Many people are sidestepping cash lately. According to one Pew Research Center report, more than four in 10 Americans say they don’t pay for any purchases in cash in a typical week.
But does that mean everyone should forego cash once and for all? Not necessarily. In fact, some financial experts say that a cash-only system may be a wise money move in certain situations.
An exclusively cash lifestyle may help you follow your budget, sidestep overspending, and avoid the high cost of overdraft, interest, and other fees that can be incurred when you pay by check, debit, and/or credit card.
But going all-cash has its downsides, too. It may not be convenient or as secure as other ways of paying.
To figure out what’s right for you, read on.
Pros of Cash-Only Living
Spending money the old-fashioned way can offer some significant perks. Here are some benefits that come with paying with cash for all your transactions.
Using Cash Only Can Help You Budget–and Save
When spending is invisible, it can be all too easy for people to forget that real money is actually going out the door–and all too easy to get in over their heads.
Using a cash-only payment system, even if it’s just for a month or two, can be a great way to see exactly how much you’re spending each day and week, and help you learn how to live within your monthly budget.
That’s because with cash accounting you only take out the amount you’ve allotted to spend for a certain period of time. When you’re out of bills, you’re done.
And if you use the envelope system (more on that below), you’ll be able to set aside specific amounts for all of your spending categories, such as rent, food, and entertainment.
You can then only use the cash you’ve withdrawn for those expenses, which can keep you from spending outside of those pre-set limits.
Cash-Only Living Can Help You Maintain Privacy and Security
Every debit or credit card transaction leaves a digital paper trail, and enables companies to know exactly what you buy, when you buy, and precisely how much you spend.
A more troubling concern can be the potential for data leaks of your personal and credit card information, which can result in identity theft.
If someone steals your identity, they could potentially empty your accounts and obtain new credit cards and credit lines in your name.
Using a cash-only payment system reduces the odds of a breach.
Cash-Only Living Can Help You Save on Interest and Fees
Credit cards often come with annual, as well as late payment fees.
And some stores and service providers, especially small and local businesses, may charge an extra fee to take a credit card payment, since they have to pay for the transaction.
In addition, if you don’t pay your credit card balance in full, you’re likely to end up paying exponentially more. Why? Those high credit card interest rates, which in May of 2023, were topping 20%.
Cons of Using Only Cash
Using cash-only can also come with risks and disadvantages. Here are some of the drawbacks.
Cash Living Can Come With Costs
Some ATMs charge fees for withdrawing cash, which can be troublesome if you find yourself suddenly out of money and need to use an ATM outside of your own bank.
By using credit cards instead of depending on ATMs, you may be able to avoid those costs.
Cash Living Can Have Security Concerns of Its Own
Keeping cash on your person or in your home comes with vulnerability.
You could be a victim of theft, you could lose some money, or the cash stashed in your home could be destroyed by a flood or fire. While not highly likely, it can happen.
A lost or stolen credit card, on the other hand, can be reported and you can often successfully dispute any instances of fraudulent charges.
Recommended: Types of Bank Account Fraud
You Fail to Build Up a Credit History
There’s something ironic about the way lenders look at credit history: If you haven’t borrowed much in the past, lenders may be reluctant to lend to you now.
Opening a credit card account is one way you can build up a credit history (other forms of credit, such as student or car loans, count as well).
A strong credit score is based in part on the average age of your account (the older the better), as well as a history of paying your bills on time, and how much debt you have in relation to the amount of credit available to you.
Your credit score is an important factor if you’d like to take out a loan in the future, such as an auto loan or home mortgage.
If you pay for everything exclusively in cash and never use credit (which is often hard to pull off), you may have trouble showing that you have the credit history to qualify.
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Tips for Living a Cash-Only or a Cash-Mostly Life
If you decide to switch to an all, or largely, cash life, here are some strategies to help make the shift as seamless as possible.
Choosing Which Categories to Switch to Cash
Certain payments and bills, such as a mortgage or your student loan, need to be paid digitally or by check.
But you may want to switch groceries, entertainment, clothing, and eating out to cash-only to keep better tabs on the outflow.
Cutting Back on Debit/Credit Card and Check Use
For your cash-only categories, it may be a good idea to stop using your credit card (and even your debit card and checkbook) to pay for anything in those categories. That way, you can really track your cash.
Setting up a System for Tracking Cash Flow
To keep cash for different categories separate, you might consider using the envelope budget method.
With this system, you set a certain amount of cash to spend in each budget category. These pools of money are kept separate in different envelopes.
To keep track of the flow, you can put receipts in the same envelopes as you spend.
The goal is to make the cash last all month. Once the envelope is empty, you’ll either be done for the month or will need to take cash out of a different envelope, potentially short-changing another category.
Recommended: 7 Different Budgeting Methods
Establishing a Time to Take Out Cash
Whether it’s a certain day each week or month, you’ll want to make sure that you go to the ATM on a regular basis to get the full amount of cash that you’ll need until the next ATM trip.
Planning Shopping Trips in Advance
It’s generally better not to carry a load of cash around, so you may want to know ahead of time what errands you’ll be running, and how much you’ll need for each outing.
As a bonus, this can also curb impulse purchases.
The Takeaway
If you’re looking to fix or improve your everyday spending habits, nothing works quite like a cash-only lifestyle.
By forcing you to stick to pre-set spending limits (and actually see where your money is going), this approach may be able to help you keep your monthly spending within your budget.
While cash-only living can take away from efforts to build credit and can have some security issues, this method of spending can also help you save on credit card fees and interest.
If you’d like to pay in cash more often, but still want to earn a competitive return on your money, SoFi Checking and Savings Account might be a good option for you.
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SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
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