From cash to credit to instant bank transfers, there are loads of ways to pay for things nowadays.
But which payment type can help you stick to a budget?
Paying With Cash
Cash is often the best starting place for people who struggle with budgeting and overspending.
The finiteness of cash makes it appealing for sticking to a budget because unlike with credit cards, once the cash is gone, it’s gone. You have to wait until you have more before you can spend more.
There’s also a “pain” associated with using cash.
The physical act of giving your cash to someone combined with seeing your available cash reduced makes purchasing decisions more impactful than simply swiping a credit card.
Cash does have its drawbacks:
- you can lose it
- there’s no insurance behind your purchases
- it’s inconvenient at times
However, cash still remains the best payment method to use if you’re just getting started with budgeting or have struggled with overspending in the past.
A cash-only budget largely eliminates the ability to overspend, helps you become more aware of your decisions, and forces you to be more deliberate with your spending.
Plus, organizing your budget with cash envelopes for each budget category is a
Using Debit Cards
In today’s digital world, taking on a cash-only approach can be difficult and impractical at times.
Even if you’re solidly in the cash-only camp, you may need to rely on your debit card for certain situations where cash isn’t possible.
While a debit card does eliminate the bulk of cash’s downsides, it does come with its own drawbacks – primarily the risk of over-drafting your account.
One of the biggest advantages cash offers is the instant awareness of your available funds. But using a debit card removes that awareness.
While it’s easy enough to check your account balances, it’s not the same as opening up your wallet and seeing what cash you have to spend.
In fact, you’re more likely even with a debit card to spend first and look at your balance later. And that can lead to overspending and overdraft fees.
Debit cards don’t allow the same overspending trap that credit cards do, but they do require the same acute awareness of your spending.
Using Credit Cards to Pay
Credit cards are essentially mini loan machines that let you buy now and pay later.
That’s not exactly the best approach for sticking to a budget.
It makes it way too easy to become disconnected from your spending and take on more debt than you realize.
In fact, one of the reasons I struggled to get ahead was because I was on the credit card float.
I assumed being able to pay my statement on time was a sign that I was on budget, when in fact the opposite was true.
Being on the credit card float meant I was buying things I couldn’t afford now but would be able to afford by the time the bill came due.
In essence, I was living on next month’s paycheck. If I suddenly stopped getting paid, I wouldn’t be able to pay my obligations.
Assuming you’re in a similar position, you’ll struggle to stick to a budget because you’re always paying off the past instead of planning for the future.
According to a recent study, 80% of Americans are in debt, so iif you’re like most people, you’re likely beyond the float and actually in debt with accruing interest.
Credit cards don’t just make the risk of overspending more likely, they come with high-interest fees attached that make your debt compound faster than you can keep up sometimes.
The one advantage credit and debit cards DO have over cash is the paper trail of your purchase decisions.
While I don’t suggest reviewing your statements to be budgeting, using those statements to create a budget can be helpful.
Again, it comes down to the awareness you have of your spending decisions if you want to really make a budget that works.
Automatic and Online Payment Methods
One final area of payment methods is automatic and/or direct transfers.
If you have direct-deposit or paid someone directly from your checking account online, you’re using the ACH system (Automated Clearing House).
While I’m all for automating my finances, ACH transfers make me extremely nervous about security.
First, I don’t like to give out direct access to my checking account. There’s enough hacking and ID theft out there to make me nervous about giving those credentials out.
Second, the risk of over-drafting my account is also much greater.
Not only does your awareness of your bills decrease, but depending on how much money you keep sitting in your checking account, you may not have enough to cover the charges when they come due.
That lack of awareness is the antithesis to good budgeting.
While there are a few payment methods that encourage a more hands-on approach (namely Venmo and Zelle), they’re still not ideal payment methods for helping you stick to a budget.
Using a Budgeting App
While the way you pay for things can definitely impact how well your budget works, the only real payment type that can help with your budgeting is cash.
If you prefer any other payment method, you’ll want to make sure you have a budgeting system that supports it.
I’m a huge fan of paying for everything on credit and reaping the rewards, but that’s because I’m also an expert budgeter.
I use YNAB to input and reconcile every transaction and I make sure to check my category balances before I buy anything.
I’m also in my budget daily so I have a keen awareness of what we’re spending and how it lines up with our priorities and affects our goals.
If you’re into travel hacking or just the convenience of credit cards, I’d encourage you to look into an app like
Why Should You Stick to A Budget at All?
You may be wondering why you should bother with budgeting at all.
Maybe it’s always a struggle to stick to your budget or you don’t like feeling restricted.
If budgeting is a challenge, you may have a misunderstanding of what a budget actually is.
A budget is just a tool to help you reach your financial goals. It’s not some commandment written in stone that you have to follow or else.
It’s a reflection of your values and priorities.
If something feels off, you probably need to reassess what exactly you’re working toward and why you’re struggling to make the choices that will lead to success.
While there are numerous ways to pay for things, spending with cash is probably the best option if you’re struggling to stick to a budget.
Give the cash envelope method a try to keep your spending habits in check and work toward your financial goals.
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