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Are tired of credit card debt and want a better want to live life?
Have you considered a cash only life where you stop using plastic and only pay for things with paper money?
While the idea might sound strange to some, there are significant benefits to only using cash for your expenses.
In this post, I walk you through everything you need to get started with cash only living, as well as the pros and cons to consider.
Table of Contents
Why You Should Start Cash Only Living
What Is A Cash Only Lifestyle?
Cash only living simply means you pay for everything you buy with cash.
You don’t use a credit or debit card for any expense.
You use paper currency to pay for things.
Some people believe you can write paper checks to purchase things as well, since the money comes out of your checking account.
But others disagree, saying you should only use checks for your monthly bills.
At the end of the day, it is up to you to decide how strict you want to be with living this way.
How To Start Paying With Cash
The idea of using money to pay for things is foreign to some people, but back in the day, before credit cards became so popular, most people used this system to survive financially.
And it worked because it made you plan ahead.
To get started, you first have to write out your budget categories.
The key here is to not get too detailed.
You just want basic categories.
This is because you are going to have cash envelopes for each budget category.
I’ll walk you through an example shortly to make this easy to follow.
Once you have your categories, you assign a monthly budget amount for each, and put that amount of money into each of your cash envelopes.
- Read now: Learn how to set up a simple budget
Now you can begin spending your money.
When you buy something, you use the cash in the budget category envelope to pay for it.
Once the money is gone from an envelope, you should not spend any more money in that category until next month.
Of course there is an exception here.
You can transfer money from one envelope to another so you have enough money to get by.
For example, if you only have $20 left in your food envelope but need $60, you can take $40 from your entertainment envelope.
You can transfer between envelopes as much as you want.
You just can’t get more cash from the ATM until the next month.
Cash Only Example
Here is a detailed walk through of this system.
You decide you will have 6 cash envelope categories.
- Personal Care
As I mentioned above, I like to keep it simple and have as few envelopes as possible.
Others might want to be more intentional with their spending.
In this cash, instead of having a food category, you could have a grocery and a dining out category.
In my opinion, you should start out simple and adjust as you go and learn.
Now that you have your budget categories, you need to assign a spending amount to each.
- Food – $600
- Entertainment – $150
- Car – $300
- Personal – $50
- Household – $200
- Personal Care – $100
Try to best estimate here, but understand you might have to make adjustments throughout the month if you have no idea how much you spend in each category.
Now, head to the bank and withdraw the cash to put into each envelope.
If you don’t have enough money in your checking account to cover a month’s worth of spending, you could divide everything in half.
Here you are withdrawing cash twice a month.
In some cases, you might need to break it down further and go to the ATM weekly.
When it is time to go shopping, take the envelope you need with you, and use the cash to cover the purchase with the cash.
Do this for the month and review how you did.
Then make any needed adjustments and start the process all over again next month.
Benefits Of Cash Only Living
As you can see, it isn’t a complicated system to follow.
It just takes getting used to as you need to change your habits.
There are a lot of positives to this budgeting method, here are the biggest ones to consider.
#1. Greater Awareness About Your Spending Habits
When you’re using credit and debit cards instead of paying cash, it can be much easier to overspend on impulse purchases.
- Read now: Here are the pros and cons of credit cards
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This is because you don’t actually see the amount leaving your hands or your bank account.
When you only use cash, you know exactly how much you’re spending and can better control how much you’re spending at a time.
For those who might have a problem living a debt free life and building a savings account or investing their money instead, switching to cash for their monthly expenses might be the solution they’re looking for.
#2. Easier To Stick To A Budget
Budgeting is made easy by the wide variety of tools that exist today.
But cash only living can often be a much better way of going about executing your budget as it is simple.
When it comes time to pay, you simply grab the amount of cash you need from the envelope.
There’s no worrying about whether or not you’ve gone over because you have a set amount to use each month.
If you try to budget when using credit cards, it becomes much harder to do, simply because you have many ways to spend money.
Plus you tend to have more transactions, making it more time consuming.
#3. Avoid Debt
You can avoid credit card debt as well as extra fees and charges.
The reality of using your credit card for everything is that you always have that debt looming over you.
If it becomes too much to handle and spins out of your control, it can be easy to be hit with penalties and high interest rates that only grow with time.
The longer your debt goes unpaid, the more interest it’s going to accumulate.
This vicious cycle means you never get ahead and build wealth.
You are always treading water, just trying to stay afloat.
Beyond that, choosing to use a credit card for online purchases and in-person purchases might mean that you are charged service fees just to use your card.
A cash only life allows you be debt free.
Cash can’t plunge you into debt as you can never spend more than you physically have, and you won’t have to worry about any fees as you’re using cash for your transactions.
In this regard, cash only living can be a far more superior payment method as you never have to worry about any of the above.
#4. Makes You More Financially Savvy
Unlike credit cards, a cash only life makes you a better financial consumer.
When you develop spending habits using cash, you might learn how to be smarter about what you spend your money on and how you spend it.
You also discover ways to negotiate certain bills so that you stay within your budget, and more.
- Read now: Here are good money habits to have
If you’ve been looking for ways to improve your financial health, this could certainly be one way that you can begin.
#5. Decrease Chances Of Identity Theft
If you never use your credit card for purchases, there is a very small chance a criminal will get hold of your account information.
Because of this, the risk of becoming a victim of identity theft is much lower.
And if you’ve every had to deal with a compromised credit card, you know it’s not a fun experience.
Drawbacks Of Cash Only Living
As great as the pros of cash only living are, there are downsides to consider as well.
Here are some of the issues one might face while they’re trying to adopt a cash only lifestyle.
#1. Won’t Build Your Credit
Credit cards are important because they help you develop a credit history.
Without credit, you can’t rent an apartment, get a mortgage, and other essential things that you’ll need to do throughout your lifetime.
Put simply, having credit and loan accounts is necessary to have strong financial health.
Cash only living can end up causing your credit score to drop as there is no more activity to report.
To be fair, you will never go from good credit to poor credit because you stop using credit cards.
And your credit score won’t drop overnight.
It will take years and the drop will be small.
With that said, this is one of the most important points to consider if you’ve been looking to move to a cash only system of paying off your monthly expenses.
#2. Once Cash Is Gone, It’s Gone
When you have your credit card or debit card stolen, it can be easy to reach out to your bank or credit card company, talk to them about the loss, and get a replacement.
More importantly, if you find that there are fraudulent charges being made on your account, you can have them reversed.
Cash offers greater anonymity and makes it easier to pay for some things.
However, when it’s stolen, it’s gone unless you can get it back.
If you’re worried about the safety aspects of carrying only cash on you when you need to go make a payment, cash only living might not be the best approach for your needs.
The only way to combat this is to limit the amount of cash you carry at all times.
#3. Difficult To Purchase Certain Things With Cash
There are some instances where using cash is complicated or not possible.
Buying a plane ticket, booking a hotel room, or car rentals are some examples that come to mind.
If you want to rent a car, it’s highly unlikely that the company in question is going to simply let you rent a car with a cash payment.
They typically need a debit card or a credit card to complete the transaction or even make a reservation in the first place.
To get around this, you could use your debit card.
Additionally, if you want to go online shopping, you won’t be able to send physical cash through the computer.
This limits you to only places that you can physically shop in.
If the store you need to visit is a long drive, you have to plan ahead for a trip to take up most of your day.
#4. Could Be Charged Fees For Using Cash
The only way to get cash is to take it out of your bank, and this generally occurs at an ATM.
However, if you can only find ATMs that are out of your network, you might end up paying extra fees just to be able to access your money.
- Read now: Here is how to avoid ATM fees
Another option in a cash only lifestyle is to write a check to yourself and cash it, but if you try to cash a personal check at a place other than your bank, you could be charged fees here too.
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While there are generally more fees and extra costs associated with using a credit card, the reality is that pulling out cash can cost you too.
#5. Miss Out On Credit Card Rewards
Many credit cards now offer rewards and cash back opportunities, depending on the card you use.
These points and cash back can add up over the year, allowing you to save money on other things like travel costs.
When you pay with cash, you no longer accumulate these rewards and miss out on the potential savings.
Of course, the only way you are truly saving money with credit card rewards is to pay your balance in full every month.
So if you aren’t doing that, you aren’t saving much money, if any money at all.
Frequently Asked Questions
I get a lot of questions about living a cash only lifestyle.
Here are the most common ones.
Can you live cash only?
You can pay for everything with cash.
It just takes some planning and changing your money habits that you have grown used to.
But many people who have made the switch are happy they did so.
Why do people do cash only?
Most people switch over to this lifestyle because their financial life is a mess.
Their spending is out of control, they have a lot of debt, and want to make a change.
Switching over to cash only allows them to better manage their finances and see how they are spending their money.
And it stops overspending too, because once their money is spent, there is nothing left to spend.
Is it possible to pay everything in cash?
You can pay for most everything in cash.
With that said, there are some scenarios where you can’t.
Shopping online is one such place.
You could use a PayPal account that is linked to your checking account to get around this.
Other times, you have no choice.
For example, some concerts and events are going cashless for a variety of reasons.
Does paying with cash reduce my spending?
This is because when you see the cash leaving your wallet, you have an emotional connection with it.
It makes you think longer and harder about the things you buy and if you really need them.
Also, as you see the amount of money in your wallet get smaller, you naturally stop spending because you know you have to make your money last until the end of the month.
With credit cards, there is no emotional connection to swiping it.
You just pull it out of your wallet and swipe it, or you tap your wrist on the reader and you are done.
And since you don’t see yourself running low on cash, you never are concerned with making it until month end.
At the end of the day, cash only living is possible.
It’s just not as convenient as swiping a credit card or debt card whenever we want to buy something.
But you shouldn’t let the inconvenience of a cash only lifestyle stop you from doing it.
In my opinion, the benefits of a cash only life far outweigh the negatives.
And if your financial situation is a mess, going to cash only for a period of time can dramatically improve things.
You might even decide to stick with it long term.
Because of this, I encourage you to give paying for everything in cash a try.
The only thing you have to lose is your bad financial situation.
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I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
Visit my About Me page to learn more about me and why I am your trusted personal finance expert.