Do you ever have much cash in your wallet or purse?
Or are you like many people and use your atm card or credit card to pay for things?
Recently I helped out at our church’s coffee shop and was assigned to look after the till (what other job do you give a non-coffee drinking financial planner?).
What amazed me was how many people paid for their coffee with their debit or credit card. More than 50% paid this way, preferring card to cash.
Now, I certainly understand the convenience of using a card to pay for things rather than having the hassle of getting cash from the ATM.
But I think it can create a problem.
I believe we place less value on money when we spend it without seeing it.
Think about this for a minute.
When you spend money using your card, you’re not as aware of the amount of money you’re spending because all purchases (big or small) look the same – you just get a receipt.
When you pay by cash, you’re aware of taking the money our of your wallet or purse and physically holding it in your hands before you hand it over.
And when you do have money in your purse, you think twice sometimes about spending it. If you’ve got a $50 note and you’re thinking of spending $2 on a snack, you may be less likely to do it because you’d have to break the $50.
But if you were paying by card, you wouldn’t measure it this way.
Give me your money!
It’s amazing how blase we can get about money when we’re not physically spending the money ourselves.
Take your mortgage for example. Everyone pays their mortgage by direct debit – it comes from a bank account. So you’re disconnected from the mortgage-paying process because you’re not actually doing it yourself with ‘real’ money.
If you had to physically take $2,000 to the bank each month to hand to the bank teller to pay into your mortgage, you’d be very aware of what you’re paying. And you’d be looking at ways to reduce it.
What if you could reduce the interest rate on your mortgage by 0.5%. On a $200,000 home loan this would save you around $1,000 each year.
But many people are too lazy to do the work to see if they can get a lower rate. Because there’s no immediate pain.
But if I told them to give me the $1,000 each year, or better still, rip up $1,000 each year, they’d freak out. But it’s the same thing. They could be $1,000 better off.
Sometimes we’ve budgeted using the envelope budget method where you put your money into various envelopes (for bills, food etc) and take money out when you need it. This is all you have for the week.
Doing it this way you know exactly what you’ve got (or haven’t got). And you are reluctant to waste money because you’re more conscious about what you have to spend.
So you get more focused and only spend on the things that are necessary.
It’s okay to touch your money
The key to getting ahead financially is to be in control of your money.
And I believe that if we’re always using a cashless method to pay for things, we become one step removed from our money and not as conscious of where it’s going.
I’m not saying to pay cash for everything, although there are some benefits with that.
Be aware of how your brain works when it comes to money. We don’t always think rationally when it comes to making decisions about our finances. So many times our decisions are based on emotion, not logic or fact.
The only way you can get ahead is to stop being like the majority of people. Because the majority of people won’t be financially successful.
Do what they don’t. Make the un-cool choices.
Try going cash only for a while (at least for the things you can) and see how it goes. I’m sure you’ll find it challenging, but you’ll have to admit that you become more aware of your spending when you do it this way.
What do you think?
Cash or cashless?
Leave a comment.