(Editor’s Note: This post is part one of a three-part series about credit cards. Given the topic of these posts, I want to offer a disclaimer: I am not a financial expert. I am simply sharing what has worked with us. If you’re looking for actual advice on credit cards – or anything financial – I recommend speaking to an expert. Personal finance is personal, meaning what works for us might not work for you. Now, on to the post)
We use credit cards all the time.
There. Now you know.
Not that it was a secret. If you’ve been following along for a while, you know I don’t think credit cards are evil.
On the contrary: I have had a credit card for 10 years now and I have used it, regularly, for all of those years (I wrote about it here).
I have never accumulated large balances due to reckless spending. And I have never paid a cent of interest on a credit card.
Still, when we started our debt-free journey, one of the first changes I made was to shift to a cash budget. This is a popular piece of advice for those beginning the journey and there’s a reason for it: it’s a good idea! It’s especially good if you are struggling with credit card debt – ditching the cards means you don’t add any more to your outstanding balance. A cash budget is a great idea for most people working to pay off their debt.
But while we certainly saw some benefits, a year later, we’re back to swiping cards.
What I liked about our all-cash budget
Although this post will focus primarily on the reasons I didn’t love using an all-cash budget, there were a few things I really liked!
Being able to easily see how much money we have
No need to check an app or an account – when you’re paying with cash, it’s all right there, in your wallet. This is one of the reasons a lot of financial gurus recommend the cash budget: in theory, seeing the money you have helps you control your spending.
Having cash on hand
One example of a time where I missed our all-cash budget was when we were at a university hockey game. I bought our tickets online, but did not factor in the lack of debit availability at the concession stand (or the 50-50 booth). We ended up using an ATM…and paying a gross ATM fee as a result. Having even $20 in my wallet would have helped with this.
The look on people’s faces when you hand them cash
Give it a try: go to the grocery store, buy $120 of groceries and pay with cash. After the cashier cancels the debit transaction they assumed you would make, they will likely comment on how rare it is for people to actually pay with physical money these days. I know I certainly made comments like that when I worked at a grocery store!
Why we ditched our all-cash budget
There are five main reasons we are no longer using an all-cash budget.
Carrying a lot of cash makes me uncomfortable
Having $20 in the wallet for snacks at a hockey game is one thing – carrying several hundred dollars is another.
Something about withdrawing that much money at the bank and putting it into my purse made me uncomfortable. I’ve heard a lot of stories of people withdrawing money at the bank and then having it fall out of a purse, for example. I like to think it wouldn’t happen to me, but…you never know.
It also did not help that I have a very tiny purse and a wallet that isn’t exactly designed to carry a lot of cash. It honestly felt like an accident waiting to happen most days.
It didn’t really stop us from spending money
This is probably because we didn’t take all the other cards out of our wallets. But honestly? I cannot imagine leaving home without at least my debit card with me. The idea of being stranded somewhere without any access to money does not sit well with me. However, this also means it is fairly easy for me to keep spending after the cash is going (especially if I have my phone and can transfer cash from different accounts easily).
It makes online shopping annoying
This is probably a good thing if spending too much money online is a trouble area for you. It’s not for us, though, and having an all-cash budget meant a lot more back and forth to the bank for me.
It was harder to keep track
“Where the heck did all our money go?” is a sentence I uttered often when we were on an all-cash budget. While I found the all-cash system made it easier to see how much money you have, I did not find it made it any easier to keep track of where it all went.
Of course, there is a simple solution to this: just track it in a document or something similar. But, as I’ve said before, I’ve never been a “track-every-cent” person. The nice thing about using a debit/credit account is I can see every transaction we make, which gives a better sense of where the money is going.
I wanted to benefit from my spending
I’m talking about reward programs here.
As a disclaimer, I’ll repeat something I have often said here: it’s not a deal if you don’t need it. This applies to discounts, but it also applies to reward programs. If you’re overspending just to get the reward…is it really a reward? My feeling on this is a hard no.
But as someone who doesn’t struggle so much with this mentality, I really wanted to find ways to benefit from my spending. A credit card with a reward program is something that appeals to me.
My one rule for using a credit card
It’s simple: use it like a debit card.
What does that look like? First and foremost, it means not using it to spend money you don’t have.
When we do our weekly shop, I know how much we have available for groceries and gas. We spend that money. That’s all.
This makes the second part easy: we pay off what we spend right away. Honestly, sometimes I do it as soon as we’re back to the car. I take out the receipt, look at the total, go to my banking app and transfer the money to the card we used. This means we don’t carry balances on our credit cards.
This is how we use our credit cards 99.99 per cent of the time. In the spirit of transparency, I will admit there have been some exceptions.
For example, during Christmas, we purchased items before we had all the cash on hand for them. And recently, with the weather we have been experiencing, we have been purchasing a lot of salt and sand, often outside the cash available on hand.
That said, in both those examples, none of the spending exceeded what we could reasonably pay off in 30 days – nor would it decimate our emergency fund if the wheels fell off and we both lost our source of income.
This works for us but depending on how you do with credit cards, it might not work for you. Personal finance is, after all, personal.
It’s been a few months since we made the switch back to using credit cards and I am happy with how it’s been going. We are staying on budget, it’s easier for me to see where our money is going – and we’re benefiting from the reward programs again. I can’t complain.
That said, in 2019, I may make some minor adjustments to the system – particularly as it relates to having some cash on hand once in a while. I think this mostly involves trying to plan ahead – looking at what’s on the schedule for the week and determining if cash is needed.
Credit cards aren’t evil. They’re also not for everyone. That’s OK. Personal finance is personal.
The all-cash budget didn’t work for us, so we found something that does and it has been working well for us. If that changes, we’ll do what we did before: re-evaluate and make adjustments as needed.
What about you? Do you use credit cards or are you an all-cash budgeter?