The Power of Cash

I know some of you, if not most of you must think I am off my rocker for suggesting that you stop using credit cards.  After all that's what sophisticated financial people do, right?  Well they might be sophisticated but they are broke.  I know because a few years ago I thought I was cool, smart and sophisticated every time I used them.  But in the back of my mind I knew I'd be dreading the bill at the end of the month and I would be gripped with guilt wondering if I had it in my budget .  Before I go any further I want to share with you our story.  My husband and I have been married for almost 8 years and until the fall of 2007 we used credit cards for everything- groceries, gas, clothes, eating out and for a short time some of our utilities.  Of course me being smart and sophisticated, this was all in the name of getting reward points or so called 'free money'.  I thought I was smart and on top of things because after all, we paid our bill in full when it came due.  The only problem was that I found it very difficult to stay on budget and put any money into savings because we were broke.  Switching over to cash was truly a turning point for us.


I came across a statistic that said on average credit card users spend 12-15% more than with cash.  Why do you think fast food joints accept plastic?  If you think about it, this far out-weighs any 3 or 5% cash back you receive or the airline miles that you'll never redeem.  (Yes, 75% of airline miles are never redeemed.)  I mean really, would the credit card companies offers these 'deals' if they were losing money?  I wasn't sure I believed it because after all I was a smart saver who shopped sales and got bargains.  But after trying it I discovered I was wrong...big time.  You see something happens when you hand over a $100 bill to pay for the groceries.  It hurts!  You suddenly become aware of what you are spending that money on.  There is no emotional connection to swiping a card and it's a lot harder to stop as a result.  For me, it's been freeing like no other thing I've experienced.  When I buy clothes for my family I don't feel guilty because I wanted to save as much money as I could.  We have learned to accept the fact that when the eat out envelope runs dry we have to find something else to eat.  Obviously, this does take discipline not to cheat and stop by the ATM anyway.  There are a lot of people who kill their budget by "twenty-dollaring" themselves to death.


Now I'm telling you, the first time you try this you will be off with how much you really need.  To determine the proper amount for you, I would suggest going through your statements and total up how much you really spent on groceries, clothes and eating out.  Chances are you will probably be shocked because it might be half again as much as you thought you really spent.  Either you have been in severe denial of how much you really need or you really are spending too much.  With the clothes budget find the average that you need every month because if you are like me you probably don't buy clothes every month.  It comes in spurts with the seasons.  It's those spurts that hurt if you're not anticipating them.  So start accumulating money on an off month.  As far as eating out goes.  The only thing I can say is what are your financial goals?  Will you be eating away at them at the drive-thru or restaurant every week or will they be going toward accomplishing them?


One other thing I want to mention about the power of cash.  Have you ever tried to make a large purchase item like furniture or a car with cash?  If you have, then you know that 90 days is NOT the same as cash.  Not only that but when you walk in to the store with a wad of Benjamins you know it feels different.  Negotiating with real money works.  You can't do that with plastic.  I know these ideas sound as old as your grandparents, but it worked for them so why wouldn't it work for you?  Don't believe me, just try it for yourselves.  You can always go back into debt, right?