Paper or plastic?

No. I’m not talking about grocery bags here. I’m talking about the other kind of paper and plastic: Cash or Credit. Before we open up this “can of worms” I’ll provide you with a quote from god’s Dave Ramsey’s site…

When you pay cash, you can “feel” the money leaving you. This is not true with credit cards. Flipping a credit card up on a counter registers nothing emotionally. A study of credit card use at McDonald’s found that people spent 47% more when using credit instead of cash. This is money you could have saved!

Forty Seven percent? Really Dave? I’m calling shenanigans. In fact, I’m gonna take it a step further and call you a Liar, Liar Pant on Fire-er. There is no way in H-E-Double-Hockey-Sticks, I spend more with my credit card than with a wallet full of benjamins.

Cash is so stinkin’ difficult to keep track of. I don’t know how it happens, but everytime Wife Ninja puts a $20 in my back pocket, it turns in to some frozen yogurt, a California burrito, and a pack of gum real quick. Keeping receipts for cash purchases is about eleventy billion times more complicated than having Quicken automatically include them in my credit card purchases. Since I suck at keeping receipts, I never know exactly where my cash went. And since I don’t know how much cash I’ve spent on any one particular spending category, I’m MUCH less tempted to restrain future spending on unnecessary expenses.

With my credit card, however, I watch that balance like a hawk. Not a day goes by that I don’t check my account. As I watch the balance increase, my desire to spend decreases. I know every time I swipe that card it’s going to make my monthly credit card statement a little larger. And since I pay my bill in full each month, the goal is to keep that sucker as tiny as possible.

Now what I won’t say is that EVERYONE should use credit. I realize some people don’t have the discipline to charge within their means, but that doesn’t mean those of us that do are bad people. Dave often speaks of people who use plastic as naive for thinking they can “beat” the credit card companies. We aren’t naive Dave, we’re just different. No better, or worse than you.

So what’s the name of the game for you: Paper or Plastic? Do you believe those that disagree with you are naive?

p.s. The “study” that Dave often quotes apparently never existed. Get Rich Slowly has a pretty lengthy post about their attempts to verify the mythical study. You can read that post here.

38 thoughts on “Paper or plastic?

  1. Ditto on all counts.

    I never get into that amount of detail with my receipts so I charge just about everything. If I take cash out, I can almost never account for every last dollar and often I’m short like $20 in my head.

    On the weekends, I spend cash because of the farmer’s market, eating out and yard sales. I just consider it my fun money.

    If I had all cash in my wallet, I’d spend more for sure and have no idea where it all went on top of it all.
    I think if I wrote checks for every purchase then Dave might be a little less of a liar because I’d actually be looking at my bank balance every time I made a purchase.

  2. You perfecly sum up my take on cash.

    I think BF is the same. He never keeps receipts either and has a terrible memory, so the only way he would ever remember is by checking transactions online which you can’t do with cash.

    OTOH, he’s a reformed spender in the works, so sometimes cash is better cause once it’s gone, it’s gone.

  3. How about using debit? This way you have the level of tracking, but are still using cash out of you acccount.

    I think the point is you need to be in a good place with you credit cards to be able to use them in the way you are Ninja. If you are carrying a lot of debt on them already and use them for purchased I think you will tend to overspend. If you are disciplined with CC them this is not issue, I have feeling that there are a lot of people that are not.

    • I have a silly question!
      Do people in the US have debit cards that link to their chequing accoutnt? For some reason, I thought they didn’t since most Americans I know use VISA and I always have to explain the debit system! (I’m Canadian!)

      • Yes, most people have a debit card that is linking to a savings or checking acct. However, these cards typically are a mastercard or visa based card, so they can be used anywhere that takes these credit cards and the transaction goes through as a credit.

        • wait a minute……hope you don’t mind if I derail this thread for a moment….

          Another Canadian here, who doesn’t know the American system, so I am little confused now. So the typical American bank would issue a mastercard or visa, which also allows you to link to your banking accounts — it doesn’t issue it’s own card at all? So you do everything from one card? So when you make a purchase, after swiping your card, you are given the options credit/chequing/savings at the point-of-sale machine/thingy (<–hi-tech lingo here…)? For online banking, do you log on using that credit card number as well?

          (FYI — Typically, we get a card from a Canadian bank which is our debit card — when paying for purchases, it only links to the savings or chequing accounts at the bank. The bank also can issue a credit card (ie Royal Bank VISA, Bank of Montreal MasterCard), a second card, but doesn't link to any banking stuff. When I do online/ATM banking from my bank card, it links to both my savings/chequing/whatever accounts at the bank as well as the credit card issued by the bank.)

          • Generally when you open a checking account the bank will issue a debit card that is linked to the checking account. They usually have a Visa or Mastercard logo on them — I think Visa/MC just does the processing and claims a transaction fee from the vendor.

            When you use a debit card at a store, they’ll ask you if you want to process it as debit or credit. Debit means you put in your pin; some banks also charge a small fee (25 cents or so) to do it this way, but it goes through a bit faster. Doing it as credit means you sign for it instead of using your pin, no fees, longer transaction time. Either way it still comes out of your checking account.

  4. We run everything through our credit card. It offers a cash back reward that’s paid out once per year. I go through all receipts every night, transfer the amount we spent from our main account to a high interst savings accunt that is used only to pay the Visa. In the last 2mths we have earned a cash back of $157. By next July I’m hoping to have $500-$600 there (things will slow down as we’ve just bought a new home). That’ll pay the home insurance or the insurance for one of our vehicles. Of course this ONLY works if you pay your credit card balance in full. As for cash, we maybe spend $40-$80/wk, mainly at the farmer’s market. I’m like everyone else, not sure where the cash went and what I got for it. With credit/debit purchases you can see what you got and track what you’re spending your moolah on.

  5. I think Dave is referring to overspending on a CC when you know you don’t pay off the balance monthly. If you know you are only going to pay the CC company $50, it is easy to mentally “budget” in $50, and then charge $500.

    Sort of like a mortgage….the difference monthly between a mortgage of 201k and 200k is next to nothing, so if you wanted something that cost $1000, no biggie when you roll it into the bulk amount.

    I agree cash is harder to track. And it is easier to squander on food, magazines, and other impulse buys. But I think the Dave philosophy of cash being harder to spend is when you are, again, talking about bigger purchases…..most people would have an easier time charging $1000 than handing over $1000 in cash.

    • You’ll notice the article you reference was written in Sept 2008. The research referenced in it is the same study Dave always cites, but if you then go to the article I referenced it was written in July 2010, when JD discovered that often quoted study never actually occurred.

  6. I really don’t buy it either.

    Also, I use my 2% cash back credit card for every transaction (even the very small). Since I pay my bill every month I get full rewards every year. We are talking some serious coin… ~$500!!

  7. For us, it’s cash all the way. If we’re going out and have no intention of spending any money, no money comes along with us. It’s that simple. The $20 in your back pocket wouldn’t turn into a frozen yogurt if it wasn’t in your back pocket in the first place. Why exactly, did you have $20 in your back pocket? If you were planning to spend it on something that costs $20, then it wouldn’t suddenly morph into a frozen yogurt – it would have bought the item you needed. The point I’m trying to make is that cash works best if you fill your wallet right before you head out the door to buy something specific… like today, for instance, I want to go to the dollar store and buy a pack of printer paper – $1.70 should cover it. I’ll bring along $2. And when I get home, the 30 cents will be dropped back into the “other” jar where I took the $2 in the first place. It’s tedious, but it works for us. We’ve been spending in this fashion for 14 months now and can’t get over the difference in our spending habits and our savings accounts! I agree with Dave Ramsey on this one. It’s harder to part with cold hard cash than to drop a CC on a counter.

  8. I can see some truth in his statement. I think the stat he used is a bit over-the-top, but overall people do spend more on credit cards. They can’t see the money going away as they pull out the plastic and don’t keep track of all their purchases as they go along on their shopping spree. Been there, done that. You and your readers (myself included at this point in my life) are particularly anal about our finances and so we keep detailed records and watch our credit card statements like a hawk. But we’re talking about the average consumer and so many Americans and Canadians didn’t get into debt using cash.

  9. i have read the Dave’s TMMO book and his plan is very strict, budget down to the last penny and budget for everything you will need to buy even christmas present starting in january… the whole idea behind cash is the “envelope system” where you put all of the budgeted cash for say “groceries” in an evenlope every month and all spending on groceries comes from that enevelope. i was going to try this but who wants to carry a man purse with 15 envelopes in it or who wants to carry that much cash. Ninja you are also not like most consumers and i would guess that the folks who read your blog are similar and properly manage money spent whether its is with cash or plastic, but many people do not budget properly and cards do take the emotional aspect out of buying. the whole thing gives people structure and a plan which is why it is successful, however his budgeting plan didnt work perfectly for me

    • Agreed, That’s why I included that last paragraph, saying I understand my way is not the way for everyone. I just wanted to make the point that Dave’s way is also not the way for everyone πŸ™‚

      • It seems that you can’t budget with cash properly. And I think it’s common sense that people spend more with credit cards or people wouldn’t have credit card debt. πŸ™‚

  10. I agree to a degree. (and rhymed.)

    For things like McDonalds, gas and such, it doesn’t matter if I use paper or plastic because I would spend the same amount.

    However, when I go to Target and places with a greater variety of items, I do wonder if I am spending too much because I can just grab the item and go, regardless of the amount of cash in my purse. However, I can’t bring myself to go to a strictly cash system because I love my rewards program on my Amex card, and constantly going to the money machine is a major pain.

  11. I agree with the above. Cash vanishes from my wallet without a trace and my credit expenses are examined with a fine tooth comb.

    I think the problem with Dave’s quote is that Dave and his facts come from a different generation than most of us Generation X and Yers. The Boomers have a whole different psych make up and a longer learning curve for the Tech stuff we use to watch our expenses. Since there are more of them the “fact” that you spend more with credit cards has a lot more gray area then Dave lets on.

  12. I love that hubby and I have gone to the cash system. As I’ve mentioned here several times, we follow Dave’s plan very, very closely, and it really works for us. Nothing we had tried before worked. Each pay period, hubby and I do our budget and, as Dave says, “spend everything on paper.” Then we get the cash out of the bank (my paychecks are done by direct deposit.) If we go to the grocery with $50 cash, we can spend only $50. But if we go with a plan to spend $50 but are paying with a credit or debit card, and the total is $53.06, then oh well, we’ll just spend the extra $3.06. And three bucks isn’t a lot, until you pay an extra two or three bucks on everything because “it’s not that much”. I know that if we didn’t use cash, we would certainly spend more. I know this because we’ve experienced it. If I know I have $40 to spend on clothes or toiletries or whatever, I make it work and if I go over, I put something back until the next pay period when we can budget a little more. I do think that SOME PEOPLE are naive when they think that they won’t spend more with cards. Maybe not you, and maybe not anyone reading your blog. But some people. And those are the people I think Dave is trying to reach. πŸ™‚

  13. Good Morning NINJA! I am going to side with Dave on this one, because it is more comforting for me to pay for something with Cash or Debit. That transaction is paid for and done with. Credit Cards are looming in the background, and that balance still needs to be covered. Let me ask you a question, does girl ninja have the same Credit card as you so that every purchase you ever make comes from the credit card? I can see how that system would be helpful, because it compiles everything into one payment. I struggle to keep it all together when multiple credit cards are being used, debit cards, and cash is coming out of the bank.

  14. Study, schmuddy. I don’t need a study to know that Dave is right. We tried the “everything on a credit card” method and we tried the envelope/jar thing from Gail Vaz Oxlade’s blog (Canadian punch debt person). Neither method worked well. Credit card only and we spent too much. Cash in envelopes and we were driven crazy. Now we each get the same amount ($200 in cash) to spend each month on personal stuff only – haircuts, dining out, pedicures, clothes. This method works really well for us and we are able to budget for those items easily. We have a separate savings account for: emergencies, car repair, gifts, one for vacation savings and one for household repair. It sounds like alot of accoutns but I set them all up online and there are no additonal fees as they are all savings accounts. Everything else is paid either by credit card or automatic withdrawal and it’s all budgeted. For groceries and gas, we track our credit statement diligently to make sure we are staying in budget but we are normally ok. We have budgeted a little extra for gas and groceries around Xmas.

  15. I happen to think it’s a generational thing. For thsoe of us who have grown up living and breathing technology [I had my first debit card at age 6], I think Ramsey’s advice should be flipped. For me, cash is like toy money/Monopoly money. No value. No association when I spend it.

    I watch Gail Vaz-Oxlade’s show Til Debt Do US Part as well, and she actually did an episode with some people my age, and put them on a strict No Cash, Debit Card Only system. FINALLY something that made sense to me!

  16. I agree that it’s very difficult to keep track of the receipts for cash purchases. That’s ultimately why I went back to using my debit card. But when I did use cash only, I had a much harder time spending money. If you use both credit cards and cash, it’s definitely easier to spend the cash, but if all you have is cash to spend, I swear it is harder to part with the cash than it is to fork over your debit card.

    Also, there was a post recently on someone’s blog about how credit cards actually cause grocery stores to hike up their prices to account for the merchant fees they have to pay credit card companies. So there are other reasons to avoid credit cards besides the oft-sited, “Dave told me to.”

    • Your “other reason” to avoid credit cards and use cash actually provides a good reason to use credit cards instead of cash. If grocery stores are hiking up their prices whether or not you, specifically, use a credit card, then it makes more sense for you to use a credit card and get cash back rather than using cash and getting nothing back.

  17. I use paper and plastic, but not credit plastic. I agree that Dave citing a study that never really existed is a problem, but I don’t see how it is so hard to believe that spending on a card you aren’t paying in full (most of America), will cause you to spend more than if you used cash. Nothing applies to absolutely everyone, but to be fair to Dave, most of the people he counsels are spending more than they make on credit cards.

    Even if the survey doesn’t exist, the logic still does. Regardless this is still a great topic to get people thinking about. I believe the average person spends more when using credit cards than when spending cash, but I am glad you are not one of them. πŸ™‚

  18. I agree that I spend way less using plastic than paper. It seems like cash just disappears, and then I can’t account for how I spent it. I’m much more tempted to spend money when I have cash. The way I account for cash probably partly accounts for this — once money is withdrawn from my account it is basically considered spent. So I might as well actually spend it. This means I strictly limit how much cash I carry – maybe enough for a bus fare or a coffee, but that’s it. Everything else is paid for with plastic.

  19. I agree and disagree with that assertion. If I’m going to McDonald’s or a place where I’ll normally spend $5-7, there will be no difference between cash and credit. However, put someone in a large store with a variety of items, or a store with expensive items and I’m sure they’ll spend a lot more on plastic then they would with greenbacks!

    As for me, I hardly ever use cash because I have a Visa debit card. But in that case I’m still restricted by my bank balance!

  20. I agree that fake study quoting is not very cool, and that his advice is not for everyone. I don’t follow exactly everything he says re. all the different envelopes, setting aside monthly amounts for clothing etc etc. However, I have put myself on a very tight budget for my variable spending, and so I have found that putting my amounts for groceries and misc. spending in two little bags for the month has helped me see that when it’s gone, it’s gone, even though I do have money in my account I could spend with my debit or credit.

  21. Most of my purchases are “necessary”: groceries, gas, etc. And as long as the credit price is same as the cash price at a gas station, I’ll use credit cards. I’m going to have to buy it anyway to get to and from work, so having only cash wouldn’t limit me (unless I didn’t have enough cash on hand for gas). If I’m out to eat, again, the only way using cash would limit me is if I didn’t have enough on me. I understand that making sure I don’t carry around a lot of cash would limit my spending. But I find that I actually spend a lot more when I use cash. I went out to eat with friends a lot this weekend, and I don’t want to be the jerk using credit, so I burned through a lot of cash.

    Cash tends to disappear. Credit is much easier to track. I don’t spend willy-nilly with my card.

  22. I completely agree! I almost never have cash on me. However, I use my debit card for the majority of my purchases and only the occasional credit card purchase. But still, super easy to track! My cash always goes towards fro yo, drinks with friends, group dinners, etc… But hooray for tracking spending!!

  23. Plastic for me! Easier to track and I refuse to go inside to pay for my gas when its much quicker, easier, and cleaner, to just pay at the pump.

  24. I use plastic more often but when I say plastic I mean to say debit card over cash.

    One often get great discounts and offer even cash back on plastics. You may use credit card as well if you are able to track and pay on time to reduce the interest burden on it.

  25. PLASTIC! I even don’t spend sometimes just because some places only take cash, and I never have any on me! Nice way to prevent spending – being literally unable to buy something πŸ˜›

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