Reset your thinking about spending money, using credit
Have you ever found yourself asking how you spent your paycheck this month? Or, how all those little charges add up to that big number on your credit card bill?
Maybe it’s time for a cash diet, or what some call cash stuffing. The general idea: Use cash for a set amount of time to remind yourself of just how much you’re really spending as you hear the card reader’s pleasant chirp.
Cash diets are nothing new, but neither is tracking what you eat. Both are a good opportunity to review your habits and maybe become a bit more mindful about what you buy or eat.
I share our family’s ups and downs during our cash diet on the next page. Our savings amounted to more than $1,000.
Here’s what you need to start your cash diet:
Why start a cash diet?
“The pain of paying” theory says the further we get from tactile forms of payment, the less loss we feel from giving them away. Ofer Zellermayer’s doctoral dissertation at Carnegie Mellon University in the 1990s is often cited as the origin of the theory that’s been examined and put into practice many times since.
After peeling off a few $20 bills for a small basket of groceries, you may look a little more closely at the difference in prices between store and name brands.
What does it take to start?
Your cash diet will depend on your financial situation and what you’re hoping to learn from the exercise. Some of the main elements you should consider ahead of time:
⬤ How many days or weeks? Just a weekend can give you a taste of how much you depend on your digital spending. We chose a month to see what would happen to our overall spending.
⬤ Where will you spend your cash? If you’re planning a cash diet over an extended period, you’ll probably want a set of envelopes marked with each spending category. We had six: Groceries, gas, dinner out, miscellaneous and two for lunches.
⬤ What’s your budget? Make a guess at how much cash you’ll need in each envelope. You can always make an ATM run. This is not about saving money (although you probably will). It’s about feeling both sides of the transaction – the loss of money and the gain of something in return.
⬤ Are your credit cards paid off? One of the biggest “pay offs” of a fourweek plan, in my opinion, is opening much smaller credit card bills at the end of the month. So it’s great if you can start with a zero balance on your cards.
If you can’t, the other reward may be paying down some of your balances if you save money during your cash diet.
⬤ Got the cash? Our bank has a storefront location, so withdrawing $2,000 for our month was pretty straightforward as compared to hitting up an ATM multiple times. A bigger concern: I just paid off all our credit cards so our checking account was a bit depleted. I dug into our savings and took it on faith that we could replenish it at the end of the month. We did.
How cash usage has changed
Americans were using cash for about a quarter of their purchases before the pandemic. That percentage tumbled to a fifth by 2021, based on findings from the Federal Reserve Bank of San Francisco.
If you’re planning a cash diet over an extended period, you’ll probably want a set of envelopes marked with each spending category . ... Make a guess at how much cash you’ll need in each envelope. You can always make an ATM run. This is not about saving money (although you probably will). It’s about feeling both sides of the transaction – the loss of money and the gain of something in return.
The pandemic sped up the move toward a more cashless society
It’s unlikely the digital payment trend has reversed in recent months. Some merchants and services – including restaurants, stores, sports stadiums and parking meters – have gone completely cashless.
So what about your cash diet?
That’s up to you, but I recommend putting three forms of payment in your wallet:
⬤ Cash and as much change as you can put up with. Think about what you might spend before you leave each day. We usually underestimated, but we generally figured out how to make it work. Also, giving a handful of change to cashier and keeping an extra dollar in my pocket was oddly satisfying.
⬤ An ATM card. Sometimes you can’t make it work with what you pulled from your envelope or you run short.
⬤ A credit card. You might have an emergency, an unexpectedly large purchase or just need to park. Again, this is just an exercise.
What about your safety?
I can’t say I wasn’t a little leery about putting a few $100 bills in my pocket every time I went to the grocery store. I reconciled it a bit by telling myself: “Who is going to suspect you’re carrying a bunch of cash?”
Also, I was never carrying much more than what I thought I’d need for that trip. And by the time anyone knew I had cash, the cashier – usually much less excited than I was about my cash diet – was just about to drop it in the register.