Paying with Cash…Does it Save Money?

by Debt Destroyer on August 30, 2008

The other day when I was prepping for a fantasy football draft, I stumbled upon a video at Yahoo that covered a family who spent only cash for one month. According to the story they saved $1800 (24%) compared to what they normally spent. After I picked my jaw off the floor from being amazed that they could spend almost 8 grand a month, I started thinking maybe I should get in on the savings.

Some of you will remember that I’ve recently been introduced to Dave Ramsey and his method of debt elimination set out in his book, Total Money Makeover. There he proposes that you will save big money by paying all cash (12-18%). It makes sense. I mean we all do our best Bill Clinton and “feel the pain” of handing over cash rather than the ease of just swiping a card.

But do you really save that much?

I guess there is only one way to find out. Starting in September, I’ll stat paying cash. But here’s the thing, I’m not going to go all cash.

I know I won’t reap the full benefits of spending only cash, and that is fine by me. Here’s where we spent money in July. I don’t see how spending cash for some of these items would’ve saved me any money.

I’m going cash only for groceries, department store items, entertainment (eating out), and other household misc items. These are the parts of my budget where I’d love to see some savings. Even if it ends up only being 5%, it’ll be worth it.

I see that The Happy Rock has gone down the cash only road himself. From the way it sounds it didn’t work out the way he planned. I can totally see that happening in an experiment type setting. And from reading the comments on THR’s post, it sounds like a lot of people have had mixed reactions when trying something similar.   The Happy Rock has also talked about the credit card premium and the benefits of spending cash.

That’s another reason I’m trying a hybrid of the cash only method. Instead of setting ourselves up for failure by going cash only for everything, I want to start small and if we see tangible results. If we do, maybe then we’ll expand this way of spending to other areas of our budget.

I’ll only have two months of spending habits to compare this new way to (July & August), but it’ll have to do. I’m really hoping that we can shave off around $100 a month by doing this.

In our house that extra $1200 a year will come in mighty handy.

As always I’d love to hear what your thoughts are. I bet a lot of you are already on the “cash” train, if so, how is it working for you? And on the flip-side, I’m also willing to bet that a lot of you have already tried something like this for yourselves. Did it stick, or did you decide it wasn’t for you?

Until next time,


{ 16 comments… read them below or add one }

JBO August 31, 2008 at 10:28 am

CAsh only has to save you some money as you can physically see what’s going on where card payments and the like mean ycan not keep full track of what’s going on, what you’re spending and what you have left.

Having said that, the convenince of card payments and the security of not carrying cash around or having cash in the home means I will be sticking with my card for a while yet,


The First Creditor August 31, 2008 at 11:03 am

I want to try this hybrid cash method as well. I went to wal-mart yesterday for groceries and I was paying with cash. Handling the cash made it much more real, and I was compelled to set a goal to be under $40 because I had a fifty dollar bill and I wanted at least a ten dollar bill in change. I guess little things like this keep you on track when dealing with cash. But I’ll continue to pay my bills online with my debit card, I don’t see how converting that to cash could save any money.


Sue August 31, 2008 at 7:19 pm

If you go all cash or mostly cash you could get a gift card from a bank (one that does not charge fees for setting it up). That way you can be using cash but still have the convience of a card. I am not suggesting this for things that you want the feel of handing over cash but if cash gets too complicated that is another way to try it. We used gift cards for awhile but they did not work too well at the gas pump. Everywhere else they worked fine.


Sid Savara September 1, 2008 at 5:05 am

I do agree that spending cash may make you more aware of where the money is going, since you physically count out and take out cash each time you spend it, as opposed to just signing with a card. I prefer my credit card though because I import everything into MS Money and track where all my expenses go, and I don’t think I would do it if I had to manually calculate my receipts.


Scott @ The Passive Dad September 1, 2008 at 5:56 pm

For those that are impulse shoppers or might not stick to a grocery shopping list, the cash method could really help the family budget. Going to Costco can be tough when you go in for milk and dog food, and walk out with a new TV. For purchases like gas, I wouldn’t spend any less if I had cash. If you need to fill up the car, might as well use a cash back CC card and save as much as possible.


BW September 1, 2008 at 8:39 pm

Something that saves a lot of money as well is interpreting every purchase in compound interest terms. For example, a $5 sandwich today could be worth $20 in a few years.


The Happy Rock September 1, 2008 at 10:42 pm

@Scott – Surprisingly, I did think about altering my driving habits when I had to shell out $50-60 in cash to fill up. If you make a habit change that cuts out 20 miles a week(not that hard to do), that is almost $4.00 in savings a week much more than any cash back rewards. Just a thought.

@First Creditor – Nice savings.

@Sid – I am the same as you. Importing the transaction and convenience were some of the reasons I despised my all cash spending month.

@BW – Never heard that before, nice one. I had always heard thinking in terms of home many hours worked a purchase will cost you.


Andy September 3, 2008 at 2:32 pm

Great post and I have included it in the latest edition of the Money Hacks carnival as an editors pick!


threadbndr (karla) September 3, 2008 at 2:43 pm

I’m probably a little odd on this point. I find I spend MORE with cash. I end up frittering my cash away on impulse purchases, whereas when I have to log a check or debit card receipt in the checkbook, I’m more careful.

I would like to try the ‘envelopes’ system. I think if I have to write the receipt information down on the envelope, it might be the best of both worlds.

I can’t see not using online bill pay for the utilities, insurance and so forth, though. Sending cash through the mail is a bad idea, and running around to all the payment locations is a waste of gas and time.


Clyde Dennis September 6, 2008 at 7:58 am

Paying with cash absolutely saves you money. Something to do with seeing that hard earned cash leave your hands makes it harder to let go of. Does for me anyway. Paying with plastic doesn’t seem to register the same feeling of ‘loss’


BTGNow.net September 6, 2008 at 8:59 pm

I understand on an academic and psychological level why insisting on cash works for most people, but I have found, in my own personal experience that I spend MORE when I have cash.

If I have $20 on me, I will find a way to spend at least some of it (usually on lunch, a real budget killer if you dine out freuqently enough).

Then they give you change. Then you can use a vending machine, or maybe you stick it in a corner of your purse, never to be seen again. Maybe you buy a two dollar pack of gum now that you don’t have to break a 20. And so on.

I refuse to carry cash, unless I know I will have a cash only expense (parking meters for instance). I usually also carry my credit card, but I have learned not to charge little purchases to it.

So I think it’s up to the person. Some people cannot handle credit, others, cash. You have to figure out what’s right for you.


John (Debt Defier) September 9, 2008 at 9:38 pm

Thanks for the all comments, sorry it took me so long to respond. But I see that THe Happy Rock has gotten back to some of you already.

@ Sue – Thanks for the gift card idea, but I think I’ll stick to cash so I can have that mentality.

@ Andy – Thanks for including this as an editors pick.

@ Karla – I’m hoping that I don’t spend more with cash, but I could see how it could happen.

@ Clyde – That is exactly what I’m hoping for.


SmileyGirl September 22, 2008 at 12:10 am

I’ve just started the Total Money Makeover also. We are finding that we save a bunch just with the budget. We use cash for our spending money (our allowance as we call it) and the debit card for everything else. We are using YNAB for the budget figures and download from our bank to keep track of everything. The budget alone is making us save money because we are seeing where we don’t have the money to do what we used to. Eating out has virtually been eliminated. And you think really hard before buying a latte when you have to hand it out of your own allowance – where you don’t get anymore until the next pay period. I used to buy an average of 5 coffees a week and I haven’t paid for one in a month. Can’t part with the green stuff. I like it in my wallet. :)


Bob November 10, 2008 at 7:52 pm

I believe you will spend less when you’re spending cash instead of using credit cards because spending cash has the psychological effect of the reality that you are spending money. Credit cards make spending too easy because you don’t have to have the money (cash) in order to spend. I think using cash instead of credit cards is a good idea to help curb spending and save money.

Bob (Debt Free)


Dave April 3, 2009 at 2:56 pm

There are certain things, like paying parking meters that require money. Beyond that, I prefer to pay with debit or credit so I can track my expenditures.


Jonathan@Friends&Money December 12, 2012 at 6:04 pm

I’ve tried paying totally with cash, but to be fair I found that it caused more anxiety and didn’t always end up saving me money.However what it did do was make me become more aware of the physcial money I was spending, which is never a bad thing, so by that measure it may have made be more financially cautious.


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