Is Cash Really King?

The Problems with Cash
Cody Berman
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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.

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The Problems with Cash

Angry Emoji

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

Hand indicating "O.K."

As much as I dislike cash, it can be useful in certain circumstances.

1. Budgeting

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.

What’s Next for Cash?

As technology continues to advance, cash becomes less and less useful.  We are undoubtedly headed toward a cashless society.

Cash is sub-optimal because:

  1. Credit card rewards are awesome.
  2. Cash doesn’t affect your account balance.
  3. Splitting costs is a nightmare.
  4. Coins suck!

When to use cash:

  1. Budgeting
  2. To Avoid Fees
  3. 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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Note: I am not a financial advisor or fiduciary. All of the information presented in this article reflects my opinion. I am not liable for any financial losses incurred related to this content. My content is always written with the readers’ best interests in mind. I believe that my content is helpful and well-researched, but it is not professional financial advice. For more information, read our Privacy Policy.

8 thoughts on “Is Cash Really King?

  1. As I was reading I caught myself nodding in agreement many times. I hear people saying that they are going to the bank to pay their bills, they simply refuse to do it any other way. Will not even mail a check. Then they complain about the time it took. I hate change as well. I Just throw it in a jar and cash it in at the supermarket when full. Just hit the coinstar on my way in.

    1. Totally agree with you there Javier! I have so many friends and family who insist on using cash for everything. In this digital age it’s SO easy to save time, automate payments, and leverage technology.

      I have an obnoxious pile of coins in my car. I do the same thing as you and wait for the cup holder to fill up and then find the nearest Coinstar. Thanks for reading!

  2. Great post! I’ve considered 2017 a big win for me. Not only because I got my financial life together, but I also helped my mom too who has stopped withdrawing hundreds in cash a month and is using credit card for almost every purchase. Prior, she mostly used cash. She has also never missed a payment in 40 years. Incredible.

    I also like your focus on the importance of mindset. I’m focusing on writing about student loans for my little sister and I’m encouraging her to have the ‘Starving student mindset’ to pay off her loans quickly.

    1. Hey Mr. FlexCents! That’s awesome to hear about your Mom’s progress. Never missed a payment in 40 years?! Wow.

      Also great to hear about what you’re doing for your little sister. Tell her to live like a college kid as long as she can. Student loans suck. Thanks for reading 🙂

  3. I prefer cash on most spending and generally won’t leave the house with less than $200 in my wallet. I’ve never lost a cent that way but I also keep two active credit cards for larger expenses or where they are more convenient, like buying gas at the pump. Personally I feel that if having cash or having a credit card either one has any influence whatsoever on your spending then you are not in full control of your money. I’m also maybe a little paranoid but I do not like having everything I purchase tracked even though everything I buy is legal. I do find myself drifting a little more toward credit cards lately because it is sometimes quicker to pay that way. In rural America parking meters, vending machines and many parking lots are still cash only and since I travel a lot on my side gigs I’m not sure how I’d tip bellmen and valet parking attendants. I also sometimes tip exemplary servers in cash because I’m not sure if the restaurant is skimming most of the credit card tips and not giving it to the servers.

    1. Hey Steve! Thanks for reading and I appreciate the opposing viewpoints you expressed. Although it’s corny, personal finance is PERSONAL! You definitely have to do what you’re most comfortable with. I agree that someone is not 100% in control of their finances if having a cash or card dictates his/her spending. But then again, I think the number of people with absolute control is a relatively small percentage. We have all been known to slip here or there.

      In regards to the cash-only situations in rural America, there’s no way around those. I carry $1s when I’m traveling for tips as well. Definitely all valid points.

      I’m curious to see how long it takes our country to shift to a nearly cashless society seeing as how this trend seems to be imminent in some European countries. Thanks again for sharing your thoughts. I know I might be slightly biased on this topic as the author and a lover of credit card rewards 😉

  4. I’m right with you on not using cash. I had to use an ATM today for a cash only social obligation and now I have $10 and some change that will inevitably make its way to the snack bar at work. I bank with USAA and getting cash back into my checking is not easy.

    Getting me to swipe my debit or credit card is mental torture while spending cash is super easy for me. If it’s not in my account, it’s not visible, it’s not real…lol terrible way to look at it but honestly that’s how I feel!

    Nice write up!

    1. Thanks a lot, Jeff! I’m in the same exact boat as you. If I have “extra” cash in my wallet it inevitably goes toward a snack or an extra beer. Fortunately, since I’m a personal finance nerd, it’s excruciatingly painful to see my bank account balance decrease.

      Thanks again for reading!

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