavioral economists expect from people who are asked to pay for stuff in cash. I think I’ve finally gotten some insight, though.

The cash-hoarding theory suggests that when you hand over physical money, your brain sees it as having actual value, whereas credit is just a magical transaction that you don’t equate with your bank account until the bill is due.

For me, though, I track all of my spending in a spreadsheet and often look to see how my spending compares to what I project in my budget, as well as how my category spending stacks up to what I’m shooting for. I check this several times a month. But I don’t track how I spend my cash. I make a withdrawal and put that number in my spreadsheet as a miscellaneous expense called “ATM withdrawal.”

Once that money comes out on my spreadsheet, it’s effectively gone in my mind, even though I haven’t necessarily spent it yet. So I don’t even worry about whether it’s being spent on drinks at a concert or games at a community fair or beef jerky at the gas station. It has already been accounted for in my mind.

Why my credit card keeps me honest

I know generally where my spending is throughout the month. I know how close it is to what I’ve budgeted for, and more or less in which categories I’ve maybe spent more than I want.

I have the same issue a lot of Americans have — I really like to eat at restaurants.

Here’s how my restaurant spending has looked since 2012:

2012 – $3,380
2013 – $2,870
2014 – $4,250
2015 – $2,690
2016 – $2,610

This year, I’ve got a goal to spend less than $2,000 at restaurants. However, that excludes meals while on vacation and it does not include restaurant gift cards that I’ve gotten as presents. That’s one of my go-to gift requests, because I like that I can go out to eat more without it adding to my restaurant spending total.

I’m just shy of $1,000 for the year right now, so I’m on track to hit my goal. That’s 34 meals out since Jan. 1 and a quarter of that total is from two family dinners where I picked up the tab for the group. Meeting my goal would put me at $600 less than last year’s restaurant spending, or almost a 25% decrease.

I have to keep myself in check when I could just make small purchases with cash instead of put them on my card.

There’s a great Mexican restaurant with killer chips and salsa right around the corner from my office. On my daily walk, it’s tempting just to walk in and pay $3.25 for a to-go order. But I make sure I pay for it with my credit card. If I start paying cash for that, I know I’ll be in there way more often because I won’t have to categorize the charge in my spreadsheet.

Hacking your own behavior

I could start being more diligent about my cash and track it better to see where all of my money really goes, but frankly the result wouldn’t be worth the effort. I just don’t spend a lot of cash. I’ve taken out $1,200 from ATMs in the past 18 months. Going to the trouble of tracking that spending even to decrease it by 25 or 30 percent isn’t going to give me enough payoff to make it worth the time.

That’s why I have gotten better about tracking my credit card spending. It’s why I’ve imported my card statements back to 2012 in Excel and refined my historical spending to match the categories I’m spending today. I can see over time where I’ve overspent or where I might be doing so now.

I can see that my cell phone plan went from $720 a year up to $1,100 before I switched to Republic Wireless this year and will spend less than $300. I know my spending at the home improvement stores is waaaaaaay down since we moved to a newer house last year. I know my spending on TV was about $2,000 at its peak a few years ago, and now it will be more like $600 (thanks to $60 apiece UFC pay-per-views).

This method works best for me. So even though there’s lots of research and great testimonials all over the Internet about how going to the cash-only method changed people’s lives, I recognize that with personal finance, one size doesn’t fit all. The trick is to find the one that works for you and constantly refine it.

Has the cash-only method worked well for you? Have you noticed other areas where your behavior or experience seems to be against the norm? Or am I the only weirdo?


  1. Steveark

    It always bugs me a little when Dave Ramsey indicates people spend more with plastic than cash because cash activates the pain centers of the brain. I do love Dave Ramsey and admire his body of work! In my case that never happened, the act of shopping itself activates my pain centers, not my payment method. My wife seems just the same, we’ve never carried a balance on a credit card and are both early retired FI. Maybe it is because I’m an engineer but money is money no matter how you spend it. And most of the time, I’d rather not spend it. But then your readers, like you, are by and large winning at their finances and not making dumb money moves.

    • I Dream of FIRE

      I don’t have any problem shopping, per se, but I don’t like to see my numbers get too out of whack. We’re pretty frugal, but certainly not too extreme. If we were serious about cutting way back there’s definitely fat there. But we’re happy with where we are at the moment. Thankfully we are in a position to make adjustments over time rather than have to do a major turnaround all at once.

      How has your spending changed in retirement, if at all?

      • Steveark

        My spending is almost exactly the same. I have some sweet side gigs that make everything we spend working about two days a week. Some things have reduced but the extra travel and recreation costs have balanced that out.

  2. FullTimeFinance

    I’m definitely in the same boat. Card spending is something I pay attention too. I spend cash in my wallet like it’s going out of style. This is why I’m lucky if I have a buck in my wallet at any time. I know my kryptonite so I protect myself against it.

    • I Dream of FIRE

      Yes! If I take out $100, a week later I might have $20. Then that $20 becomes about $8 and I hold onto that $8 for a month or more just so I don’t feel the urge to take out any more cash.

  3. Palmetto Millennial

    I used to subscribe to the pay with cash team, but I have recently realized I don’t like to spend money no matter how I pay. With cash, it is also more work…having to go to the ATM, have to deal with change. I still have a penny jar I need to deal with! No thanks! I will be using credit cards going forward.

    • I Dream of FIRE

      Gotta love the penny jar. I use a large Claussen pickle jar. By the time that gets filled with change, I’m looking at $200+. Back in high school whenever my band was ready to record, my change jar covered almost all of my share of the session. Not using cash definitely slows down that pot of money!

  4. Nick True

    YESSSSSSSSSSSSSSS! I’ve been saying this for years. I’ve never tracked cash because I always carried so little of it that I would expense ATM withdrawel and add a note about what it was for.

    But because you can only get ATM money in increments of $20, I would always have some left over and end up wasting it on a drink or candy bard or something.

    Literally, I’m exactly the same. Thanks so much for putting this article together! Fantastic.

    • I Dream of FIRE

      I broke a $20 the other day and have eaten M&Ms out of the vending machine three times since then, just because I’ve got a dollar and the munchies. I guess I could use Thrifty to track that spending that happens in cash just to keep myself accountable. But it’s so easy to hand over a buck that’s already accounted for in the overall budget!

      • Nick True

        I so know. I so so know. I actually got into an argument of sorts on the bogleheads forum a couple years back about “cards making you spend more than cash” I argued that in my situation it was the opposite for this exact reason.

        And yes, I’ve actually started tracking cash 2 months ago because Hanna and I live in a camper now and we do our laundry at the laundromat, which gues… only takes quarters.

        I’m using YNAB, but yes, Thrifty’s app would great!

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

© 2023 I Dream of FIRE

Theme by Anders NorenUp ↑