Fiscal Fitness '09: Cash Is the Cure for Over-Spending

Today's tip is part of our Fiscal Fitness '09 series. Every weekday this month, you'll get help getting fiscally fit as we work toward our goal of saving $2,000 to invest in three stocks!

Here's a no-brainer way to curb the urge to splurge: Leave the credit cards at home. Seriously, toss them behind a major appliance or bury them in kitty litter and -- this is the key part -- go on a cash-only diet.

Why cash? Because using actual currency (not "play money," or non-cash types of tender like credit cards) significantly curbs spending -- and not just because we're short on change at the checkout counter. Just look at the revenues that these credit card companies enjoy, much of which comes from credit card transactions:


Total Revenue, Last 12 Months

American Express (NYSE: AXP  )

$23.1 billion

Visa (NYSE: V  )

$6.3 billion

MasterCard (NYSE: MA  )

$4.8 billion

Discover Financial Services (NYSE: DFS  )

$3.2 billion

Source: Yahoo! Finance.

Forking over the Benjamins (or lesser presidents) induces a gut reaction that's absent when we whip out the plastic. But don't take my word for it. Let the science speak for itself.

Research reveals the pain of parting with cash
A recent study conducted by two business school professors from NYU and the University of Maryland, College Park, found conclusively that when our mode of spending is cold, hard cash, we're much more careful about parting with it -- and we actually spend less.


  • People were willing to pay more at restaurants when using a credit card.
  • When asked to estimate the amount of each item in a Thanksgiving dinner, rather than ballparking the total cost only, the cash-credit spending gap closed.
  • People spent more when they shopped with a $50 gift certificate vs. $50 in cash.
  • When participants had to buy candy with $1 cash or a $1 gift certificate, they more readily spent the gift certificate than the cash. But when asked to keep the gift certificate in their wallet for one hour, consumers were less likely to spend it.

The conclusion is pretty clear: People are willing to spend more if they can pay using a piece of plastic or other non-cash currency. And in all instances, people were much more conscientious when cash was involved.

What's it worth to pick paper over plastic?
So how do we put a dollar amount on how much you can save by leaving the credit cards at home? Think about it: How much easier is it to buy all those magazines and candy that stores like CVS (NYSE: CVS  ) and Kroger (NYSE: KR  ) conveniently (and strategically) place right by the checkout when you don't have to worry about running out of greenbacks?

A 2003 survey of supermarket receipts found that credit-card shoppers rang up 30% bigger bills and carted out twice as much in nonessentials as cash buyers did. Based on government statistics, that adds up to $153 a month for the average household, simply by putting the plastic away and practicing a little cash-consciousness.

Hit the ATM after work
You've got nothing to lose by trying the cash-only diet for the rest of this month. (Just be vigilant about your surroundings, and don't carry more cash than you need for the day.) Try it out for a couple of days and let other Fiscal Fitness participants on the dedicated discussion board know whether it changes the way you spend.

More ways to save ...

  • Stick to your budget with envelopes! You got a breakdown of your big spending categories for yesterday's Fiscal Fitness tip by signing up for the free budgeting tool at Divide what you spent last month on food by four to come up with a weekly budget. Now slash that by one-third, and put that amount of cash in an envelope labeled "Food." Every time you reach for your wallet, you'll see exactly what you have to spend in very tangible terms. If the money runs out before the week is over, get creative with leftovers and an excursion to the recesses of your pantry. Do this same exercise with any spending category that gave you pause, and start racking up the savings -- in cash.
  • Get more cash flowing in: Now that the in-laws are gone, you can retrieve all the junk you stashed in the garage, up in the attic, and under the bed. Only this time, assess it for what it really is -- stuff you don't want, but which someone else might be willing to pay you to get. There are plenty of forums for unloading your cast-offs. One of my favorites is the free listing site But many use eBay (Nasdaq: EBAY  ) ,'s marketplace, a garage sale, or Freecycle (though with the latter, as the name implies, you won't get cash, but you will get rid of your late great-uncle's creepy taxidermy collection).

Read the latest from Fiscal Fitness '09: 1 Month, 2 Grand, 3 Stocks to get our other money-saving tips. We're warming up your budget by cutting back on everyday expenses.

Fiscal Fitness boot camp instructor Dayana Yochim owns none of the companies mentioned in this article. Discover Financial Services and American Express are Motley Fool Inside Value selections. eBay and are Motley Fool Stock Advisor recommendations. The Fool owns shares of American Express. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.

Read/Post Comments (6) | Recommend This Article (24)

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  • Report this Comment On January 06, 2009, at 6:51 PM, loghyr wrote:

    The companies you list earn revenues from processing payments. A majority of those payments use a credit card number, it's true. But a huge percentage of those are debit cards, which are directly linked to checking accounts. The payments processed by those companies are for our health care and utilities, recurring monthly bills etc.

    Using cash may be a good way to save $10 when you go out to dinner, but it also is a good way to lose a lot of your personal worth to robbery. In addition, by increasing the use existence of cash, we increase the available funds by which most criminals can be paid. There is a clear global link between cash economies and criminal activities in those economies (spare me the true but hackneyed comment about how bankers are the real criminals). I think it makes more sense to teach fiscal prudence than to encourage people to continue to use an antiquated mode of payment which is exploited by criminals and terrorists world-wide.

  • Report this Comment On January 06, 2009, at 11:35 PM, nerd1951 wrote:

    I use a separate checking account (free-no minimum) for groceries, eating out, incidentals, even transportation. I put a fixed amount in that account every month and pay with everything using a debit card. This forces me to stick to my budget and discourages impulse buying at the grocery store, etc. I update the balance every day.

    A couple of times I wound up having to take the bus when I would rather drive because I splurged on something early in the month. That will stop that impulse buying thing.

  • Report this Comment On January 07, 2009, at 12:36 PM, TiltnSpill wrote:

    @loghyr -

    Last time I checked identity theft is the fastest growing crime and not armed robbery. You are far more likely to have your credit card number stolen at a restaurant than you are getting mugged withdrawing money from an ATM.

    Instead of brushing the cash idea off as hogwash... why don't you try it? Spending cash on things is a whole lot harder than swiping a card. Why do you think casinos use chips instead of cash? It's easier to bet a black chip ($100) than it is to fish a hundred dollar bill out of your pocket and casino's know it.

    I've used a cash-only method my entire fiscal life. I've never owned a credit card. (I own a debit card for online payment of my mortgage.)

    I paid my way through college and I have ZERO debt outside of my mortgage. How many other Americans can say this? But you are right.... Cash is silly

    Loghyr says....

    "I think it makes more sense to teach fiscal prudence than to encourage people to continue to use an antiquated mode of payment-"

    I believe I'm an example of fiscal prudence... regardless of whether or not I use an "antiquated" method to do so.

  • Report this Comment On January 07, 2009, at 4:16 PM, oohbaby24 wrote:

    This article is so much the truth. Not only in credit cards a convience and adds to overspending, we are "actually" overspending when we charge with credit cards. Everything we purshase as in interest rate attached. Why would you want to pay more just to carry around a plastic card?

    I have stopped using credit cards this past year, and I do not miss one thing. I buy what I can afford and what I really want....

    Secondly, I know so many people without credit cards and they are the happiest most fullfilled people I know.

  • Report this Comment On January 11, 2009, at 9:32 PM, krasnaya100 wrote:

    I am a child of the other depression. My parents taught me to buy only what I could afford to pay for except for a house. I use a credit card and pay up every month and have never had interest payments. There is very little cash in my purse or pockets and I am happy, fulfilled, and old. . . except that it will take eight years to restore my portfolio to its former glory. I hope I live that long!

  • Report this Comment On August 25, 2009, at 7:01 AM, DBank57 wrote:

    This article is so Dave Ramsey. I completed his Financial Peace University this year. One of the first things he recommends is get rid of your plastic - cut them up, pay them off and close the account. Learn to budget and live off of cash. His teachings were not an epiphany to me, I had heard it all before at some point in my life; save 3 to 6 months living expenses, if it's worth buying it's worth saving the money for it, and don't drive all that you are worth are just some of the things he talks about. What his lessons did do for me was give me a concrete game plan, a tried and true strategy to get on the road to financial solvency so that I can retire with dignity. I highly recommend his course to anyone who is struggling with their finances.

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