Spending Strategies - Get it in Cash!
Hardly anyone I know uses cash regularly to pay for their purchases, and in a perfect world they shouldn't be because credit cards are more convenient and provide benefits when you use them (such as 2% cash back on all purchases). However, one of the bigger issues with credit cards is that people don't tend to watch their spending as closely when using a credit card. This is likely due to the fact that there's a smaller feeling of loss when a credit card is used to complete a transaction rather than cash, which you don’t get back in your hand after the transaction is complete. As a result, these people will spend more money than they would have otherwise if they weren’t using a credit card.
If you tend to fall into this pattern of behavior (many people do), I would like to invite you to try using a cash budget for at least some of your discretionary purchases. For example, if your entertainment budget consists of going out with friends at some local establishments for one or two nights a month, you should designate a certain amount of money to that activity and pay for it using cash (which forces you to withdraw the amount beforehand). Another more common example might be if you work in an office and go out to lunch too many times in a given month. By getting the cash at the beginning of the month and spending only what you have on hand you artificially limit yourself on how many times you can go out to eat or what places you go out to eat.
Another benefit to this strategy comes from the fact that you must withdraw the cash from your bank account. If you're anything like me, you're probably only counting the cash you can see in the banking application on your phone as reserve cash. As far as I'm concerned everything else is already spent, even if it's still sitting in my wallet as $20 bills. In practice, this allows me to limit discretionary spending on certain items such as going out to eat by whatever I’m willing to withdraw from my account (since that is the only instance where I’d be spending the cash). While I don’t get the benefit of having 2% cash back on those purchases, I enjoy the much larger benefit of spending less money than I would have otherwise.
In the year 2020 (and beyond) I strongly recommend giving this a shot if you frequently use a credit card to make smaller purchases. Even if you can only use this strategy in certain spending areas, it can quickly make a difference in how much and how often you choose to spend your excess income.
Do you have any spending strategies that you would like us to share? Let us know by emailing us at scalefinancialeducation@gmail.com!