I want to talk about The Power of Cash. That might sound like a stupid thing to say; we all know the power of cash. Cash is money and we need money to live on. But I'm not talking about money, I'm talking about cash: physical pound notes and the power of using those to transform your finances.
These days almost everything is bought on credit and actually very few of us use real money to buy things. It's so easy to put our credit or debit cards into a machine and type in a pin, or, even easier, to use contactless payment and before you know it you've bought something. And that's really convenient. If you go on the Tube in London it's great, you can just touch in and touch out and it just makes life much quicker. After all, our lives these days are so manic and so hectic, we all want to be able to do things quicker and quicker and of course contactless payments and using debit or credit cards helps us to do just that.
We’re all used to using cards for everything, and whilst that is convenient, there's one problem with that. In fact, it's a very big problem that the banks and the credit card companies don't really want you to think about, but they've known it for years, and that is:
When you use a card to buy things you spend more
That might sound a bit nonsensical but it has been proven time and time again to be the case. It's also why the bank and credit card companies not only encourage you to use their products but it's also why they give you points or cash back. The question is why? Why would we spend more if we're using a card? The reason is very simple: it's that when you use a card to buy anything it doesn't seem like you're spending real money. This is a particularly common problem amongst the younger generation where who perhaps have grown up rarely using cash at all. To them cash is much more kind of an ethereal concept. But the fact is that when I take a note out of my wallet and go and buy something in a shop and I get change, I am, on a subconscious level, much more focused on thinking about how much that's costing me, because I'm physically feeling the pain of giving something away. When we feel the pain of doing something we think about it a lot more closely.
Whether it’s simply buying a newspaper to larger things like going shopping in the supermarket, if you get into a situation where you're spending real cash, I guarantee you will spend less, because you'll be much more aware of your money reducing and you'll have a much better understanding at the end of the month of where your money has been spent. I realise this might sound a bit old school but it’s worked for many, many years. If you think back to our parents’ or our grandparents’ time, cash was the only way to buy things and so people didn't get into anywhere near as much debt as they are today because actually they had to make their money last. They didn't have the option of using a credit card or taking out a loan, so the concept of managing their money came from necessity and it really, really works.
On a mathematical level getting out of debt and building a solid financial future is very straightforward - you just have to spend less than you’re earning. But when you're using cards to buy things you can't easily keep track of what's coming in and going out and that's where the problems arise. You might go to the ATM to get a balance at the end of the month and realize 'Hmm, I've overspent again’ but you end up in the same situation the following month.
So I want you just try something for one month. This might sound crazy and you might think that people are going to be looking at you but actually they won't (people are so wrapped up in their own lives no one's going to give a toss). I want you to pick one type of expense on which you think you spend quite a lot of money. Maybe it's going out to pubs or restaurants or maybe it's the weekly grocery bill, but pick whatever works for you. Take out the amount of money that you want to spend on that expense over the next month from the ATM and put it in your purse or your wallet. Use that money every time you go and buy that item and just see how that impacts on your spending behavior. When you get to the end of the month look at how much you’ve spent on that expense and compare it to the previous month. If you've not spent less I'll eat my non-existent hat.
If you can do that, this is the first step to taking charge of your finances because by using cash you'll see the results of actually feeling the power of loss and you’ll see how easy it is to keep track of whether you're spending more or less than you should.
Other blogs you might find useful:
Click the button below to join my mailing list and get instant access to the PDF guide. You can unsubscribe at any time.
To be the first to receive a host of free tools and information to transform your finances enter your details here.