by The Ascent Staff | Sept. 6, 2019
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If cash was ever king, it's been dethroned.
Living a cash-only lifestyle can be tempting if you're hoping to avoid debt and stick to a strict budget. However, if you're avoiding credit cards and debit cards alike, you're exposing yourself to some major pitfalls and missing out on valuable financial perks.
While there's nothing wrong with wanting to control your finances, you should always diversify your spending habits and keep your purchasing options open. Sticking to a cash-only life can limit your spending options and keep you from achieving financial wellness.
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One of the most glaring downsides to using cash is how vulnerable it leaves you to theft. It's not difficult for thieves to identify someone carrying cash and make their move. If you lose your wallet, you can't retrieve your cash.
You can, however, cancel your debit and credit cards until you can replace them. Almost all banks and credit card companies will refund fraudulent purchases. They also usually offer fraud protection, which can alert you to suspected fraud before you even realize your credit card has been stolen.
That means using cards for purchases actually makes you safer.
Using cash can seem like the best way to maintain your budget and avoid overspending. You take a certain amount of money from your savings account every month and use it for gas, groceries, and other necessities. You know exactly how much money you have to spend every month, because it's literally sitting in your wallet.
While this strategy may work in theory, it's not always the best option. When you use cash, you can't track and review the details of every purchase. Say you spent $10 on an impulse buy (and we all spend a little "fun money" now and then) and lost the receipt. Now a portion of your budget is unaccounted for, and you've missed an opportunity to analyze your monthly spending in the future.
Instead of spending your valuable time poring over your receipts, use the built-in account record on your banking and credit card sites. They break down every purchase and show you exactly how you've allocated your funds each month.
Using cash can also exclude you from a huge portion of our economy: electronic purchases. Whether you're making a purchase online or reserving a hotel room over the phone, modern life involves electronic transactions. Relying on cash will force you to opt out by necessity.
If you're living a cash-only life, you may think of electronic purchases as inherently risky. There's something to be said, after all, for the control you have when you watch money physically exchange hands.
However, cards offer just as much control over electronic purchases. With timestamps and records of pending transactions, you can maintain control over your finances. Plus, you get the added benefit of fraud protection services.
If financial control is one of your reasons for primarily using cash, think of how little use cash actually has in an emergency. What do you do when your car breaks down, you need a tow, and the cash in your pocket won't foot the bill? The fact is, cash just isn't practical in an emergency and leaves you with more obstacles than opportunities.
Even if you still prefer to pay with cash, you can use credit or debit cards in emergency situations. When you can't get to an ATM, you can swipe your debit card instead. Almost all vendors, service providers, and repair companies can process card payments. Using cards in an emergency will also create a foolproof record of the transactions you make at a stressful time.
If you're worried about paying interest on credit card purchases, all you need to do is pay off your card balance before the end of the month to avoid incurring interest.
There are many ways to leverage credit cards that make them preferable to using cash for purchases. Many cards offer rewards like cash back, no interest for the first year, and points that can be used for air travel and more. With so many options out there, you can pick and choose the rewards that best fit your lifestyle and financial goals.
When used correctly, your credit cards can reward you well for your purchases -- sometimes up to 5% of the purchase amount. And that's not to mention sign-up bonuses, which can be worth hundreds of dollars. Just make sure you pay off your balance every month to avoid getting hit with interest.
Avoiding credit cards by using cash also means you're missing out on a simple method of building credit. Your credit score influences so many aspects of building a stable life. From buying a car to financing a mortgage for your dream home, your credit score determines a lot about your future.
Credit cards, when used properly, are a great way to build credit while maintaining financial stability and sticking to your budget. If you're already using cash as your main method of payment, chances are you're accustomed to the careful attention to detail that's needed to stay on top of credit card payments and avoid potentially costly mistakes.
Though using cash for all your financial needs might seem like the smart choice, there are many drawbacks. Make sure you're managing your money with every tool available, including cards.
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