Recently I was talking with someone about buying a car. First, you have to know that I hate cars. I think they’re a waste of money and nothing more than a means to get from point A to point B. When I bought my car last year I found the absolute cheapest one I could find. I did buy new, but for my situation it made sense. My wife and I both will drive cars into the ground.
My previous two cars were a 2000 Saturn LS and a 1999 Jeep Cherokee with 203,000 miles on it. That should give you an idea of how long we keep cars! In any regard, this person had just “spent” a considerable amount of money on a brand new car. The amount of money we discussed almost made me scream.
I kept thinking to myself “nobody should ever spend that much money on a car”. Then I remembered something. We’re a rental society. We lease. We don’t buy. Most people buy a new car, make the payment for a few years, then trade it in for something newer. Otherwise, they lease.
We’ve somehow become a society obsessed with renting everything. So I started thinking more about it and came up with another thought. It seems as if loans and monthly payments are giving us a false sense of wealth. If I can afford a $500 car payment, I must be doing fine.
How can this be true? A $500 car payment means that the cost of the car has to be around $30,000, give or take. I began thinking about what our world would be like without loans. A world where everyone just had to pay cash for everything.
My First Cash Experiment
A few years ago when I was single and living alone (and before I knew shit about money and budgeting), I noticed that I was spending a ton of money on random crap I didn’t really need to spend money on – things like eating out (foreshadowing, maybe?), trips to Target, video games, etc. It didn’t take rocket science, I just looked at my credit card statements – which to my credit I was paying in full each month.
I thought I’d try a little experiment at the time. I’d withdraw $20 cash per week and that was the only money I could use on anything other than true necessities, which were things like rent, groceries, and gas.
Low and behold, my checking account balance started growing and growing every month, and after a few months, I realized that it was the cash experiment that was helping me spend less money. I learned that by actually seeing cash leave my hands, it made me way more conscious of what I was spending.
11 Reasons Why You Should Switch to Cash
There are some pretty nice benefits to using cash.
1. Realizing the Value of Money
One thing that spending all of our money via a credit card or a debit card has done has desensitized us to what the value of money is. It’s so easy when you get to swipe the same card and get it back as soon as the transaction is over to think that you’ven’t lost that much. There’s something in our brain that makes us more detached to the idea of what money is worth when we merely swipe a card, and money is transferred out of our accounts or charged.
Physically handing dollars gives you a sense of having something, and losing something or exchanging money for goods. You’re going to have less cash in your wallet after a transaction than you did before, and that gives you a sense of what
2. Distinguishing Between Wants and Needs
When you’re spending cash on things instead of charging it them, you start to distinguish between the things that you want and the things in your life that you need. Say that you put a given amount of cash in your wallet at the beginning of every week. You only have that money to spend on groceries, entertainment, bills, gas, etc. You’re probably going to be a lot more prudent when you’ve set a physical monetary limit for yourself. Most people switching over to a cash-based lifestyle see a significant drop in the amount of money they spend on frivolous things.
3. Waiting for the Things that You Want
Using cash in your life makes you wait for the things that you want. Right now, when you want, or you think you need a large ticket item, it’s so easy to charge it to your credit card and pay it off over time. If you’ve to think about that same purchase and are limited a cash budget you’ve set for yourself, you probably won’t just fork over the cash for that new TV or car that you’ve wanted. Switching to cash it going to force you to save up money for the thing that you want. You will get in the practice of saving money and setting it aside for the things that are important to you.
4. It Pushes You to Be Creative
When you give yourself less money to spend on a weekly or monthly basis, it pushes you to be a more creative person. It’s so easy to go out and spend a ton of money to entertain yourself with dinner, drinks, movies, clubs, shopping, etc. that we often forget how to treat ourselves and others. Putting yourself on a cash budget will force you to be more creative with how you handle yourself and the ways that you spend time with others.
5. Living Debt Free
One of the biggest pluses for most people who decide to go into living a cash-based lifestyle is getting out of debt. When you live and spend wildly and buy everything that you want and need, it’s easy to overdraw on your bank account and build up a lot of credit card debt. Some people put themselves into a crippling amount of debt on an annual basis and then spend the rest of the year trying to get themselves out of it. After you pay off your credit card and get out of debt, you won’t get yourself back into debt if you’re living a cash lifestyle. We do recommend leaving small monthly purchases and subscriptions on your credit card and that you pay them off regularly so you can keep your credit score high, but if you want to go card free, that’s your call.
6. Financial Freedom and Burden Free Living
When you escape that credit card debt and pay off your other debts, you won’t owe anyone anything. How freeing of an idea is that? Instead of spending all of your time working on the things that you hate and putting in more hours at work just to pay your debt off, you’ve more time for your hobbies and the things that you want to do.
7. Cutting Back on Spending After Making Big Purchases
One way that cash keeps us honest is that it teaches us to reel back our spending after big purchases. It’s so easy to get into the habit of making significant investments without even flinching, but when you’re accountable to the amount of cash in your pocket, you’re probably going to think twice the next time you’re craving sushi or getting your favorite meal out. Not only does spending in cash make you appreciate big purchases more, but it also makes you significantly reduce your spending after you make a significant investment.
8. Social conveniences
You know those times when you go out to eat with a ton of your friends and then the bill shows up on one check? From that point on fights are being had, heads are spinning, and a couple of people are doing unnecessary calculus to figure out how to split it up. If you’ve cash on you, you can immediately escape that situation. Having cash with you allows you to throw in all of your money for the bill and the tip so that you don’t have to be apart of the battle that ensures the delivery of the check.
9. In the Event of Emergencies
It’s never a bad idea to have cash in the event of emergencies. There are those times when card systems and technology gets shut down, and you need money to be able to make purchases. It’s also never a bad idea to have some cash in your car for tipping and parking too.
10. Security from Hacking
One of the biggest reasons that we enjoy the idea of living a cash-based lifestyle is that it makes you more resistant to having your information stolen. It’s so easy for someone to take the numbers off of your card when you’re not looking and use them to later to “borrow” your money and buy things for themselves. If you’re only carrying cash and never have a card on you, someone would have to rob you to take your money physically.
11. You Can’t Spend What You Don’t have
Cash honestly makes your life simpler in so many ways. If you give yourself a given daily, weekly, and monthly cash budget, you will never be able to spend more money than what you’ve got on you. When you two or three cards on you that you’re always using, it’s easy to lose sight of how much money you’re spending and how much debt you’re racking up. If you can only spend what you’ve on you, you can never spend more money than you have.
10 Things That Would Happen in a Cash-Only World
If you didn’t have the money to pay for something today, you couldn’t buy it today. Here are a few things I think could happen if the world became cash-only:
1. More people would live below their means
People would soon realize if they can’t afford something, they can’t have it. This would force people to save their money and only buy things they can afford. In turn I think this would cause us to live below our means.
2. More frugality may impact jobs
If people are buying less, demand for goods and services would decrease. This would mean that many places would either go out of business or have to cut their workforce. This may further increase the number of online businesses.
3. We’d be renting or living in smaller homes
Unless we saved a significant amount of money, we’d be living in smaller homes or renting. This isn’t a bad thing. I imagine those who saved a lot of money and wanted to live below their means would still choose a smaller home. But with a cash-only society, it’d be difficult for people to live beyond their means.
4. More economical cars
We’d be buying used, smaller, and more economical cars. Also, I imagine that we wouldn’t even make as many big, expensive cars. At least not at the same level. If everyone had to pay cash, car manufacturers would have to produce something that everyone could afford. Or better yet, maybe we’d all be driving hybrids!
5. A healthier society
In a cash-only society, I would hope that some of us would abandon cars altogether and just ride bikes. This would keep us in great shape and be better for the environment, which leads to my next point.
6. Environmental impacts
With less access to money, businesses will have to change some of their strategies. This could reduce pollution, gas emissions, and wood-clearing to build McMansions.
7. Things may become more affordable
We pay for things like data on our smartphones, cable TV (some of us), and other forms of entertainment. The profit margins on these types of services are insane. If we only had a limited amount of money to spend, prices would drop on things like tickets to sporting events.
8. No debt
This one is pretty obvious, but with a cash-only society, there’d be no debt. At least no formal debt. I can imagine there is a black market for cash loans. Ahh… humanity never ceases to amaze me.
9. Higher savings rates
As this shift in our culture is taking place and people are becoming more frugal, we would begin to save more money. Since there are no loans, it’s safe to say there is no interest. But that doesn’t mean the value of the dollar wouldn’t increase. As people are hoarding their money, demand is going to drop for goods and services. This means a possible reduction in prices, which means our dollar will go further. Win-win.
10. Weddings would become more realistic
My wife and I got married in St. Lucia – just the two of us. Then we had a family reception when we came home. It cost about a third the cost of a traditional wedding in the United States. This is getting out of control. It’s one day, people… quit spending upwards of $30,000 to get married! And we can’t forget the costs of the ensuing divorce…
4 Ways You Can Be More Proactive With Cash
Changing to an all-cash society will never happen. But that doesn’t mean we can’t take some steps to improve our society’s money problems. Here are a few steps you can take now to make an impact:
1. Pay off your debt
The more debt that’s out there, the bigger these credit card companies will get. This means more offers in the mail, easier access to credit, and compounding debt for us.
2. Live below your means
You don’t need a cash-only society to live below your means. At its most basic level, start to spend much less than you earn. Use tools like Mint to track your spending and see where you can cut back.
3. Get rid of things you don’t need
4. Get help
You might be reading this thinking “well yeah that’d be great if I could just pay off my debt and live below my means, but I don’t make enough money.” Stop it. Yes, you do. You just have to want to change. I believe that we all have the ability to live below our means and become rich.
It’s just a matter of priorities and sacrifices. What are you willing to give up to create a better situation for you and your family long-term? This might mean not spending $40,000 on a new car. It might mean not having the latest iPhone with loads of data. It might mean not buying a home that is bigger than you need.
There are also services out there to help you. Credit counseling is an excellent way to help you pay off your debt. But you have to be willing to stop using your credit cards. Again, this is a sacrifice to some. There are ways to make it work, and the sooner you do, the better off you’ll be in the long-haul.
There would definitely be pros and cons to an all-cash society, but I would love to see what it would be like. In the meantime, let’s all commit to making one simple change to get us there sooner.
Question for you: what one thing are you willing to do to push us toward a cash-only society?
Chris is the founder of Money Mozart, a blog about personal finance. He discusses frugality, minimalism, and achieving financial independence by living well below your means. He’s also an avid craft beer lover and an aspiring minimalist.