June 21, 2019 | 02:29 AM

Savings Tips

30.07.2018Debate: Can living "cash only" help with budgeting?

One of the suggestions often made to those who can't get a handle on their spending is to live in a "cash only" routine.

Running out of cash before the month is up is a situation which some Australians find themselves permanently stuck in – and the blame for this is often laid at the door of credit cards and other modern financial products which are alleged to encourage mindless spending. One of the suggestions often made to those who can’t get a handle on their spending is to live in a “cash only” routine. Under a system like this, a person extracts the amount of money in cash which they need for the week and then lives on that and that alone, without taking out any more from the ATM.

It’s clear that this mode of living has its merits – it’s all too easy to lose track of spending when the spender doesn’t have to re-calculate how much they have left every time they complete a transaction, and there’s no easier way to see how much is left than right there in notes and coins. But the modern world is going increasingly cashless, and this way of restricting spending is actually likely to cause problems in the long run.

Yes: It instils financial discipline

The main reason why people choose to go cash only is that it gives them a very tangible and physical way of seeing how much expenditure they have available to them. The plan often begins by taking out a certain amount of money to cover a set interval, such as a week or month, and then assigning different proportions of it to different costs. Some, for example, may be devoted to paying for groceries, while another may be for gas. Once the money is spent, it’s spent – and you do not allow yourself to take out any more. At least, in theory.

The cash only approach tends to rest on some simple psychological principles. People who know they are having money problems may decide to bury their heads in the sand about the problem and simply pretend it isn’t happening. For someone who is experiencing this, online banking services or budget apps are unlikely to be useful, as they can easily be ignored.

But when the cash a person has left to spend is right there in front of them and they know that they won’t be able to fall back on an overdraft or credit card (as they might if they continued to ignore the issue), the problem is brought into stark focus. As a result, the only way to ensure there’s enough money available to see them through the month is to make certain that no overspending occurs.

No: It’s inconvenient – and doesn’t go far enough

One of the main reasons why it’s so difficult to go cash only is that society is largely moving towards a cashless mode of existence. Already, some public organizations have stopped accepting cash. In 2009, for example, the state-run buses in Sydney’s central business district ceased to take notes or coins.

Some places around the world have taken this a step further and now encourage the use of bank cards on public transport, too. In theory, it’s still possible to go down to a ticket office or similar place and buy a ticket in cash for this kind of service, but it saps time. And as the years go by and cashless living becomes rooted in society even more, functions like ticket offices are likely to close – meaning that being without a bank card (and without the capacity to spend at the touch of a button) could well start draining hours of productive time from citizens’ lives.

But there’s a broader reason why living in a cash only manner doesn’t really go far enough towards instilling the importance of budgeting in someone’s personal finance mindset. In essence, a cash only approach doesn’t actually prevent someone from overspending – because, after all, they can simply either spend everything they have taken out in one day, or just take out more. While some who follow the cash only approach have some success, it’s unfortunately the case that others end up simply transferring their bad spending habits away from their card and into cash. In those cases, a different budgeting strategy is clearly needed.

Living cash only is a popular tip shared in personal finance forums and on money saving advice websites across Australia and beyond. For some, it’s a great way to monitor spending in real time and illustrate the effect of mindless purchases – but for others, it has no consequence other than providing extra inconvenience. Unfortunately, the jury is out on the subject of whether or not going cash only is a good idea. It seems to be dependent upon the financial attitude and savings mentality of the individual. 


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