The Power of Paying Cash

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• Oh, and I forgot to add- if you have the money, try setting up an auto savings transfer each month into a savings account. I tend to put a couple hundred dollars in there every month with auto-transfer and it’s a great no-think way to save small amounts each month so that you can eventually use that savings for a Big Purchase.

• I have always budgeted to pay my credit cards to zero each month. I allocate money in my checking account for my credit card. I spend my credit card to get points (you can get cash back into your account by using your credit card, so it’s better return on investment than dumping it into a savings account), and then pay to zero at the end of the month. When my husband and I finally could afford a trip to London, we paid with credit cards but had the cash to back it up. We did the research and found the bank that would waive any fees for exchanging currency, and only used that one, withdrawing a small amount at a time. We bought all the tickets for the things we were going to do ahead of time, once again, allocating the cash but paying with credit to get the extra points. Then we paid to zero when we got the credit card bill and ended the trip debt free!

  Plus, we got something like a couple hundred dollars back from the credit card points program.

  I say, if you have the time, do the research- the only way I can keep track of our finances is through using these little books that allow you to slide the card into them so you can write down purchases as you charge on the card and keep a small compact ledger for every card you have (it’s also great for catching unauthorized charges on your statement when you check them off). Chase and Bank of America both do this, and I’ve found them invaluable for keeping my finances in check.

• Love this post! My husband and I took our honeymoon to Italy in 2010 and paid for it all in cash (or charged to a credit card and paid off that month…we didn’t want to carry a ton of cash overseas). I spent over a year planning the honeymoon and making sure we were getting a great vacation at a great deal. We were able to do the whole thing on 70% of the budget we had set aside, so actually came home to cash left over! Such a treat! Just goes to show you can have an amazing time and make amazing memories while not spending a fortune.

  Since getting married we have never carried a credit card debt. We do have house, car and phone payments, but live well within our income and are able to pay off everything each month. On thing that has helped us is to set up sub-accounts within our checking/savings account. Each month on payday, we each put $200 in a ‘Home Improvement’ account, $200 in a ‘Kid’ account (saving for college even though she is only 8 months old), and $200 in a ‘Fun’ account. Those come out before we ever even feel the money in the checking account, so we are used to not spending it. Everything else is covered by the remaining balance. Then, when we need to upgrade the kitchen counters or do an air conditioner repair, we have money set aside for that purpose. (Or we don’t have quite enough and keep on saving!)

  I think our wake up call was itemizing our credit card bill one month and seeing that we had paid over $700 at restaurants!!! And I really couldn’t even tell you more then one or two of the places, so it wasn’t worth the $$ in the long run. Since then, we have really started to focus on our purchases and determine their overall worth in our lives. And we are much happier for it!

• After reading a few other ‘comments’, I would like to add, that I was also able to have a relatively small student loan. I did not spend ‘all’ of which I was given, instead I gave it back to the bank as part of my payments. I was told several times that they were impressed, as MOST students blow it on new CD’s, clothing etc… I also took 70-80% or more of my summer babysitting money to pay it off. (lived at home). We have also started saving for the next car so it can be payed by cash, or VERY small payment, and they are always used cars. Our ‘first’ car was payed cash, but that was while my husband served in the military oversea’s and had a HUGE income, while I ran a home daycare. We saved a TON of money, and decided to move and buy a house once he was back (and out) of the military. All after starting out with almost nothing. (we had VERY little money left after our cash wedding, and he was called overseas only 6 months after our wedding day for 18 months away!) I could have very easily spent the money he made on entertaining myself, but I bought a cheap (but new) laptop (which I am still using 7 years later) to web cam/chat with him, and a reliable car (rented a small summer camp type house in a very small town), bought a nice camera, and taught myself photography while he was away… Which is my all time favorite hobby now!
  Sorry for all the rambling… We don’t have many friends who live minimalist… Lots of frugal friends, but so much that they buy every good deal, and thus having a LOT of stuff, and little space in their homes… So I like to share our story! 🙂

• We only have our mortgage, and sadly a car payment. We worked hard at paying off student loans, and the credit cards 3 years ago. We now have 2 cards that we pay off each month while getting points. We also had a cash wedding! Only immediate family, and one ‘best friend’, in my husbands parents country yard. Our honeymoon was local (camping in Bar Harbour), and also payed in cash, as well as we were helped by famliy. No new debt (I did have a student loan). It was a great feeling, and it was a super easy going relaxed wedding/reception! I agree, it can be a challenge to live on cash on one low income with 3 young children, but I would have it no other way. We have also been working hard at becoming more minimalist. It started after moving from one home to another within the same general area, and I realized that the more I packed away, the better the children got along and played with the few toys I left out (favourts) So when we unpacked I did not unpack it all, and donate/sold some… and then more, and more and more… I keep weeding what we don’t use out, and it feels great each time (addicting even) The basement of our small bungalow is pretty empty now, and my goal is to eventually only need just the main level (besides laundry/Christmas storage) and even that ‘collection’ is getting smaller. Reading your blog keeps us going/motivated. Thank you for your wonderful blog! I check it when I can, but I do keep my computer in the basement (out of the way) so that I only do research, and quick ‘checks’, as we keep keep it pretty cool. So we are also very ‘disconnected’ with minimal computer usage, no cable etc, no cell phones, or other electronic ‘things’… Looking forward to your next post. 🙂

• How timely! Just last weekend my husband and I invited my in-laws to town so that they could watch our 1 year old while we hashed out a cash budget. I’ve been trying to get us on a cash budget since we lived in Spain for a year over 10 years ago. At that time in Spain, credit cards weren’t widely accepted, nor were personal checks, so everything from food to utilities, services, and rent was paid in cash. It was a great year! We lived incredibly well on $16,000.00 (of course, Spain was cheaper then). But then we got back to the US and got caught up with the pace of consumption here and got into modest debt. We cleared the debt years ago, but were still using the CCs every month and then paying (or sometimes not) the balance off. Stupid! I knew we should just be using cash, but for some reason it was too hard to transition. Well, when our baby arrived, I decided not to go back to work, so our budget got tighter than it already was (my husband is a public attourney and I was doing human rights work–not a lot of income!) and I was determined to keep us out of debt (except for the mortgage and student loans) and get us onto a cash budget. It took me a year to strip our expenses down to the bare minimum and then last weekend, I finally got my husband to sit down with me and look at the reality of our situation. Once he saw what I’ve been contending with in keeping us afloat, he shed his reluctance and dove in head first. By the end of last Saturday, we had a cash budget and a new savings plan hashed out. And this week has been one of the most stress-free I’ve had in over a year because I don’t have to worry about how much we’ve each used the debit card or if we’ll have money to cover the bills. They’re covered, we haven’t used the debit cards, and I don’t have to take time out of my full week (and away from my husband and baby during our too-short weekend) to do the weekly books. Their done! That’s it! So now to keep up with it…

• Thanks for the great post! We are coming up on a year of using cash for everything. As much as we are motivated, I still like to see other people in similar situations or mind-sets- it’s nice to feel part of a community, even if I don’t really know anyone else. We are almost out of all debt and that is going to be amazing! Right now we are saving for our wedding and honeymoon- it will ALL be paid for in cash. I can’t tell you how much I am looking forward to our relaxing honeymoon and not coming home to debt. I have gone on vacations like that before and it does take some of the joy out of it.
  It really comes down to making the choice to change your habits and then sticking to it.

• This is a great post. My husband and I have always had one credit card each, and the bills are paid every month. However, it never feels ‘good’ to pay off such a large amount each month. So we’re going to start paying cash for groceries each week, and that will hopefully help us stay on budget! I was really inspired to read about how you and your husband saved up to pay for the second vacation…I recently took a trip down to the States, and saved up about $200 cash to spend. It felt so good to come home and not have a huge bill waiting!!

• This may sound weird, but I’ve never had a credit card! I never bought anything I couldn’t afford, simply use cash for everything, but it’s sometimes a bit difficult to pay for flights and some stuff you buy on the internet as mostly you have to pay using credit card…

  • Not weird but awesome. 🙂

• I could not agree with you more in terms of how good it feels to know that when you have paid for something (in cash) it is PAID FOR. Done. Finito. Over. After a divorce 7 years ago that left me with ruined credit and in a tremendous amount of debt (60K+), I had only one credit card with a $500 limit on it that I could use for emergencies. It was a humbling, devastating, yet eye-opening experience. Over these last 7 years, I have worked hard, paid off my debt and brought my credit score back up to almost 800. I have only used my credit card for small things over the years just to continue to show good use of revolving credit. Everything else has been paid for in cash over these last 7 years including my wedding last month. 🙂 I sleep better at night and have so much less stress than ever before knowing that I can live without credit and having learned the hard lesson that I don’t need it if I can’t pay for it in full. Congrats to you and your family! Thank you for sharing your journey with us all!

  • I sleep better now too. The weight of being in consumer debt goes beyond credit scores. You feel it in every aspect of your life, your sleep, your health and your relationships.

• We used to be 99% cash but over time our system has changed. We have our food budget in cash with four envelopes labeled week 1 thru week 4. At the beginning of the month each envelope gets filled and used in its appropriate week. If we are planning to go for a big shop (shoes, clothes, household stuff) then we try to withdraw cash for it. However, when we do a weekend trip to visit relatives we use the credit card for gas, food and miscellaneous. We budget for these expenses by saving enough of our salary every month that our checking account grows on a monthly basis. Then when something comes up we can cover it without worrying or carrying a balance. On a different note I am really impressed by the people who bought cars with cash. We bought our last car with a line of credit and spent two years paying off the $18 000. We are 4-6 years out from needing a new car so it is probably time to start saving now. The trick will be finding the room in our current budget. Keep up the great writing about finances and budgets. It is very motivating.

  • Thanks, B-Man. You and S are a big inspiration to me. You live frugal and within your means, yet you live well, do fun stuff and are generous.

• Thanks for sharing this. We used to live almost entirely on credit – living far beyond our means. And I always felt that nagging feeling you described.

  Now our life is lived entirely on cash – including all of our travels. The feeling of freedom is so liberating!!

• We also use our credit card whenever possible (to get the points – we’ve gotten quite a few free things thanks to this!), but we always pay it off each month, without exception.

• I’m with you on this. I simply don’t enjoy something as much if I can’t pay for it there and then. I use my credit card for pretty much everything so I can collect airmiles but I pay it off each month. Luckily, I don’t have particularly extravagant tastes so am rarely tempted to splurge on something that I can’t afford.

  • Not tempted? Even in Switzerland?? 🙂 Okay, I guess all that amazing chocolate is easy to budget for.

    I bought so much on credit over the years it’s been hard for me to get rid of my spending guilt. I grew up in a family that didn’t have a lot of money and we used credit. And then I used credit in university for all the nice extras like clothes and meals out. And then I did more of that through my 20’s. It’s been hard to actually enjoy, and not feel guilty, when I do buy things now. We’re out of debt but that debt-guilt has been hard to get rid of.

    Wondering if you have made a decision on work so I’ll go take a peak at your blog (enjoying it a lot BTW). 🙂

    • I steer clear of the shops here. Waaaaaay too expensive.

      Re work, I decided to do the extra day. It’s not forever and good for our future finances. Still not a joy though.

      So pleased you’ve taken the time to look at my blog. It’s a new but very enjoyable hobby.

• Whenever this subject comes up, I always seem to be going against the grain – I’m a little like the queen and rarely carry cash. I’m a credit card advocate, but we have never been in debt. But that’s probably because we don’t use them the way they were intended. We have a cash-back card and pretty much every purchase we can put on CC goes on it, regardless how small. It get’s paid off each month, and we gain a % commission for using it. A credit card,for us, means that every purchase is accountable, I can’t fritter away a few pounds here and there. At the end of the month, we sit down and mark off every purchase together. I can see in one place how much I’ve spent and what on. One month (a long while back) I tallied up that I’d spent £50 at the Golden Arches – guess what? I’ve never done that since! In fact we rarely go now. It works for us the way we use it.
  ps – loving the honeymoon snaps!

  • I would consider your system using cash. You don’t spend more than you can pay for even if you are using a credit card to make the transaction.

    We stop the frittering away by tracking everything we buy be it using cash or our debit card. We always have a real time balance of how much is in our checking account plus the amount of cash in our wallets.

    So agree, once you see that you spent a high amount in one place or area you aren’t likely to repeat.

    When people complain to me they don’t know where their money goes, I always think, well write it down. People constantly under estimate what they actually spend in a month on consumables and casual spending. They think they’re spending $600 a month on groceries but if they actually tracked it they’re spending more like $850. And they think they just buy a coffee out occasionally but it’s actually $2000 at Starbucks over a year.

    We do our fair share of casual spending and restaurant spending. But the difference is I KNOW where the money is going. There isn’t some surprise at the end of the month about where it all went. And I know that if we want to save a bit extra in a month there are places that we can cut back.

    People think we are boring or anal but tracking our spending actually makes me feel better about the money we do spend.

    Sorry for the novel. 🙂

  • We’re doing exactly the same Jo. Have a VISA card, but on direct debit, paying it off each month. It is a great way of tracking what you spent and also, it’s handy to have a credit card for booking flights and buying anything online.

• We made the switch to a cash only family 2.5 years ago. I ended up maxing out 2 credit cards for a total of $7500 usd in about 6 weeks right after my Grandfather’s death. I normally hate shopping, I didn’t even get anything really cool at that time, mostly spent it on eating out, buying things for the kids and random crap. We paid it off and went cash only. When my other Grandfather passed away a year later I found more productive ways to deal with the grief. I don’t even carry a credit card anymore I don’t want to tempt myself, just my visa debit card and check book because where we live is very rural and some places only accept cash or local check! My husband has a very low limit credit card that he got several years ago that he keeps and uses every once in a while but always pays the amount he charged as soon as the charges post to his account.

  • I’m so sorry about your grandfathers.

    In that past I’ve used spending therapy to deal with everything from grief, disappointment and boredom. No more. Now when I get the urge to spend frivolously I try and examine the root cause and give myself what I really need.

• We’ve paid off $49k in debt and have $9k to go. We have also switched to paying for everything with cash.

  Your post is inspiring to me because in two years I’ll turn 50 and my baby will go off to college. My husband suggested that as a good time for us to take my dream trip…Paris and London. Your post is a good reminder that if we want to make that happen with cash, we need to start saving now.

  • The save change strategy was easy and fun. Every few months we would roll coins together for an evening and I would deposit them the next day.

    I hope we can do something similar as a family when Henry is older. Saving skills and delayed gratification are underrated in this credit easy world.

    Good luck on the debt busting and saving for Europe. You will love Paris and London!!

• My husband and I try to pay for things with cash as a general rule, especially at small businesses because the fees they have to pay for credit and debit transactions really add up for the small business owners. I think a lot of consumers don’t know that. We’re more likely to use debit at big stores like Target who can afford the fees. And we try to use our credit cards for emergencies only.

  • Hadn’t thought about what it costs small businesses in card transactions and that it saves them $ if you spend cash. Although, now that I have a micro-business with my e-books I do see how the fees add up. Paypal takes a big cut of my book prices.

    Great advice on an easy way to help small businesses, Stacy. Thanks 🙂

• We have been on a cash system for years, but a few months ago the system started breaking down and both my husband and I started getting credit-card happy. Swipe! Swipe! It felt nice in the moment- very carefree and easy- but then we revisited our credit card bills. For the first time in months. Ugh. Reality.

  The cash system is just plain better.

  • Funny how you can influence your spouse into the free wheeling spending. I see it with my husband and I: one of us makes a planned, but large, purchase and suddenly we’re thinking about buying more stuff. Swipe, swipe, swipe it is. Luckily our rule about only buying what we have cash for reigns us in.

• I recently made a hard decision not to go to Las Vegas for my close friends bachelorette party. If I had gone, I would have had to pay for the whole thing with a credit card since I dont have the cash for it. And in another two months I have to pay for going to the out of state wedding since Im a bridesmaid. It was a hard decision since i wanted to be there with her in Vegas but on the other hand I didnt want to add to our credit card debt. A year ago I would of just charged and pay later but now i think twice about situations like this one.

  • Smart choice. And the wedding is the important one. I have to say, I don’t regret charging air fare to be a bridesmaid in a good friend’s wedding almost 10 years ago. I was a poor athlete and it really was a once in a lifetime thing.

• Yes! We have never been big credit card people (thank goodness), and I’m proud to say that we will pay off student and car loans this year!! I feel so much better knowing that we own things outright, so when I get in my car or do anything, I don’t feel any extra stress over it. Next goal is to pay off the mortgage… that one might take a little longer. 😉

  • Our mortgage is a work in progress too. We’ve decided to keep upping the payments by 15% each year and make an annual lump sum payment with whatever we save past our modest annual savings goals. I would love to have it paid off in the next ten years but that’s an ambitious plan.

• Agreed! I can’t take a vacation on credit. I feel like every moment is stolen from a future self who will have to pay that joy off, through drudgery. We have only ever travelled on cash, and that has meant less vacations, for sure, but I had my past self to thank and no future self to feel guilty about. 😉

  • Great point: every moment on a credit vacation is stolen from a future self that will have to work to pay it off. Great reminder, Melissa 🙂

• When I graduated from university I took a job at a credit card company, and quickly realized that the interest rates are just way too crazy. From that moment on I have never carried a balance on my card.
  I use my one credit card exclusively and do pay an annual fee for it. But with three kids and some business expenses, the points give us more in returns than the annual fee costs. I also find it an easy way to track and budget my purchases.

• I just want to say thank you for writing this wonderful blog! My husband and I have paid off over 9K of consumer debt (credit cards and car loans) in the last 6 months but still have over 82K of his student loan debt to pay off. We came up with an aggressive plan to get it paid off in the next three years. I know following your blog will help me stay inspired and motivated!!

  • Well done and good luck, Taylor!

• We only pay cash (or rather debit). I had a credit card once right after high school and used it maybe a handful of times. I never quite understood why I needed a credit card when I had the funds to pay for each item outright. I still think the whole credit system is crazy! It was a pain in the butt to try and get a home loan with zero credit. You’d think people would be rewarded for not needing a credit card, but it’s the other way around. UGH!

  On another note, I often feel the ways you described above, and we have ALWAYS paid cash for all of our trips. I think for me, it’s that I look at how each dollar is spent and how much time it took to accumulate that amount of money. It makes it hard to enjoy a trip when you know it may not have been worth the work v. cost scenario.

  • I try not to put too much pressure on our travel and vacations. It’s easier now that we are traveling more with our proximity to Europe and our increased savings. It’s also easier because I think we are lot happier in our day to day and there isn’t the “I need this vacation” feeling there once was. When you only go on a trip every two years. and you’re saving for it in those two years, that’s a lot of pressure to have that “worth it” feeling.

    Now I just take a few notes on what worked and what didn’t for future travel plans. We went to Dublin last August and stayed in a hotel. Not being able to do much in our hotel room after 8pm was challenging. I was also really tired of eating out by the end of the trip. So when we went to Edinburgh over Christmas we found an apartment to rent. We really liked being able to cook our own meals and have that extra space.

    I also try and remind myself, you’re on the trip and the money is spent. Best to just enjoy it as much as you can!

• We stopped using credit cards about 4 years ago and it was the best decision ever for our family. We are huge Dave Ramsey fans and follow his principles or baby steps. We currently have some student loans that we are working hard to pay off. We had a similar honeymoon experience and it just wasn’t the same as if the vacation had been paid for in cash. Now we pay for everything in cash and it is a wonderful feeling. I’m at SAHM pregnant with a toddler and my husband works full time and waits tables two nights a week to give us extra money to pay off our debt. We’re living like no one else so that later we can live like no one else – Dave Ramsey.

  • 🙂 Great to read this. And congrats on baby #2.

• Unfortunately we are not living debt free, but we stopped adding to it after a similar honeymoon experience! We are trying to pay it off but when you only make a yearly income 1/6th the size of the debt you owe and you only make 20K a year, it’s very slow going. I think the best feeling in the world was when we got rid of the Capital One card because that’s the one we went on our honeymoon with!

  • Interesting to hear of another credit fueled honeymoon. Weddings can be such an easy time to over spend.
    Well done on paying off that honeymoon card.

• We’ve never carried a balance on our credit cards but do use them (only when we have enough cash to cover the purchase) and pay them off each month. It’s very freeing not to worry whether or not we’ll have money in the bank to cover our purchases. Now if only we could get rid of our student loan debt faster…

  • Well done on never carrying a balance. I think from 17 to 33 I always had some sort of credit card debt or line of credit debt.
    Student loans: you’ll get there. And then throw a party! I felt so good once my student loans were finally paid off. One of them was over ten years old… 🙁

• We never carry a balance on our credit cards, and never have. My husband is meticulous and ruthless about getting the best “points” situations, so we actually have lots of credit cards. However, I only carry one in my wallet. It “looks” like you have less money to spend when you have fewer credit cards on hand! What I’m most proud of is that we paid for our new car in cash–no loans at all!

  • Nice work on the cash for the new car.
    We’ve been a bit obsessed about points from cards before ourselves. Our bank kept calling and asking us to sign up for their points card. It had a $150 annual fee. No way. So eventually they gave it to us with no annual fee for the first year and we got a points bonus for signing up. We never used the card but we took the points and bought $100 worth of iTunes gift cards before cancelling the card. Now that is a good deal.

    • We paid cash for our last car as well. It keeps you from buying more car than you can afford, that is for sure! It is so common to have a car loan that it is very hard to go another way (after all, so many places are offering loans with only 4% interest). Currently, my husband needs to get a newer car. We have the money for it, but it is still hard to part with such a large chunk of money.

      • I think if we end up getting a car over here it will be a bit of a beater. Cars here are very cheap anyways, like you can get a BMW sedan a few years old for the equivalent of $5000. But we would probably get something family friend under $3000.
        Not sure I could stomach paying in the five figures for a car but then, I’ve had a monthly car payment before and that had it’s disadvantages too.

        • Wow, I wonder why IOM has such affordable prices for automobiles. My husband drives a 97 Honda Accord that we paid $5K cash for in 2005. He needs a small truck so he can use it on his farm instead of borrowing his parents’ truck all of the time. That is going to run us $10-$12K. However, the kind of truck he wants to buy will probably last him 7-10 years, so I have to look at it that way.

• After we paid off about $40,000 in debt in 20 months, we committed to being debt free. We have managed to stay debt free, other than our 15-year mortgage, since then as well. It’s been tough at times, but we are doing just fine using our debit cards. It’s been 8 years! Now we are down to one income, with 2 little ones, and it is tough to live on about 60% of our former 2-worker income. But it would be WAY more stressful if we were also saddled with credit card bills every month. You are inspiring me to prioritize vacations – we could use a break!
  My next challenge is to minimize all of the kids’ toys and clothes – no problem with my own wardrobe and furnishings, but for some reason I can’t get the kid stuff under control.

  • $40,000 in 20 months – well done!
    I am really enjoying the Visa debit cards they have over here. They also have Visa check/debit cards in the states and I wonder why Canada doesn’t have them yet. I always worried about fees when I used my debit card in Canada.
    Kid stuff will always feel like a process for me. Never really done because they’re always growing and changing. Good luck and thanks for sharing here 🙂

  • Erin,
    You sound like us! We will soon be a one income family with a 15 yr mortgage and no other debt. It will be hard to live on less, but because we are free of consumer debt, we are blessed to have the option. For that, I am thankful.

    It is hard for me to prioritize vacations, as well. I always think we could use the money for something else, but I am starting to realize if you don’t give yourself and your family some decompression time, things don’t run as smoothly!

    Sara

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