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We are slowly moving toward a cashless society. For those who value optimization, this is great news! Cash is inefficient and inconvenient. If cash were to become obsolete tomorrow, I would be ecstatic (sorry drug dealers). Let’s break down some of the reasons why cash is sub-optimal at best.
Important Note: If you are not responsible with your credit cards and do not pay them off IN FULL and ON TIME every month, please do not use them.
The Problems with Cash
I rarely ever carry cash. It is more of a nuisance than a tool. There are so many reasons why credit cards are a superior choice.
1. Credit Card Rewards
Whether you’re earning cash back, flexible spending points, or airline miles, these rewards are 100x better than the ZERO rewards from using cash.
The average American household spends $38,000 per year (excluding housing costs). Even with a 1% cash-back credit card, this family would gain $380 ($38,000 * .01) every year by using cards instead of cash.
Let’s take it one step further. These gains could be heavily amplified with strategic “bonus hunting”. Many of these credit cards will reward 50,000 points for $3,000 spent within 3 months of card opening. If the average American household spends $3,167 each month ($38,000 / 12), then that family could, in theory, obtain a 50,000-point bonus every month!
Typically, 100 points equal $1.00. So 50,000 points = $500. If a family were able to successfully “hunt” one card per month, their annual gain would skyrocket to $6,380 ($500*12+$380). Heck, I think even one card bonus per year is worth pursuing! Who wouldn’t want an extra $500?
There are so many different strategies within the credit card reward space. If you are interested in using miles and points to travel, but don’t know how to get started, I highly suggest checking out my Travel Hacking for Dummies post.
2. The Money Mirage
If you’re like me, you’ve developed the terrible habit of checking your bank accounts and net worth every single day. This habit is certainly not uncommon within the financial independence community. However, there is one detrimental side effect that this incessant account tracking has revealed. When I spend cash, the numbers in my accounts don’t decrease, and therefore I don’t feel like I’ve spent any money!
If I have $5 in my wallet and $3.47 in coins in my car console, I’m much more likely to purchase an $8 sandwich than if I had no cash at all. For some reason, my brain works like this: Hey Cody, you have a $5 bill and $3+ in coins, you won’t have to dip into your savings to buy this sandwich. Sure enough, I buy the sandwich and check my bank account. Nothing has changed!
I am constantly trying to correct this habit, but I’m such a numbers-driven person that this daily account checking is what gives me a sense of security. To make it easier on myself, I just don’t carry cash!
3. Splitting Costs
Ever find yourself at a restaurant or event where costs need to be split amongst a group of people? I find it so terribly inconvenient when each group member owes something like $13. Who, in this day and age, has $13 on them??? Maybe you have a $20, but I highly doubt the recipient will have $7 to give you your change. With cash involved, this whole cost-splitting situation becomes an absolute nightmare.
The best solution is to start using money-transfer apps. I personally use the Cash App and Venmo. Both are completely free and allow you to send and receive money from friends and family. Sending $4.57 has never been easier! No need to ask for change or deal with bulky coins.
4. Coins Suck
As a young male who carries only a small wallet, I resent coins. In the unfortunate circumstance where I am stuck paying cash for something, my agony multiplies when the total is $11.01 and the cashier dumps $0.99 worth of bulky coins into my hand.
To add to my troubles, the coins often fall out of my pocket if I sit down or take out my phone or wallet. Unless you carry a purse or wear a fanny pack, coins are an absolute nightmare.
When to Use Cash
As much as I dislike cash, it can be useful in certain circumstances.
If you don’t trust yourself with a credit card, cash can be a useful tool for budgeting. Let’s say you plan to spend a maximum of $100 each week on discretionary items. If you withdraw $100 from your account and strictly use this cash for discretionary spending, you can make sure that you don’t exceed your budget.
Another great example is a night out at the bar. If you don’t want to spend more than $X on drinks but can’t trust your drunk budgeting skills, leave your credit card at home and bring only cash to the bar. That way you can save yourself some money and from a killer hangover!
2. To Avoid Fees
In any circumstance where fees apply for using a credit card, do the math to make sure it’s worth it. For example, let’s say you have the option to pay your $2,000 monthly rent by cash/check or by credit card. The cash/check option incurs no fee, but the credit card payment incurs a 2% processing fee.
If you choose to pay by credit card, you would pay an additional $40 each month ($2,000 *.02) or $480 per year. You may be able to offset this loss if you are a savvy credit card “bonus hunter”, but at least run the numbers to determine if the fees are worth the rewards.
3. At Cash-Only Venues
Unfortunately, there’s no getting around this one. Some places just don’t accept credit cards. Since I never carry cash, I had to figure out a way to access these funds without paying ATM fees. After reading dozens of reviews, I ended up opening a Charles Schwab High Yield Investor Checking Account.
This checking account fully reimburses any ATM you fee you incur at the end of each month. I once had a $9.99 ATM fee (don’t ask) and Schwab reimbursed me, no questions asked! There are also no service fees or account minimums. For all you cash-haters like me, this checking account is the perfect option.
As technology continues to advance, cash becomes less and less useful. We are undoubtedly headed toward a cashless society.
Cash is sub-optimal because:
- Credit card rewards are awesome.
- Cash doesn’t affect your account balance.
- Splitting costs is a nightmare.
- Coins suck!
When to use cash:
- To Avoid Fees
- At cash-only venues
I understand that this is a polarizing topic. There are those who love cash and those who hate it. Voice your opinion in the comments below and share your tips and tricks with the community!
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