You may have heard the budgeting advice: “use cash for everything to avoid spending more than you have.” That may be good advice for some but is terrible advice for me and I think it’s also terrible advice for many of my fellow millennials. Here’s why.
I think about cash like a gift card. Once it’s cash, it’s already spent. It’s like a free drink ticket on Southwest Airlines. My money, my real money, the number I care about, is the number in my bank account. That may sound crazy to a previous generation but that’s how I think about it. And as someone who talks to other millennials about their money every single day, I can assure you that I am not alone.
This attitude about cash helps in making good financial decisions. I have rarely seen anyone keep track of their spending when they only use cash for daily purchases. It’s incredibly time consuming to have a system for receipts and tracking your expenses when you get home from the store. You have loose change everywhere and are constantly going to the ATM. By putting everything on the credit card, I can pull up and easily categorize my spending any time.
But doesn’t using my credit card encourage me to overspend and live beyond my means? Umm, no. If you live beyond your means, it’s not your credit card’s fault. It’s your fault. The easiest way to stay on track and on budget is to know exactly how much you spend and what you spend it on. It is easier to do this with a card than with cash.
Yes, you will need to pay off your credit card in full each month. Yes, that means you can’t ever have more on your credit card than you have in your checking account. Yes, that means you need to have money in the bank. Yes, I know you already knew that. Glad we’re on the same page.
Okay, I’ll make an exception. Do you have a bad history with debt and overusing credit cards? Then replace the word “credit” with “debit”. My preference is for credit cards because they can be easier when it comes to disputing fraudulent charges, building good credit, as well as the ancillary benefit of reward points for cash back or travel. Those benefits aren’t worth it if you’re spending more than you have. If that’s you, use your debit card and avoid the temptation of debt.
But remember, the most important thing is to find out what works for you. What works for one person may not work for someone else. Just do yourself a favor, and make it easy on yourself to keep a budget. You’ll be more likely to stick to it so you can achieve all of the big goals that you have.