Monday, August 10, 2009

Pay Cash, Spend Less (Month 2)

Well, July 2009 is gone. Which means another "cash only" month is in the books for the IYM household.

For those readers who might be new to this blog miniseries, my household has moved to (largely) cash-only spending for the three-month period of June, July, and August 2009. Previous to this little experiment, we paid for most everything with no-fee, cash-back credit cards. (As per my "How We Manage Our Money" post, we don't carry balances ... EVER.)

The idea here? I want to see how much less we spend when we spend only cash. Actually, in the two months we've been on this cash-only kick, we've actually used debit cards a handful of times as well. But greenbacks have been the payment mode of preference, since I want to make the spending feel as "immediate" as possible.

For simplicity's sake, I've picked seven every-month spending categories to watch closely during this experiment.

Why Not Total Spending?

I don't pay much attention to our overall total monthly spending when looking for cash-only results. The reason? The "grand total spent" doesn't tell the true story of cash-only versus plastic, because any one month can have irregular but necessary expenses — like backyard fence replacements — which have nothing to do with whether we spend cash or not.

Results: Cash-Only in July

So here's how our spending in July (cash only) compared to the average monthly spending in March, April, and May (when we paid with plastic):

Results: Two Months of Cash-Only (June & July Averaged)

And here's one that's even more interesting to me. In this chart, I've averaged our cash-only spending months (June/July) and compared it to March/April/May:

Wowsers. More than a twenty-two percent decrease in spending across these common categories.

The old maxim, "When you spend cash, you spend less!" sure appears to be holding up. One month to go!

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— Posted by Michael @ 8:10 AM



I have followed your blog for a few years now. I find you have profound insights and this data you present is one of the most telling ever. My wife and I have used debit cards only, cash only, and now credit cards with cash. Due to security risks, I don't prefer to use debit cards. Credit cards are my preferred means due to the rewards points and security they provide. However, are the rewards earned on our reward credit cards offset by increased spending? Your analysis seems to clearly indicate the answer is yes. Our credit card pays anywhere from 1.25 to 5% cash back per month. However, if we are spending on average 22% more to get there are we really ahead? An MIT study which can be found at the following link seems to confirm this as well:


Interesting, but I'm wondering why the results are being attributed to a "problem" with credit cards, and not being analyzed as a problem with your spending discipline?

Using cash is clearly a band-aid for a larger problem - your inability to control your spending.

When you switch to cash spending, instead of attacking the core problem - your lack of discipline in spending - you are costing yourself money in the form of lost credit card rewards and interest gain from float.

Spending discipline allows you to use the system to your advantage. Because you apparently lack this discipline, you cannot capture this advantage.

Your experiment has identified a problem in your spending, but your cure (spend cash only), is only masking the symptoms - shifting "blame" to the credit card - rather than curing the problem by getting to the root of it.

Anonymous Anonymous
, at 11:17 AM, August 17, 2009  

To Anonymous,

How can you use the "system" to your advantage when you are paying interest on credit cards? If you buy cash you pay less in the long run, because of no interest accrued.

Anonymous Anonymous
, at 7:24 PM, August 28, 2009  

I don't pay credit card interest.

Never have. Ever.

I pay off my (no-fee) credit card in full each and every month.

I do however, collect over 2% of my annual charges in cash rewards from the credit card company - simply by using the card and having the financial discipline and maturity to not spend more than I can afford.

It's quite simple really.

Anonymous Anonymous
, at 3:55 PM, October 07, 2009  
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