Benefits And Drawbacks Of Spending Cash

by The Happy Rock on June 29, 2007

wad_of_cash_dollar_bill.jpgIn honor of the upcoming cash spending experiment I wanted address the benefits and drawbacks of spending cash. I will revisit this list after the cash experiment to see if I have anything to add or critique.

Benefits of Spending Cash

  1. First and foremost, spending cash makes it impossible to spend more than you have. Going into debt is impossible with cash.
  2. Forces us to face the consequences of a purchase up front rather then delaying it until after it is too late. Thinking through the consequences of a purchase may change your decision. By consequences, I am talking about making needless purchases, over-priced purchases, impulse buys, and even spending money that should have been designated to other areas. With plastic a lot of this information is gathered well after the purchase, and by that time it is usually too late.
  3. Spending cash constantly reminds us of the value of a dollar. Buying a fancy $4 Starbuck’s coffee on plastic can become so much of a habit that we become oblivious to the fact that real money is changing hands. The consumer industry would love to make consumption as much like a video game as possible, they benefit when you forget what your money is worth. In this day and age with direct deposit, automated payments, and credit cards it is possible to earn and spend money without ever physically seeing any of it. It even kind of sounds surreal when you describe that way.
  4. Spending cash hurts. This may not hold true when buying a pack of Wrigley’s Juicy Fruit, but it sure does when filling up an SUV at Sunoco. Psychologically, parting with cash is much tougher than swiping a card.
  5. Paying with cash is faster. No waiting for signatures or authentication. Hand over the the cash, get some change, and you are done. Stores have ‘Cash Only’ lines for this reason.
  6. A fringe benefit is that paying with cash can put more profit per purchase in the store owners pocket by avoiding the credit card company fees. For me I would rather give a little mom and pop shop some extra profit than line the pockets of the credit industry. This point maybe nullified if spending cash significantly lowers the overall spending in a given store.

Drawbacks of Spending Cash

  1. Convenience, Convenience, Convenience. The hassle of finding proper ATMs, making sure you have enough for large purchases, and saving receipts to track your purchases makes using plastic make more convenient. Spending cash seems annoying, but I will see how annoying it is during the cash only experiment.
  2. Security. Lost your wallet? You can probably kiss your cash goodbye. Plastic affords you extra security measures that cash just can not offer.
  3. Credit card rewards. If spending cash proves to cut my spending by more than 1%, rewards won’t matter. I included it because rewards are where the credit card users get all worked up. They get quite passionate about their rewards. Free money, right? I suspect the credit cards companies are armed with more information than the consumer. We will see if credit card companies have done a good job blinding us with rewards.

{ 8 comments… read them below or add one }

K T Cat July 3, 2007 at 3:44 pm

At our house, we’re about to start the Dave Ramsey experiment of budgeting and then putting the cash for each budget item in an envelope. That will negate the problem of having to get to an ATM. Cash back on credit cards has never happened for me. I used to use an American Airlines card, but it turned out the annual fee could have paid for the tickets anyway.

If my wallet is ripped off, I’m in trouble. You’re right about that. Having said that, I’m still going to the cash economy very soon.

One more benefit: cheaper gas. My local Arco charges me $0.45 per purchase to use my debit card. Also, cash is accepted everywhere. Our local German sausage store, run by octagenarians from the Old Country, accepts only cash. And I can’t be without my bockwurst! :-)


TheHappyRock July 3, 2007 at 4:17 pm

You are right K T Cat, cash is accepted everywhere. That is a good point I didn’t mention. And yes some stores do charge a little extra for use of credit cards, although I have never run across one yet.

You are spot on regarding rewards. Credit card companies are smart and dangle rewards for their benefit not the average joe. It helps to know how they are making money, so that we can avoid any ‘traps’.

Good luck with the Dave Ramsey envelope. If you stick with it, I am sure it will change your life.



Diana January 25, 2008 at 2:21 am

Several points I used to consider before using my credit card instead of cash are :
– the interest of credit card
– my future capability to pay
– the extra value I get by using the credit card (discounts or maybe something else)


Blake February 1, 2008 at 1:23 pm

One more benefit to cash; you get change! I love throwing my coins in a jar and watching them pile up. My thinking is that I don’t spend coins that I get as change, but with a debit card that little extra bit of money is still in my checking account and is less likely to be saved. By putting change in a jar, it’s like a personal tax that makes me save. It’s not earth-shattering amounts of money, but it adds up.


Gobal Door July 2, 2008 at 8:19 am

I would never carry cash if it were not for the small sales where I would be embarrssed to produce a card.

Cash has its benefits, but when you lose it or find you dont have enough to pay for that meal, it can be a burdon. Or the lack of it can.

I can control my funds well, so for me it is still the debit card.



Rob February 27, 2009 at 4:42 pm

Along with spending cash, my parents took on the Dave Ramsey method with their money. And they are currently debt free with the exception of paying of their house.


Therm August 9, 2009 at 6:32 pm

Me and my wife started cash we went months in the negative bank account and trying Dave’s Plan. The over spending is killing us so we are giving it a try.


Jonathan@Friends&Money November 21, 2012 at 4:47 pm

I think you make some excellent points especially about the fact that if you pay in cash then you know exactly what’s left in the bank. It’s also true that if you see the money in your hand you are more reluctant to part with it! The only drawback is that I like to pay for large purchases on a credit card as these are often covered with payment protection insurance so if you get ripped off then you’re covered.


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