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November Cash Experiment

This article was written by in Credit. 40 comments.

After reviewing October’s expenses last week, I decided that November would be a good month to experiment with a cash-only philosophy. Some studies have shown that in general, people spend less money when their only option is cash or that the use of credit cards inspires additional spending.

Most of the time, these studies simply compare the average credit card sale at a store with the average cash sale at a store, see that those who use credit cards have a higher average total, and conclude that the difference is due to method of payment. I’m not completely convinced, but I do accept the general premise that the use of cash — handing over green money — has a psychological impact that’s minimized when you had over plastic only for the card to be returned to your wallet.

So far, most expenses for which I usually a credit card — to track my spending and to earn bonus points — have been paid with cash. Every weekday, I purchase lunch with my coworkers. The total cost of lunch hasn’t changed now that I’m using cash rather than a credit card. I still buy the same food. For dinner, I’ve generally been eating food I’ve had in my house rather than going out or ordering in.

On Friday night, however, I slipped and ordered delivery food for myself and my girlfriend. I ordered dinner online and to do so, I needed to use my credit card. I could have called to place the order rather than submitted my request online, or we could have opted to eat food in the house.

Since my credit card is also used to pay bills such as cable automatically, I won’t be canceling the payment service and return to writing checks. My cable bill will be the same whether I pay by credit card or check.

The biggest challenge for me is planning my cash withdrawals properly. At this moment, I have only $5 left in my wallet, and I’m going to need to fill up my gas tank soon. When I withdraw money, I need to keep my car in mind.

I will be traveling to the west coast for Thanksgiving this year, so if I intent to continue this experiment, I will have to bring a significant amount of cash with me. I don’t believe the banks I use have branches where I will be staying.

Updated May 26, 2009 and originally published November 9, 2008.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

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{ 14 comments… read them below or add one }

avatar 1 Anonymous

I find I have been shopping a lot less for clothes and shoes and luxuries when I use cash. To train myself to spend less, I take out $40 a week (on a Monday), and I don’t carry over the leftovers the following week. If there are leftovers (if it happens to be $2), then the following week I take out $38. And so on. If I carry over the leftovers, it will just make me think, “Oh! Now I have $40 + leftover this week. I’ll reward myself with a lunch out.” It will just defeat the learning of living on a “fixed cash for variable expenditures”. Some people think I’m depriving myself of “great joys of life” but those joys only last 30 minutes.

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avatar 2 Anonymous

I agree that maintaining a cash only spending philosophy will help you save money but I am just not big on carrying cash around. For me, I’m in and out so much during the day, I’m scared I would lose my cash and defeat the purpose. Using my debit card only helps me save money because I know it is coming directly out of my checking account.

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avatar 3 Anonymous

I would love to try a cash only month, but I have too many loans to pay off. After my loans are paid off in a year or two, I will be cash only all the time; I hope!

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avatar 4 Anonymous

You beat me to it! I was thinking of doing this for October because of the same research you cite here and because I’m a big proponent of credit card points and its responsible use. But anyway, I totally failed. Not even a day and I was using my card left and right—a classic example of how hard it is to change behaviors.

On a related note: I have a $250 check coming my way thanks to that very reliance on my credit card!

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avatar 5 Anonymous

An interesting experiment, and I am looking forward to hear the results. My guess is that you’ll find there is no change in your spending level. My hypothesis is that the papers that say people spend less when using cash are subject to selection bias: people that generally spend less (because, for example, their income level is lower) tend to use cash more often. Also, people tend to pay cash for smaller purchases. If you are buying a $20 shirt you are more likely to pay with cash than you would be if you purchased a $400 suit, since most folks don’t carry $400 in their pockets. If you looked at the average amount spent by transaction without accounting for these factors, you would clearly see that cash purchases were smaller – but that doesn’t mean that if you used cash you would spend less… cause and effect have been switched here, in all probability.

Or in other words: 90% of all statistics are wrong 70% of the time… :-)

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avatar 6 Anonymous

I have been wondering about the same thing, because I am not 100% convinced that cash only really makes you save less. Cash burns a hole in some people’s pockets. Maybe those are the same people who have a hard time controlling their spending with a credit card. I am curious to read what the results of your experiment is.

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avatar 7 Anonymous

My Wife and I adopted a modified Cash-Only for 2008. It has been very successful in keeping us on track to our budget.

The modification is that all Bills (Mortgage, Utilities, etc.) are payed through online banking and we use our bank debit card for gas and groceries only. All descretionary spending is with cash. We withdraw a fixed amount at the beginning of each month and place the appropriate amount in about 4 envelopes (General Spending, Clothes, Babysitting, Dining Out/Entertainment). If there is no money left towards the end of the month – we don’t go out, don’t get coffee on the way to work, etc. If there is a large clothing purchase needed (winter coat or something), we save for a month and buy it next month.

This has reduced our “over” spending quite a bit. By no means to we hit the budget each month but we’ve planned to be a little off and this forces us to make some choices.

Hope this helps.

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avatar 8 Anonymous

I did this myself about a year ago. My results were not too surprising, I did in fact spend a little less. But not due to the fact that I felt “guilty” or that it was somehow harder to spend cash. I just ran out out of it! If you don’t withdraw the cash, then how can you spend it? There were numerous time that I found myself needing something from the grocery store, but not enough cash in my pocket to get it. Rather than drive out of my way to hit up an ATM, I would just go home and make do with what I had. With proper planning, I probably could have avoided this, but to be honest – I don’t have a problem with credit cards. I can’t even remember the last time I carried a balance and my purchases are all still planned and part of an overal budget. So for me to force myself into this would be foolish, especially since I earn cash rewards on my purchases. Now for the person who does not make the connection that a credit card purchase is exactly the same as a cash purchase and runs their balances up to the max as soon a sthey have a chance, this would be a wise decision.

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avatar 9 Anonymous

My wife and I recently switched to doing a cash only system for certain categories – espcially ones where we overspend. For example, we use cash for restaurants, groceries, entertainment and blow money (money you can spend on anything you want). So far its been very successful in keeping our spending down, as opposed to using a credit or debit card. If there’s money left in the envelope, you can spend. If not, you don’t. Can be tough sometimes, but we’re saving a ton more money using this system

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avatar 10 Anonymous

Good luck.

I’ve started a similar experiment 2 months ago. And while I’m about to dissect the numbers, what I think I’ll find is a marginal savings. I probably need to switch to an “envelope system” to achieve significant savings.

Although it’s nice not having the large cc balances.

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avatar 11 Anonymous

A few years back (10?) the President of the Royal Bank of Canada was being interviewed on the CBC and was asked about personal budgeting. He replied that for most people it just does not work. He went on to suggest that one should pay savings and bills first, and then spend the rest any which way. Once you ran out of money, you had to wait until the next paycheque to repeat the cycle.

I adopted this model (pay savings, bills first) spend the rest with mostly by cash or debit card , since and it seems to work fairly well. At present my burn rate for cash is about $400/week, and sometimes it is a mystery as to where it goes. Perhaps the advantage of plastic is its paper trail, which reminds you every month your foolish purchases.

The model takes a bit of a hit when some big purchases show up. As I am painting a few rooms in my house, my stove died, and the car wants winter tires. So I am paying cash for these, and living like a starving student till the next paycheque.

Debt financing might be more fun (i.e. plastic), but I don’t like big bills at the end of the month.

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avatar 12 Anonymous

@”. If you are buying a $20 shirt you are more likely to pay with cash than you would be if you purchased a $400 suit, since most folks don’t carry $400 in their pockets.”

Yes, that’s part of the point. If you are going to spend $400 on something using cash, you are probably going to think about it a little bit, decide that it’s a good use of your money (RIIIIGHT!!!) then pull the cash from an ATM and come back to the store in a couple of days. The likelihood of going throught with the purchase is much less with cash because of the inherent “cooling off” period. Whereas with your card, it’s so easy, just hand it over and sign away your $400 bucks. And once you get the thing home, you are unlikely to make a return trip to the store to return it, even if you kind of want to, because it’s inconvenient.

So that’s one way cash will save you money. For all the people saying they “get” 250 dollars back from their credit card so it’s a good deal, I have to ask how many hundreds of dollars of extra spending they engaged in to offset that meagre $250 rebate. Unless you are determining your spending by an envelope-style (zero-based) budget, your credit card is likely *costing* you a lot of money, not saving you money.

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avatar 13 Anonymous

After a large financial mess, our family switched to cash only for daily expenses. What we do is figure out how much we need to spend for 2 weeks (like $200 for food or $35 for entertainment) and take it all out in one chunk. We then split them up into the appropriate area, so that we aren’t spending our food money on entertainment or gasoline. It works quite well & saves us a lot of trips to the bank, where it’s tempting to stop & take out “just a little more”.

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avatar 14 Anonymous

After a large financial mess, our family switched to cash only for daily expenses. What we do is figure out how much we need to spend for 2 weeks (like $200 for food or $35 for entertainment) and take it all out in one chunk. We then split them up into the appropriate area, so that we aren't spending our food money on entertainment or gasoline. It works quite well & saves us a lot of trips to the bank, where it's tempting to stop & take out “just a little more”.

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