6 years ago
Jared Pickens
Finance Professor

Common Cents 1 Cap (1)

Cash is cool again.

We live in an age of instant gratification. We can get almost anything we want with a click of the mouse, a stroke on the keyboard, a slide of the finger on our smart phones…or the swipe of a credit card.

The pace of life moves faster and faster with every generation, and money is no different. Most of you reading this column probably purchase everything with a credit or debit card.Pickens, Jared_JRP0837 (08-17-11)

In fact, I’d be willing to bet that the majority of you only have cash in your wallet after Christmas and your birthday. I’m no different. I find debit and credit cards to be so much more convenient than cash.

Let’s face it, it’s a hassle to have to stop at the ATM to withdraw cash every time you want to buy something. Although if stopping by the ATM was our only option, maybe we’d think twice before spending money. Research actually shows that using debit or credit cards instead of cash causes us to spend more money…a lot more.

Certain studies have shown people to spend up to 47 percent more when they use a credit or debit card compared to people who use cash. Why? Well, for starters, when you swipe a card you don’t FEEL like you’re spending money. There’s a psychological impact that comes with watching your wallet get thinner, but you don’t feel that physical loss when you use plastic. Think about it. Pretend you only have a $10 bill to get yourself through the day. Would you still stop at Starbucks in the morning for that double tall, nonfat, one pump, extra hot mocha? Probably not. Using cash sets a real, tangible limit on the amount of money we spend.

Let’s look at another example. Say you go out for dinner and decide you only want to spend $20. If you take $20 in cash with you, you have set a real boundary. If your bill ends up being more than $20, you are either washing dishes or dining and dashing. However, let’s say that instead of taking cash you set only a mental boundary of $20 and plan on using a credit card. You have now put yourself in a position where there are no physical consequences of meeting your goal. There is really nothing stopping you from spending a little mor
e because the charismatic waiter talked you into a dessert. After all, what’s another $7.50? And you don’t feel the consequences until much later on when you realize you’ve gone way over your budget and you’re tapping into savings to cover your credit card bills.

It is often thought that people become financially independent or “rich” because they either inherited the money or invested in some hot stock that made millions. The truth of the matter is that most individuals become financially successful because they understand how to control their spending, pay themselves first and avoid financial mistakes. Wealth rarely comes from the rich uncle who left his nephew or niece millions in a trust fund, nor does it come from a smart-looking individual who looks at stock charts on five computer monitors while day trading in the market. You don’t have to completely understand investments, retirement plans or tax planning to achieve financial success. You simply have to set some attainable goals and be wise with your money.

I’m going to try something new this month, and I challenge you to try my experiment with me. Let’s take the first step towards financial success by seeing how much money we can save if we use only cash for the next month. Here’s what I want you to do:

• Log onto your bank account and make a note of how much you’ve spent on credit and debit cards in the past 30 days (excluding rent, utilities, and other regular bills).

• Set a budget for yourself for the next 30 days based on how much you want to save. Personally, I’m going to aim to cut back by 30 percent.

• Come up with a plan that works for you to make sure you have cash with you when you need it. Maybe you want to stop at the ATM once a week and take out ¼ of your budget. Maybe you want to just keep enough cash with you for the necessities and force yourself to go to the ATM before all of your big purchases. The important thing is, do what works best for you.

Try this for a month and let me know how well this experiment worked for you. How hard was it to only use cash? Did you save money? Is this a plan you think you’ll stick with for a while? I wish you all (and myself) luck with this experiment. I hope it helps us all realize how cool cash can really be.

If you have any questions or comments, or if you are interested in taking a class in personal finance, please contact the writer at jared.pickens@utdallas.edu.