Also, as for using a CC vs. cash. I too believed that using the CC was saving us money. Until I made it hurt a little. I set a goal for us to spend 18% less on groceries by using cash only. We recently had a month where we spent 27% less than we would have about a year ago, simply because it was a little easier pulling out the CC to pay for the groceries.
And we did payoff the bill every single month, so we did get 1.5% back on our purchases. Having the cash in hand and saying “How much is that?”, and “How much do we need for the rest of the week?” is much easier when you see the money in your hands as opposed to having to see how much you spent using Quicken/Excel every time you needed to go to the grocery store, much less it’s a lot easier not having to keep the spreadsheet/Quicken up to date all the time.

Even though now I have much more sophisticated personal finance tools (and have actually started the savings fund and the Roth!), 80% of the work came from a simple spreadsheet and using it to keep track of what I spent an to plan spending, instead of just wondering where the money went.

Emergencies happen. This is why emergency funds exist. Once I paid off my student loans the very first thing I did was start an emergency fund. I maintain that fund at a level of “one year’s living expenses” because I am paranoid that way. Usually 6 months is ok and some people are good with even 3 months.

It is important to note that a year’s worth of living expenses is usually much lower than a year’s salary. Is it hard work to save up that much? Yes. And if you have a savings goal like that, you probably get into some pretty decent spending habits to start with.

Say you use cash and save between 10-20% on all purchases for a lifetime (or some period of time) since you will spend less. If you can’t do manual underwriting or for some reason end up with a slightly higher interest rate on a mortgage because of this, how much does is cost you?

Compare that number to spending 10-20% more on all purchases (by using a card and building a credit score) and saving a bit on a lower interest rate.

Which comes out better?

Do you have any experience with manual underwriting? If you truly live debt-free, you are less of a liability for a lender, and should qualify for a decent interest rate. I’ve never bought a house or applied for a loan, so I’m really interested in this.

This is not true. What are you basing this statement on? Opinion? Do you have facts and figures from studies? What examples do you have? Because the one in this post about purchasing a home doesn’t apply since you can do manual underwriting to prove your ability and history of paying your debts in order to get a good interest rate.

How much interest in the long run do you pay for that wonderful credit score? Between credit cards, car loans, personal loans, whatever. In the long run you will have paid more for that credit score than a person who doesn’t have a credit score and doesn’t borrow money will pay for what he is purchasing.

Using plastic, not only is it incredibly difficult to justify pulling it out for anything under $10, it is also very easy to track my spending. Once the charge clears (usually less than 24 hours) it will show up in your online statement (especially true of debit cards). I check my online statements every couple of days to evaluate how much money I have left vs. how much I have spent. I use Mint to categorize all my transactions, which is something that would be impossible if I was using cash, because I wouldn’t remember what I’d spent it on.

Since I pay my credit card in full every month (and @ Clayton – I have an emergency fund in place for the occasions you mention), I don’t think it is a problem for me to use credit. I have learned to pay close attention and start noticing when I’m putting more than usual on my card though – then I know I need to be a little more careful about my spending habits. I have learned to identify these small things before they become bigger problems!