Cash or Card: Which Mode of Payment Should You Use for Expenses?
The importance of financial literacy cannot be overstated. It’s the only road to financial freedom. That, in turn, should be on top of everyone’s list of priorities.
With financial freedom, you will have the privilege of going through life without carrying the burden of money-related distress. You know you can cater to all your financial needs and obligations without resorting to loans and debts. That should allow you to make the most of your life.
But first things first. Where are you right now in terms of financial literacy?
Financial literacy is all about knowing how to best handle your income stream. Money is finite and exhaustible. Recognizing that fact allows you to manage your resources in a way that you get to enjoy the here and now without compromising your future. One foundation of financial literacy is the careful maneuvering between the use of cash and cards.
Here are some hacks you need to know and abide by.
When to use cash
This is the OG mode of payment. Sadly, many have abandoned this otherwise reliable way of engaging in commerce. That’s unfortunate, considering its many advantages.
For starters, when you use cash, you do away with convenience fees from card transactions. Those fees can easily add up, which could have otherwise grown your savings. But instead, they go to banks.
Speaking of savings, cash transactions are sometimes rewarded with rebates. Gas stations, for example, often offer this program to customers. That’s because banks charge interchange fees for processing transactions. Paying cash means you’re helping out small businesses save on those charges.
Another way to maximize cash use is when emergency expenses occur. Financial experts suggest keeping an emergency fund at all times in your glove compartment. This emergency fund is for when you accidentally left your wallet at home or need to pay a merchant that does not honor card transactions.
Meanwhile, at home, you also need to have cash kept in an envelope tucked somewhere safe. That’s for when you need to spend on essential items with cash and you don’t have time to drive to a nearby ATM.
Lastly, there’s the psychological aspect of cash use. When you use cash, you feel more attuned to your spending. You become more conscious of what you buy.
That is opposed to card use where there’s a sense of disconnect between purchase intent and result, given how there’s no physical exchange of something of value. Why you tend to overspend when you shop with a card can be traced back to that disconnect.
On that note, if you want to cut down on your spending, consider cash use as much as possible. After all, cash has remained versatile and is honored almost everywhere.
When to use a card
For the sake of specificity, let’s have separate discussions on two types of cards, namely debit and credit. While they both come in the form of magnetized plastic, they can’t be more different. A debit card draws funds from the money you already have. Meanwhile, the operative word in credit card is credit. It’s money you don’t have, which you will eventually have to pay.
Financially conscious people often ask what the best credit card alternatives are. Here, the logical answer is a debit card. You get the same level of convenience from swiping with a credit card without the risk of a headache a month after purchase.
You may also consider debit cards as worthy alternatives to cash. You’re paying in cash but without holding actual cash.
As for the particulars, it’s best to use a debit card for expenses you failed to account for in your monthly budget, such as emergency purchases.
For instance, you received unanticipated guests at home. You need to order food delivery because you can’t cook. Instead of using a credit card, use your available funds via a debit card. Doing so makes you acutely aware of the accumulation of emergency expenses. You’ll know when to slow down, especially if you’re about to overdraw.
Another recommended use of debit cards is for recurring expenses, which you can automate. From your Netflix subscription to your car mortgage, you may tap into secure funds you’ve already earned. Now, if those funds don’t exist and you need to pay for something pronto, that’s where a credit card comes in.
The good thing about credit cards is how they come with cashback and reward points. The more you use them, the more credits you earn. You may use accrued credits for shopping or paying bills.
Another legitimate reason for relying on a credit card is when you’re traveling and you want to protect yourself from identity fraud. It’s also good for when you’re trying to build your credit rating, so long as you prove yourself a responsible borrower.
Before we wrap up, here’s some anecdote for you. Musician Kanye West was quoted as saying that he has not personally held cash in years. That would mean he’s been using cards when paying for dinners, drinks, and whatnot. It sounds pretty convenient, even aspirational.
But if you’re someone with a limited income stream, it won’t be wise to rely solely on card use. Before you know it, your debit card has been depleted, or worse, you’ve incurred huge credit card debts no responsible borrower could ever pay off. On that note, it’s wise to shuffle between using cards and cash. Use the hacks presented here to guide you on which mode of payment best suits specific expenses.
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