I have discovered that I’m one of those people for whom cash just burns a hole in my pocket. I limit myself to taking a specific amount of cash out of the ATM each month. I can spend it on whatever I want, but when it’s gone, it’s gone. For the most part, it tends to go to the occasional caffeine fix during the afternoon, splitting dinner and drinks with friends, things like that. (Of course, during farmer’s market season, I take out more cash, deduct that amount from the grocery budget, and buy all sorts of fresh, delicious food.)
I am one of those people who does much better with budgeting if I use a credit card. Number one, I use only one credit card, even though I have multiple. It is an Amazon.com Visa by Chase. I love the rewards, and since I pay it off every month, the higher interest rate does not bother me. (I am working to better utilize my Discover Card though, and take advantage of their 5% cash back opportunities.) I am much less likely to pull out my credit card for a quick $2.00 purchase, where as plunking down that amount of cash is a quick process.
I’ve also found there’s something to having to transfer that big chunk of money to the credit card company every month – yes, I could automate it, but having to type it in and watch it transfer makes it sink in a bit more.
Part of the problem might be that I don’t track my cash expenditures. Maybe if I tracked it, I would be less likely to spend at random, but each time I tried that, I ended up without receipts, and forgot what I had purchased. It was a failed experiment. The new experiment is to always budget the same amount of cash every month. So if next month, I start the month with $20 in my wallet, well, I can take out $20 less from the ATM, and rebudget that saved $20 into another budget category, like an additional $20 to my clothing or book fund. For the most part, looking at it that way has helped.
It seems that among personal finance bloggers, there is a debate over whether it is better to go to an all cash system or to completely avoid cash and use credit or debit cards. After reading all the opinions, I don’t think there is a right answer. I think it depends on a number of factors, and everyone should do what works best for them. Which is why I’m sticking to mainly credit card transactions.