Why Cash Allowance?
1. Purely Psychological.
Credit cards make it too easy to spend money. Just swipe the card and you can bring home the latest smart phone/tools/clothes. It’s much harder for us to let go of our hard earned cash. The physical action of handing over cash to someone else is a lot more difficult than swiping a card. Try handing over $100 cash for a pair of shoes. It’s much more painful than just swiping a card.
2. Easier to budget for discretionary spending.
Both of you each get $80/week to spend on whatever we want. That’s your budget for discretionary spending (plus groceries). Once you run out of your $80, you have to wait until the next week before buying something. When you are using the credit card for discretionary spending, you usually loose track of how much you spent already.
3. No consumer debt.
If you use cash, then you won’t have a problem with consumer debt. Credit cards enable us to spend the money that we don’t have and it’s easy to lose control. How else do you explain the average US household’s credit card debt of $15,263?
4. Delayed gratification.
When you need to make a larger discretionary purchase, you have to save up for it. This delays the purchase and many times, you will find out that you didn’t really need it after all. Putting off purchases also gives you time to research for a better product and deals.
5. Less guilt.
When you have cash left at the end of the week, you don’t feel guilty about spending it on yourself. Sure, you can save it too, but usually you just go out for happy hour or something like that. You can enjoy it because you know it’s already budgeted.
6. Change jar.
This is a small side benefit. You must hate carrying coins and you always put them in a change jar when you get home. This is a side saving that builds up over time. It’s always a nice little surprise when you drop by the bank to deposit it.
7. Cash is not traceable.
Your credit card purchases can be easily tracked and if you’re on the run, the cops will catch up with you very quickly.
Of course, the cash allowance might not work well for everyone. There are some downsides. It’s more difficult to keep track of every penny you spent when you use cash. You also lose out on reward points if that’s something you care about.
Many of you probably can control your credit card usage much better but You should really try the cash system to see if it makes any difference. You might surprise yourself. Have you tried it?