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?