The Simple Cure for Overspending: Cash

The Motley Fool's Fiscal Fitness Boot Camp is in session! Every weekday this month, we'll walk you through a fresh money-saving/money-making tip as we work toward finding $2,000 in savings you didn't know you had.

Here's a no-brainer way to curb the urge to splurge: Leave your credit cards at home.

Seriously, toss them behind a major appliance or bury them in the cat box, and -- this is the key part -- go on a cash-only diet.

Why cash? Because using actual currency (not "play money," or noncash 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 is derived from credit card transactions:

Source: Yahoo! Finance.

Forking over the Benjamins (or lesser presidents) induces a gut reaction that's absent when we whip out the plastic.

Today's Fiscal Fitness task is simple: Spend only cash for the next seven days:

• Feel what it's like to part with coins and paper bills to make a purchase.
• Embrace that edgy feeling when you spend.
• Expose yourself to the real feelings of consumption that credit cards mask.

Uncomfortable? Perhaps. A tad inconvenient? Sure is! And that's the point: When you are limited by the amount of actual money in your wallet you learn to control those urges to splurge. In fact, leaving the plastic at home can slash your expenditures up to one-third.

But don't take my word for it. Let the science speak for itself.

Research reveals the pain of parting with cash
A study conducted a few years ago 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.

Specifically:

• People were willing to pay more at restaurants when using a credit card.
• 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 noncash currency. And in all instances, people were much more conscientious when cash was involved.

Pick paper over plastic and save $100-plus a month
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 Caremark (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 nonessential items as did cash buyers. 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.

Today's task: Slash your spending with envelopes of cash!
Early in this series we took a closer look at our big spending categories. (For a refresher, see "Find Your Biggest Cash Flow Leaks.") That newfound knowledge is going to come in handy now:

• 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.

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 report back here in the comments section about whether it changed the way you spent.

Tune in throughout the month for the latest installment of our Fiscal Fitness Boot Camp, as we stay on course to produce at least $2,000 of savings for you.