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Tip #23: Go cash-only for 15 to 30 days

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This is Tip #23 of of the Save $1,000 in 30 Days Challenge. (See past tips.)

Today’s tip is to use cash during the 30 Day Challenge. No, this is not an unusual tip, but I’m going to try to add some nuance to it besides “CREDIT CARDS ARE BAD!!!!!” Most people who recommend using cash recommend using only using cash, because they think that credit cards are evil. They are wrong.


Credit cards can be extremely useful because they offer excellent consumer protection, tons of bonuses, financial automation, and they’re an interest-free loan if you pay them off in time. Most importantly, if you use them responsibly, you build your credit. And if you think credit doesn’t matter (I’m talking to you, Dave Ramsey fans), take a look at how much it would cost you to get a home loan these days:


(Check your credit score here.)

The tradeoff with using credit cards, of course, is that it’s much easier to overspend. I wish I could quote you research on whether credit cards cause more spending, but the data are murky and biased, so I’ll just share what happened with my own personal experience.

Case study: Using cash to save 18% in 2 weeks
Recently, my credit card got stolen. I had to wait about a week before my new credit card arrived in the mail, so I withdrew a few hundred dollars in cash. Once I got my credit card, I was lazy and didn’t call to activate it for another week, so for two weeks, I was paying with cash. And because all of my subscriptions sent me a note that they couldn’t process my card, I had to actively decide if each one was worth it…resulting in over $100/month of savings from canceled subscriptions.

Interestingly, not counting the subscriptions, I spent about 18% less over that 2-week period.

Why using cash cuts your spending
1. You’re forced to be a conscious spender about what you pay for. Rather than blindly using your credit card and deferring whether it’s worth it or not until your bill comes — by that time, it’s too late — using cash forces you to make that decision when you pay.
2. You withdraw a limited amount and watch it dwindle. It’s very primal: Since we’re more motivated by loss than by gain, each dollar you physically spend will cause you pain…the good kind of pain.

How to make this tip work: Use the Envelope System

“The envelope budget system has helped me save money because it allows me to see REAL money being spent rather than using my debit card. You basically take out what you expect to spend on each category (eating out, clothes, household, etc.) each paycheck and put it in envelopes or a filing system. You only spend that amount per pay period or month and that’s it! As time goes by, you can see where you really need to cut back because you’ll have money left over in areas that you shouldn’t and probably realize you eat out too much!

After a few months, I’ve been able to trim off a good $100 per month on things I finally realized I need to cut back on once I saw REAL MONEY being used.
–Antoinette Andrews, Memphis, TN

You can read a more detailed writeup on the Envelope System here.

TO DO: Use cash for a limited time period — say, 15 to 30 days. Use the Envelope System to decide how much you want to withdraw. If you’re illiterate/too lazy to click that link, just withdraw $200 and force yourself to make it last for 2 weeks.

Don’t try to use only cash forever — it’s just not a smart financial move. But for the next 15-30 days, measure how much you spend using cash. If you use a personal-finance system like Mint or Quicken, manually enter your transactions within 2 days so you don’t forget them.

And remember: The point isn’t to save hundreds of dollars using this tip, but to force yourself to actively spend and notice what you’re overspending on. Eventually, using credit cards responsibly is a positive thing. Using cash is an excellent way to force yourself to consciously notice where your money is going, and adjust your spending going forward.

Total savings: $50 to $300

* * *

Last thing to do
1. See other tips in the Save $1,000 in 30 Days Challenge
2. Leave a comment on this post describing how much you’re saving with this tip and any unusual techniques you use to make this tip work.

If you liked this tip, check out my Premium tips — one long, tactical tip per week. Save money or get a 100% refund.


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  1. This is a good tip – do you think it applies to people who use debit cards as well? I think it probably does since it’s mentally easier to swipe a card instead of giving cash. I’ll have to try it!

  2. Disclosure: I work for American Express. There is hard evidence that users of a credit card will spend more than cash. This is, in fact, one of the value propositions that credit card associations use to sell credit card acceptance to merchants. Ramit, you hit it on the dot. People spend more on credit cards because there is no spend limit. If you are at restaurant, the most you can spend is what is in your wallet. Your transaction size will increase, on average, 10-20% by paying with a credit card.

  3. Hey Ramit,

    This is GREAT advice but I’ll be the first Dave Ramsey follower to take the bait this time. As I stated in a comment to one of your previous posts, most Americans will never use credit cards as responsibly as you apparently can. Thus, much like alcoholics must forever more avoid alcohol, the cure for most Americans (if they have the will) is to avoid credit (and thus credit cards) at all cost.

    I, for one, am currently destroying my credit score by paying off credit card debt and closing accounts, not necessarily in that order. *IF* I ever need to buy another house I will use the 100% down plan or seek a lender that does manual underwriting. My guess is that such lenders, while scarce in recent years, will gain in number thanks to the recent economic difficulties and will offer solvent borrowers choice rates, even exceeding the numbers you have published.

    By the way, it would be interesting to see the source of your loan rates. I doubt a person/couple with a credit score of anything less than 700 would qualify for a loan at present, unless manually underwritten of course.

    Again, excellent post. Keep up the great work.

  4. I actually have the opposite problem: I think twice about pulling out the card (even the debit card, which might as well be cash), but if I have some cash I think “oh I have enough” and it’s gone before I know it. I’ve saved TONS of money after figuring out that I should never have ready access to more cash than I’m prepared to see walk out the door.

  5. I’m strongly against using cash and credit cards. I almost solely use my debit card and I feel that my spending is kept under appropriate control because I compulsively check my online banking. For me, seeing the $15 I spent at the book store or the $38 on dinner in my recent transaction history helps me reconsider future purchases. It is also helpful that I must see these transactions for 1-2 weeks before they clear off of the front page of my online banking (I don’t buy much). I always keep $20 in cash stashed away in my wallet for emergencies.

    I acknowledge that I could achieve this same effect by manually entering my purchases, but that is too much for me and I would not be able to remain consistent.

    The subtext of this tip is not lost on me. Any way that one can best visualize their purchases so as to affect future purchases is beneficial to conscious spending!

  6. I personally have a very difficult time handing over cash. This is why at the start of every month I pull out a desired amount of cash that I feel will last me the whole month. If the cash runs out before the end of the month then I try to get by, if not then I will totally cut back on certain items until the end of the month.

  7. I’m with Kym on this. For me cash gets spent with no info on where it went, debit or a credit card paid off in full every month gives me control. Plus with the credit card I build up airline miles that I can potentially use in future, and did this past summer to upgrade a long flight to business class.

  8. good one. it works. did it this month – came back from working abroad for 8 weeks [not hard enough! all that sun and sea to play in!] , and lived for the whole of november on what cash I had left. Saved a packet.

  9. the problem with this method is that it depends on people actually paying off their credit cards at the end of the month. What Dave Ramsey preaches is the “what if” or Murphy’s Law.

    what would you do if you ran up a usual $200 or $300 credit card bill that you were planning on paying off at the end of the month and then you had some kind of an emergency happen that wouldn’t allow you to pay off the CC at the end of the month or the next or the next? I think its a little naive to believe this will never happen.

    I don’t think there is a benefit a company can offer that is worth a risk like that

    I’ve never heard a millionaire becoming wealthy from “frequent flier miles”

  10. I use my credit cards, but they are backed by an ING savings account. If I don’t have the cash in the bank, I don’t use a card. It’s kind of my own CDIC (Cathy Deposit Insured Corporation) account. I am really diligent about my finances, though – I keep track of every expense like an accountant. I use my card just for the cash back bonus and pay off the balance from my CDIC account every month. On principle, I hate credit card companies. Because I pay my balance every month, my cash back cards are paying ME for the privilege. That works for me.

    Not everyone is interested in keeping records like I do, though. Most of my friends’ eyes glaze over when I go into the math and records details I go through. However, I view myself as CEO of my personal finances.