Financial consultants often suggest paying cash for a month or two to help see where your money really goes. I got my first credit card at 18, and it didn’t take me long to get into the habit of using it until I maxed it out. Fortunately, it had a low limit and it had the effect of teaching me my first lesson with credit, and getting me in the habit of using cash ever since. One of the differences at the heart of cash vs. credit is in the mind of the spender. Paying for something is an emotional exercise, and most people agree that you need to “feel it” to realize you’ve spent money. Using a credit card can dampen this feeling because your bank balance doesn’t move. It’s perception. When I was handing over my credit card, my bank balance didn’t correspondingly change – so I could pretend it didn’t move at all. When you pay cash or pay from your bank account, it’s gone right away, giving you something to react to.
Ever heard the expression “knowing is half the battle”? Well in the case of money management – it really is. Once you realize how much money you are spending on snacks, lunches, and dinners at restaurants, you may decide it’s not worth it. It may be time to get a good cookbook and learn how to cook at home. Or maybe you already eat at home, but you have a different vice –CDs, concerts, going to the movies, always having the latest iPod, laptops and Blackberries, online shopping – whatever it is, when you pay in cash, you really see where your money goes and you can make a more informed decision about whether you want to spend your hard earned dollars that way. CNN Money did an interesting story profiling 10 families who decided to break their bad plastic habits:
Debt management companies suggest that you pay for all of your purchases with cash, even online. How is that possible? Well, the next time you’re shopping online, check to see if the online store offers the option of paying for your purchase directly through your bank account. eBillme is safe and easy to use. When you pay a bill from available funds in your bank account – you’re back to “feeling it”. And of course, you’re not paying interest.
Becoming aware of where your money is spent is only the first step to a successful debt management strategy. Write down where all the money goes and you can use this as the basis for a budget. Then you can set some financial goals, reduce your debt, and plan for your retirement. It may seem like a lot to get in order, but take the first step today and see where it leads you!