:::: MENU ::::

Does Paying in Cash Reduce Your Spending?


Dawn sent me a link to a Yahoo video about a couple that took on the challenge of using only cash for one month.

Yahoo ABC Video
ABC Printed Story

What was the result? They lived with some inconveniences, but managed to cut their spending for the month by 24%. For them, that equaled $1,800. That’s quite a bit of money.

We are a lot like the Farhats. We rarely ever have cash on us. Sometimes I wonder if switching to a cash only system would save us money. But we haven’t tried it because cash can be harder to track and it’s easier to lose. I have been tempted to try it, though. Does anyone have a cash only success story to share?

Thanks Dawn for the tip!


  • Reply Tricia |

    Pooja – how did you make the switch? Did you visit the ATM a lot during the month or did you only have so much cash at the beginning of the month and when it was gone – no more spending until the next month?

  • Reply Jennifer |

    I tried to go cash only for awhile, but found it was kind of a pain. I couldn’t get the entire amount I wanted from the ATM in one go, and I didn’t want to go inside the bank to withdraw money. Part of that is laziness, and part of that is working most of the hours the bank is open. As far as spending less… I found I spend less in cash than on CREDIT CARDS, but if I’m comparing cash to my debit card, I actually spend less on plastic. When there is cash in my wallet, I find it far too easy to peek in there and say oooh I have $5, I can buy _____ even though that money is probably earmarked for something else. These days I withdraw cash for my lunch at work, and use my debit card for all other purchases. When I made that change, I stopped burning through my lunch money 3 days before I ran out of lunches to buy.

  • Reply Rob in Madrid |

    for me it’s cash all the way. this goes back to a comment from GRS about a reader who was trying to build up his credit rating at the same time budget and he found he spent more on CC than when he was cash, it was also easier to spend CC than cash.

    After that I paid attention to how I paid for things and I noticed that CC purchases seem free because it didn’t drain my bank account. So now I’ve gone cash/debit only.

    This from JD over at GRS

    Numerous studies have demonstrated that when a purchase and the payment for it are closely linked — as when you spend cash — you are more aware of how much you spend and tend to spend less, says Dilip Soman, an economist and professor of marketing at the University of Toronto.

  • Reply Mar |

    Tricia, I’m starting to do this now and I have to say that I’ve become much more aware of what I’m spending. I haven’t necessarily spent that much less on things we “need” (in quotes because others might think they are not needed), such as groceries, field hockey cleats and bag for my daughter, etc., but it cuts out a lot of the “wants”, such as eating out. I probably did spend less on groceries since I didn’t pull out the debit card at Aldi’s, but I got everything on the list and a couple extra things that I remembered at the store, so it was pretty much on track.

    Getting started requires cash, plain and simple. If a person has been living on credit cards, it’s going to be very tough because the cash for this month’s expenses is probably paying this month’s CC bill. If, like you, the person is using the debit card, it’s simple a matter of determining what your expenses are for the week and taking the money in cash either through the ATM or cashing a check at the bank.

    I started this just a few weeks ago when we were on vacation and I was determined to NOT put anything on the CC. I had the money we needed from one of our “extra” paychecks (I get paid every two weeks, but budget for two paychecks pwer month, so there are two “extra” checks each year) and took what we needed in cash. I budgeted carefully and even came back with a little (very little, but a little!) cash left. It was great!

    Try it for a month and see how you feel about it then. It may not be for everyone, but give it a try and see.

  • Reply My Daily Dollars |

    I don’t think I’d like carrying around that much cash. However, I do simulate the scarcity of cash by running a flow-thru checking account. I only keep a $10 buffer in that account and use my debit card for all my purchases. It makes my daily shopping easier but also forces me to track my spending carefully so that I don’t have my card rejected!

  • Reply Stephanie PTY |

    College Student Perspective: I think things are designed to make the opposite true in college.

    Example: Textbooks. If I wanted to go “cash only,” I would have to buy my textbooks from the school bookstore. Using plastic, I can buy from Amazon and rent from Chegg, and save 50% or more.

    Also, getting cash when you’re in college is a problem – unless the few ATMs on campus are your bank, there are ATM fees that could eat away at any savings.

    Oh, and here’s a kicker – my school gives a discount at the dinning halls if you use the debit account on your ID swipe card!

    I’m wondering if this is all good or bad. Does it get us college students in the habit of using plastic for everything? Does that make us more responsible with plastic, or not?

  • Reply Mar |

    Tricia, one more thing – I’ll still use the debit or credit card to pay for gas at the pump. I fill up every time and I don’t like leaving a large amount of cash at the counter while I do that. In other words, there are exceptions.

  • Reply Early Retirement Extreme |

    For me the method of payment does not make one iota of difference. One dollar is one dollar regardless of where it is coming from. I think it is a question of attitude – do you not spend money because you don’t want to or do you not spend money because you can’t. For me it’s the former. For those in the latter category, I imagine carrying cash would work better – not going to the store would work better still.

  • Reply Da Big D |

    100% cash for personal use, and 100% credit for business. I started out with a budget for what I thought I would need. I pulled out the whole amount for 2 weeks and spent it. After 2 months I tweaked out the withdrawls and don’t look back. My savings were about 35%. I hate carring change, so I let my wife due that with her purse 🙂

    Try it, you will be surprised how much you don’t buy because you don’t really “need” it

  • Reply Uncommonadvice |

    I like cash. I have a hatred of breaking £20 notes. Must be my Scottishness.

  • Reply CanadianKate |

    If you are used to tracking your chits in Quicken, tracking a cash chit vs. a credit card or debit card chit is the same effort.

    I reconcile all our spending. Due to our travel, we have fraudulent charges quite often so detailed reconciliation of each CC bill is the norm here. Reconciling my cash against what I should have on hand is just as easy. And when my kid was younger, it alerted me to him ‘raiding’ my purse.

    But I learned about saving money by using cash when I lived in England for 4 months in 1987 (before debit cards and online banking.) We had a UK bank account but no UK ID therefore I couldn’t write cheques. I couldn’t use my Canadian credit card because I had no way of paying it. We went cash only (except for utility bills because they did take my cheques) for 4 months and we came home from that with a ton of money.

    For years later, I always went cash only in January to recover from Christmas bills.

    Europe now has ‘chip and pin’ credit cards which aren’t offered in Canada. Therefore we can’t use our credit card in smaller shops or grocery stores (they won’t take it.) So when we are in Europe, we run on cash only, except for the hotel.

    Thus cash-only is becoming a habit even when I’m home. Between that and my buy-nothing-new challenge, I’ll get hardly anything back on our cash-back credit card this year. But our spending is down as well so I’m not complaining!

  • Reply Joy Smith |

    We have cash on us 99% of the time and if there’s cash in my husband’s pocket, he has to spend it. As for me, I can keep the cash in my wallet for weeks and be fine without spending it.

  • Reply Big Winner |

    One of the best ways to reduce spending is to interpret everything in compound interest terms: the $5 spent buying a meal today could be worth $30 in a few years after being invested in an index fund.

  • Reply neilo |

    Over on MSN Money, this effect is discussed in this article: http://articles.moneycentral.msn.com/SavingandDebt/ManageDebt/IsDebtYourDestiny.aspx

    By encouraging people to use credit / debit cards, you “decouple” your relationship with your money. Once decoupled, you’re more likely to make impulse purchases.

    Part of me would love to become cash-only, but the sheer convenience of electronic payments (no lining up at the post office to pay electricity, gas and other bills; no lining up at the RTA to pay for car registration) keeps me from doing it.

  • Reply Matt |

    I’m of two minds on the cash only system – first off you can ensure that you have cash on you all the time then it really can save you some money. I tried this for a couple weeks a while ago and it actually worked for me. Well the truth is it worked to a point, yes I spent less money but I also ran out of money a few times which meant I had to go back to a credit card or find an ATM to get more money.

    This is part of the reason I’m of two minds on this system – I’ve gotten so used to using debit cards I rarely think of carrying cash. I know that its a habit that I can simply break or change but it was a challenge and you can find yourself in a tough spot with no cash on hand.

    Overall I think this system can work and can save you money because you’re always aware of how much money you have. For me I think it would take some work but it is doable. Now that you’ve posted this I’m almost tempted to give it a try again to see how it would work.

  • Reply MyDebtRefinance |

    What I usually do is withdrawing money for the expenses of the week. I have a daily budget with the money I need for each day (lunch, transport, emergency). At the end of the day if I have some money left I put it in a piggy bank, in this way I avoid overspending and at the same time I save some money daily.

    If I have to spend on something not in my budget I need to go to the ATM and withdraw money, so it makes me more conscious about my spending habits.

    I wrote this strategy in my blog: http://mydebtrefinance.com/blog/a-simple-habit-to-save-more-money/

  • Reply Wayne Larimore |

    We withdrawal a certain amount each payday that is meant toward our essentials – groceries, wal-mart, gas, clothes, haircare, entertainment, etc. When the money is gone, it’s gone. We have five children and they are growing so my wife and I will adjust our budget from time to time. When your spouse and yourself are on the same page it makes managing family finances alot easier.

    Wayne Larimore

  • Reply Dianne |

    It’s proven you will spend less with cash. Give it at least 3 months to get the kinks worked out. The only place we don’t use cash is for gas. It’s a real pain to go in the gas stations to pay. But we have a budget for our gas. Mine is $30/week. So I know when I go to the pump when it’s time to stop pumping.

    When we started our cash system we put $250 every 2 weeks down for food. Now it’s a game how little I can spend. At first we were right at the $250. I started using more and more coupons and deciding we just were going to do without. My husband will buy $20 worth of ice cream. This is too large a chunk of our budget! We live without. I do the grocery shopping, he stays home! Now I usually spend about $175 but sometimes $150 every 2 weeks! Since it’s all cash I know I can’t go over budget!

  • Reply Tabitha |

    I am going to try cash only for everyday expenses – I pay all of my bill electronically. I will be using the envelope system and I’m really excited about it.

So, what do you think ?