Some people recommend using cash as a way to help yourself budget. This may have been popularised by the internet, for example by videos about the envelope-stuffing method. Using cash can have its advantages but there are also a lot of potential downsides too. Here are some points to consider before you decide whether or not it’s for you.
The pros of using cash
Many of the pros of using cash essentially hinge on the fact that it’s physical. It, therefore, has a tangible realness about it that digital payment methods can lack. Its other main benefit is that using cash effectively gives you a spending limit. Once your cash is gone, it’s gone. You have to go back to the ATM to reload, assuming you have money in it.
The drawbacks of using cash
Unfortunately, going back to the days of cash may not be as simple or as desirable as some people suggest. The reality is that it has four major drawbacks.
Cash is unhygienic
In a post-COVID19 world, this may be the single, biggest potential downside of using cash. It is an easy route for germs of all kinds literally to get passed from hand to hand. What’s more, cash needs to be stored and it can end up being stored in unhygienic locations. In short, you really never know where cash has been.
Cash is a security risk
Prior to the pandemic, this would probably have been listed as the main drawback of using cash. It’s effectively untraceable. Realistically, nobody is likely to know the serial numbers of the notes in their wallet. Even if they did, they can’t expect the police (or shopkeepers) to check every note they accept.
That means cash is an easy target for criminals. The corollary of this is that carrying it makes you a target for them. You can, and should, keep it hidden as much as you can. If, however, a criminal watches an ATM, they will see you taking money out.
Cash has relatively limited acceptance
This is another huge stumbling block if you want to use cash to manage your budget. You cannot use cash to pay online and very few merchants accept cash on delivery. It’s also hugely difficult to use cash to pay regular bills such as utilities.
You can generally only do so if the company you\’re paying has an agreement with a real-world business to accept it on their behalf. This generally only happens with larger utility companies and it generally requires you to go to a Post Office. Some banks may allow you to pay credit card bills in cash at a branch but then you need to go to a branch.
Even companies that, in principle, take cash may restrict how it is used. For example, it may only be accepted at certain tills. In some places, you may not get change (this is increasingly common on public transport). You may also be subject to additional security checks, particularly for higher-value purchases.
Cash is increasingly hard to access
Banks are running fewer and fewer branches. This means that there are fewer and fewer free ATMs. If you really want to use cash, therefore, you may need to pay to access it or queue at a bank branch or Post Office.
The alternatives to using cash
Probably the most obvious alternative to using cash is to use a prepaid debit card. You would load this up with funds instead of going to an ATM. This can help you to be mindful of your spending. You can, however, use a prepaid debit card anywhere you can use a regular debit card.
Another alternative is to look for a current account that allows you to divide money into pots and/or a bank that lets you link a savings account to a current account. You can then store most of your money in the pots or savings account and move it into your current account when you need it.
A final option is to keep track of your money with an app. This can give you a very visual overview of your financial position and spending. It can therefore act as a useful reminder to watch your pennies.
