From Now On, You’ll Learn To Live On Cash
If you’ve ever watched the show, Till Debt Do Us Part, then you’ll know that the host, Gail Vaz-Oxlade, always tell the debt ridden couple on the show to learn to live on cash, no more credit cards.
At first this seems like fine financial advice and tons of planners and well meaning friends or parents will tell you the same thing – credit cards are bad, learn to live on cash. While this maybe sound advice for people on a show like Till Debt Do Us Part or Maxed Out, for anyone with even a hint of financial discipline, living on cash is the worst piece of financial advice ever. Unless you’re drug dealer or with the criminal underworld, you should never pay for stuff in cash.
Paying With Cash Cost You Money
Whenever possible, I will charge everything I buy on a credit card. The main reason for this is because it makes me money. If you’re the kind of person who never runs a credit card balance and always pay off the full amount owed every month, then you should never use cash to buy anything. Instead, use a rewards credit card that will pay you to use it. My TD Visa offers cash back on anything I charge. However, there are reward cards that offer travel points, discount on cars, gifts, etc.
You’re going to buy that grocery anyway. Instead of paying cash at the Save On Food and just getting the grocery, put it on your reward credit card and get some cash back or earn some points towards that trip to Thailand.
Cash Does Not Leave a Paper Trail
The reason drug dealers like cash so much is because it doesn’t leave a paper trail and therefore can’t be tracked. This advantage for the dealer turns into a disadvantage for you. Unless you write down everything single item you buy with cash, there’s no way for you to track how the money is being spent.
This is one of the huge contradictions I find with Till Debt Do Us Part. Gail will have the couple write down everything they buy in a “budget binder.” If you have enough discipline to write down everything you buy, then surely you have enough discipline to use a credit card. What’s the difference between writing down what you charged with a Visa vs. writing down what you buy with cash?
The key to Gail’s financial rescue plan is the budget binder and not the living on cash. By making the couple write down everything, they realize just how much they’re spending on stuff. The budget binder can work just as well with a credit card as it does with cash.
Cash Offers No Protection
Buying things with cash leaves you with almost no recourse should something go wrong with the thing you bought. If the airline that you’ve just purchased a ticket from goes under, you’re not getting your money back if you paid cash for the ticket. If you’ve charged the ticket to a credit card, you’re protected.
If you get robbed or broken into, your cash is gone. However, the credit cards are protected so your maximum liability it limited to no more than $50 in most cases. Carrying a lot of cash with you is not a smart idea.
Cash Is Not King
Try renting a car without a credit card. Most, if not all, car rental companies will require a credit card to rent a car. The same goes for movie and DVD rentals. If you planned to cut up your credit cards and live on cash, you better leave one uncut because there are tons of places where cash is not king.
From Now On, You’ll Learn To Live On Cards
If you’re a financially responsible person, there’s really no reason to live on cash. Given all the advantages listed above, the smart move is to live on credit and pay the balance off every month. According to Visa and MasterCard, only half of their card holders pay their cards off every month. The other half runs a balance and become the cash cow for card companies.
The key to not being a cash cow for Visa and MasterCard is to not charge more than you make. Checking your balance daily or using a budget binder like Till Debt Do Us Part recommends can help you stay on track. In my case, I have it a little easier. My credit limit is only $25,000 and since I make more than that each month, there’s really no way for me to charge more than I make.