There’s been a lot of talk in recent years about the shift to a cashless society.
You’ve all heard the argument before: cash is cumbersome, while plastic is quick and easy, the way of the future.
Well, that may be true, but there’s also a very big drawback when spending on debit or credit cards: It’s expensive.
No visual cues
I’m not just talking about charges or fees, but the fact that people who primarily use cards are far more likely to ‘splash out’ than those who use cold hard cash.
It's far easier to overspend when you're simply pulling from a bank or credit card because you don't know exactly how much is in there, and you have no visual cue that you’re actually spending money.
But if you pay by cash, you are visually aware of the fact you’re handing over your hard-earned funds. You can also see when your supply is running low, which in turn will curtail future spending.
Save a third of your money with cash
It sounds like a trivial thing, but it can have a profound impact on your finances.
Nancy Dunnan, author of finance self help book Never Call Your Broker on Monday, says you will end up spending 20-45% less purely by sticking to cash and cheques.
Master Your Money author Ron Blue says a family will likely spend 34% more if they often use credit cards - even if the statement is paid in full every month.
Draw up a detailed budget
Pick up a pen and paper and try to document where your entire salary disappears to. Chances are you’ll struggle. In truth, the vast majority of us aren’t really aware of what we’re spending our money on.
Paying by cash is a great way to solve this problem. Once you know where your money is going, you can work out where savings can be made.
With this in mind, it’s also a great idea to draw up a detailed budget, taking note of not only your big monthly outlays, but every coffee and chocolate bar you buy as well.
Because you’re going to be paying cash for so many things, chances are you’ll have fewer receipts to fall back on, so be sure to take a little notebook with you on your travels.
More data the better
Ideally, you should to take note of your expenditure over a period of a few months in order to get an accurate reflection of your finances – your gas bill will be far higher in the winter than the summer, for example – but if you don’t have the time (or inclination), a shorter timeframe is fine.
Now put together your budget, noting all your income and expenses. Be sure to split it into various sub-sections, such as ‘home’, ‘transport’ and ‘entertainment’ (click here to view an example of an online budget). This makes it easier to identify the areas that you’re overspending on.
After a few months of drawing up a budget, you will actually start to identify bad spending habits you didn’t even know you had. For example, you may not realise just how often you stop at that corner shop next to your office, spending on average £3 a pop.
Drawing up a budget may be a tedious chore. Similarly, paying by cash isn’t always going to be as simple as plastic, but they are great ways to get a better grip on your finances. And with prices constantly rising, that is more important than ever before.
