Til Debt Do us Part

[Onward]

I have a feeling I have a more extreme LBYM attitude than the average person in those studies, though. And then there are issues like gas + wear & tear spent to get the ATM to withdraw the cash you need to stay on a strictly cash basis. There are debit cards, but now you're back to plastic. Hmmmm.

 

[Meadbh]

We use our credit cards for as much as we can. Objective is to collect frequent flier miles. Just booked 2 business class tickets to far east for virtually free. Get at least 6-10 flights per year this way. Key of course is to always and I mean ALWAYS pay the balance each month. Hardly ever use debit card. We view credit card interest as a tax on the weak and stupid. By using frequent flier points this way we divert some of this tax to us. Life is good.

Ditto! But I don't get 6-10 flights per year, maybe 2-4.

 

[tmm99]

I've been using the same type of envelope system for the last few years (pearbudget.com), but I do use credit cards. I carefully enter all spendings in the spreadsheet every day. Whether the money spent comes from the credit card or from cash in my purse, it gets entered into my spreadsheet to keep track of the spending. It's been working for me well. I can see where my money is going and I know how much money I have left in each category (envelope). I do a lot of online (price comparitive) shopping for items I can get cheaper online than at local shops, plus it is less time consuming to search online than hunting down locally (driving from one store to another, for example) for the things I am looking for. (I seem to be able to get skincare products much cheaper on ebay, for example, than locally.)

 

[SecondCor521]

Even if you pay off your bill each month, study after study have proven that people spend more money when using a credit card instead of cash. Most studies show you spend 10-20% more using plastic.

I'm probably the most *ahem* particular person about budgeting ever...I use Quicken daily and religiously, and balance my accounts to the penny. I save a large percentage of my gross income. I'm on track to retire around age 45.

That having been said, I have a few comments about the above studies:

1. If you go looking for the studies, there actually are only a few. That having been said, those few do show what skyvue describes.
2. I would be one person who you would think would be impervious to the effect of spending on a credit card versus a debit card versus cash.
3. I am in fact affected by this phenomenon. I have recently taken my PenFed Visa out of my wallet and have noticed a drop in the number of $4.50 work lunches at the cafeteria that I have bought. Other variable expenditures have also decreased, just not by much because I don't spend that much to begin with.

2Cor521

 

[Danmar]

OK. Couple of points. 1) Accountingsucks-watch that superior Canadian attitude. Could get you in trouble on this site. 2) I am sure people who use credit cards spend more but that doesn't prove anything. People who have better credit scores spend more too (but they make more). People who have more tend to have more credit cards and tend to spend more. If we didn't use credit cards we would spend less no doubt-but I don't want to spend less. Life is too short and we can afford our current level of spending. The issue is really the extent of misused credit cards-big problem I agree.

 

[Meadbh]

OK. Couple of points. 1) Accountingsucks-watch that superior Canadian attitude. Could get you in trouble on this site. 2) I am sure people who use credit cards spend more but that doesn't prove anything. People who have better credit scores spend more too (but they make more). People who have more tend to have more credit cards and tend to spend more. If we didn't use credit cards we would spend less no doubt-but I don't want to spend less. Life is too short and we can afford our current level of spending. The issue is really the extent of misused credit cards-big problem I agree.

Good for you Danmar, but as I recall you are particularly well funded. Your situation is anything but typical. Most of us (including me, a physician) have to make discretionary spending /saving decisions on a daily basis, and do, in order to achieve our long term goals.

 

[WhoDaresWins]

I use a credit card for almost all purchases, and I am certain that in the past I spent more using a card than if I had been spending cash. Have been trying to be more cognizant of my spending in preparation for retirement(and just in general principle) and I know I am spending a bit less. I do spend a lot at the grocery for one person but I like stuff like out of season berries, pomegranate juice, prosciutto ham, jumbo shrimp, fancy cheese, grass fed meats, etc. I have totally cut out the spending on clothes and stuff for the house. I have enough of the latter to last me two lifetimes.

 

[Danmar]

Meadbh-I didn't mean to suggest our funding is unlimited-of course it isn't. We have a budget too and need to make spending decisions on an ongoing basis. It's just that we seem to be able to do so while using credit cards. Hard to imagine being able to live without them while travelling for instance.

 

[Onward]

I am in fact affected by this phenomenon. I have recently taken my PenFed Visa out of my wallet and have noticed a drop in the number of $4.50 work lunches at the cafeteria that I have bought. Other variable expenditures have also decreased, just not by much because I don't spend that much to begin with.

That's good info, especially since you and I seem to have a similar profile. I'm still using cc's, but I may try going all cash.

 

[KB]

I have been trying to use mostly cash this year and I have also found that it has reduced my spending. I was very surprised to find that. I still use my card, but very sparingly.

 

[mews]

I went almost all cash a couple of years ago.

This, combined with recording every last penny I spend, really slowed down my spending.

I hadn't been spending a lot, but the little leaks stopped, and therefore my retirement savings went up. Yay!

ta,
mew

 

[Onward]

Wow. That's a lot of votes for all-cash as a way to cut spending. Are you all using currency or debit cards? If currency, how often do you have to hit the ATM?

 

[KB]

I get a months worth of cash out of the ATM at the end of each month. I break it into 4 envelopes, just so my wallet isn't stuffed full of cash and get one out every Monday. I just started this at the beginning of January, and already I have 2 envelopes that I don't need. I'll just carry them over to March if they are still surplus at the end of the month.

Even though I am retired, I am still in the accumulation phase. I'm holding off on starting my pensions as long as possible. So I am purposely underspending and using this as a savings method. My income won't be fixed for a number of years, so I'm living below my means now.

Some of you with fixed incomes probably don't need to watch your money so closely.

 

[W2R]

Wow. That's a lot of votes for all-cash as a way to cut spending. Are you all using currency or debit cards? If currency, how often do you have to hit the ATM?

I don't really avoid credit cards to save money. After using credit cards for many years, I developed a burning hatred of credit card companies for a variety of reasons not relevant to this thread. I get a cheap thrill from indulging in the luxury of telling them, by my non-participation, to pound sand. Oddly, I do spend less and I welcome that, but that is not the fundamental reason why I have no credit cards.

That said, I use either currency, debit card, or write a check. I hit the ATM once or twice a month. I use my debit card for any purchases over about $40, or that I would want a record of buying. Otherwise I would pay cash. I don't use jars but I check my bank account every day. Alarm bells go off in my mind if I hit the ATM more than twice a month, and the same is true for using my debit card for non-essentials. I wrote a check when buying my Venza "in cash".

 

[SecondCor521]

Wow. That's a lot of votes for all-cash as a way to cut spending. Are you all using currency or debit cards? If currency, how often do you have to hit the ATM?

Before last week, I had two debit cards in my wallet, my PenFed Visa, and cash. I rarely had cash and tried to use my PenFed card for everything (thinking along the lines of "I'm getting 1.25%/2%/5% cash back").

My new approach is to take the debit cards and the PenFed card out of my wallet and leave them in the coin box in my car. If I do spend money, this one step makes it slightly inconvenient for me...I have to deliberately grab one of the cards.

The second part of my approach is to use the debit cards for most purchases. For my mental framework, using the debit card hurts more than the Visa for two reasons: (1) I know the money is actually leaving my account in the next day or two instead of the end of next month when my credit card payment occurs, and (2) My bank accounts to which my debit cards are attached have a finite amount of money in them (usually a few hundred to a few thousand -- the rest I sweep into savings or investments); my credit card has, for all intents and purposes no upper limit (my credit limit is $50K, which is about 35 times the max balance I've ever had on that card). Both of these points inhibit the amount I spend.

For example, my team at work goes out for birthday lunches once a month. Before, when I used my credit card, I'd be more generous with what I ordered and with the tip. Now I am more reasonable on both items. I spend $10 instead of $13. That $3 doesn't seem like a lot, but it's a 30% difference in spending; if I do that with every purchase I've reduced that portion of my budget by 30%, which can add up to decent amounts of money.

It may be for me that spending actual cash would be more mentally painful than using my debit card and thus save me even more money. But in my case I don't consider the hassle of going to the bank and the risk of theft and loss to be worth it.

I actually still use my PenFed card for gas. It gives me 5% off, and I am fairly convinced that I don't buy more gas with my credit card than I would with a debit card; I just fill up whenever I need to.

2Cor521

 

[scrabbler1]

Wow. That's a lot of votes for all-cash as a way to cut spending. Are you all using currency or debit cards? If currency, how often do you have to hit the ATM?

I go to the ATM to take out $160 (pre-set) every 14-18 days, or about twice a month. Since I retired and don't have any expensive lunches out (or buy some cash-only transit fare cards), some months I make only 1 ATM withdrawal.

I have been using this system for more than 20 years although I did bump up the amount from $140 in the early 1990s.

 

[Katsmeow]

Even if you pay off your bill each month, study after study have proven that people spend more money when using a credit card instead of cash. Most studies show you spend 10-20% more using plastic.

It is surprisingly difficult to find the actual studies that say this. Usually you find an article which says what you say with little to no citation to actual studies. If there is a study cited it is usually one that you can't actually go and read. So I take the statement with a grain of salt.

However, I think it may be true in some situations. However, correlation is not causation. That is, most who repeat this mantra are arguing that this proves that using a credit card causes you to spend more than you would if you had to pay cash (or even write a check).

But another possibility is equally, or even more likely. That the size of the expenditure you are making determines your method of payment.

My husband doesn't like to use the credit card for smaller purchases. So if he goes to a store and is making a $5 purchase he will use cash. But if he goes to the store and has $50 of stuff in the cart he uses a credit card.

Also, until recently most fast food places didn't take credit cards. Even now many smaller (cheaper) restaurants won't take cards or put a minimum purchase requirement for the use of a card. So if I go to Chili's for lunch I charge it on the credit card but at the hole in the wall where they don't take credit cards under $10 then I pay in cash.

 

[DAYDREAMER]

A little update to our all Cash project. Using cash is very inconvenient! Everytime we went to get gas, I would give the cashier cash, fill up, then come back for change. That really sucked compared to using debit at the pump. Buying food was worse. Having to keep an exact tally of the food $$ amount while shopping was frustrating. It did make us pay attentention to food value and look at the $$/unit instead of the full price. BIG headache though. We did notice that our food budgeting leaves much to be desired. Cash usage definitely cuts going out to lunch at work! You relized quickly that $8 lunches a couple of times a week (x 2 people) really "ate" into the weekly food budget!

I now see why cash budgeting is recommended in 'Til Debt Do Us Part'. It is inconvenient, which slows you down from spending. There is a FINITE element to this method.

Will we continue? UMMMMMMMMM, not for gas.

 

[skyvue]

A little update to our all Cash project. Using cash is very inconvenient! Everytime we went to get gas, I would give the cashier cash, fill up, then come back for change. That really sucked compared to using debit at the pump. Buying food was worse. Having to keep an exact tally of the food $$ amount while shopping was frustrating. It did make us pay attentention to food value and look at the $$/unit instead of the full price. BIG headache though. We did notice that our food budgeting leaves much to be desired. Cash usage definitely cuts going out to lunch at work! You relized quickly that $8 lunches a couple of times a week (x 2 people) really "ate" into the weekly food budget!

I now see why cash budgeting is recommended in 'Til Debt Do Us Part'. It is inconvenient, which slows you down from spending. There is a FINITE element to this method.

Will we continue? UMMMMMMMMM, not for gas.

I am on the all cash system but do make two exceptions. The main one is using my debit card for all gasoline to avoid the hassle of going inside. The other is when I decide to buy something online.

I do use cash for groceries and it is here that I think is keeps my expense down the most. I only give myself $55 per week for food so I can only buy so much and then need to make it last. When I was using my debit card, I bought everything I wanted or looked good and found I wasted a good bit of it.

It also really helps out when I am in a bar or restaurant. If I only have $20 on me, I cash out at that point and go home. When I was using a debit/credit card I stayed until I was ready to leave.

 

[seabourne]

a bit tangential, but maybe related as far as people worrying about giving up card rewards: there is a program through the us mint for selling $1 coins that they are required to get into circulation that waives the shipping price, sells for face value, and bills to credit cards as a purchase rather than a cash advance. They have limited the number allowed per person due to people buying pallets and depositing them into the bank just to get mileage and rebates. If converting to cash for your spending is what you are planning, having to carry a roll or two of dollar coins (i think the rolls are $25 apiece) might be a good solution. The mint has some disclaimer about waiving the limit on request with a good reason - who knows, they might accept the budgeting in cash as good enough, since it fulfills the need to circulate the coins!

 

[oneils]

My impression is that people who use a "cash budget" spend less because they have a zero-based budget and not simply because they use "cash."

I wonder if these survey's can be drilled down, somehow, to see how many within the "cash-envelope" camp or credit/debit card camp use a zero-based budget vs. a reverse budget.

 

[Moemg]

What if instead of putting money into envelopes you just assigned categories every month and wrote down the exact dollar amount ? Then every day you just subtracted the amount you spent whether debit , credit or cash . You would still be doing a tight budget just more conveniently.

 

[TooFrugal]

I don't think we would spend more or less no matter how we paid for stuff. Neither my husband or I are big shoppers and we both like saving money more than spending it. I pay for as much as I can with the cash back credit cards. It is like getting free money.

 

[tmm99]

What if instead of putting money into envelopes you just assigned categories every month and wrote down the exact dollar amount ? Then every day you just subtracted the amount you spent whether debit , credit or cash . You would still be doing a tight budget just more conveniently.

That's exactly what I do, so it doesn't matter whether the money comes from my credit card or cash out of my purse. It's been working fine for me.

 

[DAYDREAMER]

What if instead of putting money into envelopes you just assigned categories every month and wrote down the exact dollar amount ? Then every day you just subtracted the amount you spent whether debit , credit or cash . You would still be doing a tight budget just more conveniently.

That is what we were/are doing. 'Til Debt Do us part' inspired me challenge ourselves to see if we could actually stick to a 'strict budget' especially in the food catagory. Accounting for money and living below our means is not an issue, since we save 2/3 our income per month. The food budget however, we have a hard time controlling and predicting. Our grocery bill could vary anywhere from $80 to $160 per week. When we use a debit card, this $$ variation is no big deal, we flop the card down and the food is paid for. Now, if we had cash, and our limit was $100 for the week, that puts a boundry on it. What we are learning, is that we dont necessarily want to be on a strict budget in this catagory. The are few options, do without or be alot more creative than we currently are with our food preparation. I didnt like either of those options. Since we can afford the variation, we are going to yield to our habits and continue as we were.

Habits are very hard to change, and I'm glad we only have only one $$$ catagory out of control.