In case you missed this, my husband and I have recently moved to Hawaii. The day after we got to Hawaii, after our honeymoon, I lost my ATM card. Totally stupid mistake—I left it in the machine. And just to double the misfortune, my current bank is a small local bank in NY, with no branches in Hawaii, so there was no way for me to get cash. I ordered a new ATM card and opened a bank account in Hawaii using a personal check, but that money is not available for a week. Thus, we have had to use the credit card to pay for everything for about a week.
This has got me to thinking about why it’s so much better to use cash than a credit card or debit card.
I used to be like (I think) most Americans, always using my ATM/debit card to pay for even the smallest purchase. It’s just not common to carry a significant amount of cash in America. However, I lived in Japan for three years and it’s changed me.
Japan is a cash society. It’s extremely rare to pay by credit card for anything. debit cards just don’t exist (at least from what I know). And you wouldn’t feel at all strange about carrying $500 cash on you, especially at the start of a long weekend (Bank ATMs are closed on holidays).
It’s been in Japan that I really got my finances in order and I firmly believe that always have to pay cash for things was one of the biggest reasons.
I realize that for big-ticket purchases, it’s probably better to use plastic than carry a huge wad of cash. But how many times have you gone into the grocery store “just to pick up a loaf of bread” and had to pay with your credit or debit card because you “accidentally” also picked up a 2 liter of Coke, a bag of cookies, and the 24 rolls of toilet paper that “just happened to be on sale”?
But here’s some food for thought—5 reasons why it’s better to pay cash:
1. No Finance Charges. Assuming that you occasionally use a credit card for these small, impulse buys (and that you carry a balance every month), if you decide to only use cash, you’ll be able to avoid these finance charges. Cookies suddenly don’t seem so yummy when you think about having to pay interest on them. And how good of a “sale” is it if you are paying an extra 20% down the line…
2. Avoid ATM fees. Before I moved to Japan, I had a horrible habit of taking out money “whenever I needed it” and only taking out the bare minimum. After all, people in America just don’t carry that much cash on them. I would take out maybe $20-40 a day. Unfortunately, the ATM that was convenient to my workplace was not affiliated with my bank, so I was charged $1.50 every time I took that money out. I never realized how much those $1.50 charges were adding up to. In Japan, though, I got into the habit of taking out a lot of money at once and always using my bank’s ATM to avoid the extra fees. Of course, you should always try to use your own bank’s ATM machines. However, if they tend to be inconveniently located, you can save on ATM fees by withdrawing a large sum of money at once rather than smaller amounts throughout the week.
3. Limit your spending. There’s a big psychological difference that goes on when you can actually see the money leaving your wallet. When you use a credit or debit card it’s like using fake money. You don’t see it go away so it doesn’t hurt so much. But after about three times of asking yourself “Wait…didn’t I have $60 in here? What happened to that other $20?” I swear you’ll start being much more conscious about what you’re spending your money on. You might still buy something frivolous, but at least at the end of the day you’ll be able to remember what it was.
4. Prevent the dreaded overdraft fee. Does this sound familiar? You’re happily making your everyday purchases and check every day to make sure that your account is in the black when WHAM! Along comes an automatic bill payment that you forgot about, leaving you with a negative balance. You then watch in horror as the previous two days of debit purchases start coming through, with a $20 overdraft fee each time. Booooooo!!!! If you pay in cash then you’ll never have to worry about this happening again.
5. Stick to your budget. If you want to save to quit, then you need to be working on a budget. You should set aside a specific amount that you can spend in a week, then take only that amount of money out and carry it with you. Create a mindset where using the credit or debit card is simply not an option. If you cannot afford a purchase with this week’s money, then you’ll have to wait until next week (or next month as the case my be). Using only cash forces you to stick within your budget and you’ll be surprised by how fast you can reach your savings goal.
Anyone else a cash-only person? I’m anxiously await the arrival of my ATM card, although by tomorrow I should be able to take money out of the bank from a teller. No more credit card!!