small change toward a rich life

Setting up the Great Cash Experiment

Having been convinced by numerous psychological studies that credit cards are causing us to spend more, on October first Jak and I began our Great Cash Experiment, in which we try to replace plastic forms of payment with cash — as much as is feasible, here in twenty-first century America.

As you might expect, there have been a few hiccups along the way.

I do feel slightly more prepared for this transition because of the month we spent in Mexico, where cash is usually the only option. While we were there, I posted about how the cash tracking system that seemed onerous for the first few days later became streamlined.

But I never got around to writing about how, in weeks three and four, my tracking system began to break down. Where at first there was the satisfaction of having the spreadsheet numbers match our cash on hand right down to the centavo, eventually we started forgetting a few pesos here and there. Or maybe they fell out of our pockets. But one way or another, the numbers stopped matching and the whole thing became a source of ongoing frustration.

By the end of our trip I had decided that living in Mexico would require a physical envelope system for grocery purchases at the very least, and possibly across the board.

Envelopes, real and imaginary

For those of you who are unfamiliar, here’s a quick précis of the envelope system:

white envelopes on orangeFirst, you have to make a budget (monthly is most common). Second, get a stack of envelopes, and label each one with a budget category. At the first of the month (or other budget period), you distribute the complete budget in cash across your envelopes. For example, if your monthly grocery budget is $400, $400 cash goes into the ‘Grocery’ envelope. When you run out of money in a particular envelope, you stop spending until the next month. Or, if not-spending is impossible (say, you need gas in the car to get to work, but the ‘Gas’ envelope is empty), you have to physically transfer money from some other category’s envelope into the gas account.

There are numerous ways to adapt this to various personal circumstances, but that’s the basic idea. A benefit of this system is that it allows you to easily (and visually) track total expenses by category without recording each individual purchase; a drawback is that it doesn’t capture any more granular information, like where you spent the money or precisely on what.

budget barsIn our normal, U.S.-based life I’ve been using Mint.com to run a sort of ‘virtual’ envelope system since we began our Conflict-Free Family Budget in July of 2011. All our credit and debit purchases get downloaded and assigned to a budget category automatically, with minimal manual tweaking. Overage or underage rolls forward to the next month, and Mint shows us a running total of how much we have available in each category.

I can also adjust the budget for the current month at any time, and I always do it in a way that has a net-zero effect on the monthly total, much like moving money from one envelope to another. So for example, when Feather had a $161 emergency that put us $54 over our accumulated savings in the Veterinary budget, I moved some from the flush ‘prescriptions’ and ‘dentist’ categories to compensate.


Our expenses break down into three main groups, based on the frequency of payment, whether it’s local or remote, and how much discretion is involved in the amounts.

  • Group A: frequent, mostly local, high discretion: groceries, plus the personal allowances for myself, Jak, and Claire. (Remember that our personal allowances cover a wider range of expenses than is customary.)
  • Group B: occasional, local, low discretion: veterinary, dentist, prescriptions, auto maintenance, gasoline.
  • Group C: occasional, remote, mostly zero discretion: health insurance, child support, electricity, water/garbage, natural gas, internet, auto insurance, auto registration.

Learning from our Mexico experience, I immediately created cash envelopes for group A. Certain personal expenses must still be paid remotely — like airline tickets, or the annual web hosting bill — and those will of necessity continue to go on the credit card. We don’t make a lot of online purchases, but when we do, physical cash is not an option. (We could switch to bank debit or Paypal, but research indicates that psychologically speaking, electronic purchases are no better than credit cards.) But all the grocery shopping — still our second-largest expense each month after health insurance — occurs in-person, as do the majority of our personal purchases. These are now dutifully being made with colored slips of paper and metal discs.

Group C is paid either by electronic bank debit or through the credit card (which in turn is paid monthly through a bank debit). I’m not going to try to change any of that. There is almost no flexibility to the costs in those budgetary categories — probably not enough to offset the time and inconvenience (and in some cases, driving cost) of going somewhere to pay with cash.

The real conundrum, however, is group B.

The grey area

It’s tempting to keep those using plastic for those very occasional group B expenses — many of which are fixed-cost — just to lower the hassle factor.

When Sammy needed a Prozac refill a couple weeks ago, I paid the $5.84 with cash at the Fred Meyer pharmacy counter before moving on to do other grocery shopping elsewhere in the store.

cash (euros) in a jeans front pocketAfterward, I half-wished I had put the drug purchase on a card. Since I do not currently have a physical envelope for veterinary expenses, I was technically paying out of my ‘grocery’ cash and then had to try to sort that mess out later. Even if I’d had a ‘veterinary’ envelope, I would have had to keep those dollars separate from my grocery dollars — one set of bills in the left pocket and the other in the right? What if I were running errands across three categories? Am I going to have to start carrying a purse? (I hope not, because I’d probably lose it.)

The prescription amount was determined when I chose the pharmacy; I was not making any point-of-purchase decisions that would affect the cost, as I do with groceries. On the other hand, if I don’t switch to cash-in-hand payments, I lose the possible ability to negotiate a discount (which I intend to try with dentist and vet costs, at least).

Fuel economy

Costco gas pumpGroup B also contains gasoline, which is its own unique problem. For one thing, we buy most of our gas from Costco (saving at least .20 per gallon), and as I found when I pulled up to the pump this last time, Costco stations do not accept cash at all — only Costco gift cards, American Express, or debit cards.

Although I’ve been generally leaving my AmEx at home (in direct defiance of the famous slogan!) this time I did have it with me — because it doubles as my Costco admission card. I made an on-the-fly call to use the credit card at the pump, figuring that because I was intending to fill the tank anyway, this particular decision wasn’t going to make me spend more.

We have a bigger issue with gasoline, anyway, in that (to drop into economist lingo for a moment) the costs are externalized and the incentives are not aligned with either our financial interests or our environmental ethics. (If that makes no sense, never fear; I’ll translate it to plain English in a future post.) Practically speaking, that means we need to a) start keeping a mileage log and b) rearrange how gasoline (and transportation in general) is handled in the budget.

We’ll be making those changes starting November first, after which I suspect the question of card or cash for gasoline will become largely moot. Again, I’ll give that plan its own post soon.

Tweaking the system

After some deliberation, I’ve decided that I should give the Cash Experiment my absolute best shot before giving up on any part of it. So I’m going to put together envelopes for the rest of group B. I’ll see how it works over the next couple of months; if it’s too much hassle (and discounts are not forthcoming) I may revert to cards or billpay for those expenses.

In the meantime, I’m still tweaking other aspects of the system. For example, I always write a list before heading out for groceries, so it seemed natural to look at the list, estimate the amount of money I would be spending, round up a little, and count out that much cash.

grocery store interiorThe sad fact, however, is that my grocery lists are rarely 100% complete. I’m not talking here about impulse purchases (which I also sometimes make), but items which I had previously noted I would need to buy soon, yet hadn’t remembered to put on the list. Lame brain gets triggered only when I see the item in the store and go, ‘Oh, right!’

This has been the case for a long time (maybe forever), but of course with plastic it didn’t matter how many things I remembered only after I got to the store. With cash, it matters a lot. It only took one instance of ‘Crap, I don’t have enough money’ before I vowed to carry an extra twenty bucks on grocery trips. Maybe even forty, just to be safe.

Also, so far I only have two envelopes — ‘Karawynn’ and ‘grocery’ — and I’ve already stocked my wallet from the wrong envelope once. Adding group B will make a minimum of seven (and possibly more, as I’ll cover later).

colored envelopesI decided to invest in some colored envelopes so I can keep the different categories straight. That may seem frivolous, but I know better: years ago, on the advice of an organization book, I switched from plain manila to colored file folders. It made an outsized difference; I’ve been able to stay on top of the filing ever since.

The irony? Colored envelope packs aren’t stocked at any nearby stores; I had to order them online … and pay with a credit card.

•   •   •

I have more Cash Experiment stories to share — some observations about splitting restaurant bills, a solution for the problem of exact change, and a small rant about coins, among other things — but I’ll save those for another day.

Have you run into any trouble making purchases with cash? How did you handle it?


14 responses

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  1. Mark says

    For me, with grocery shopping, there’s also the category of ‘we don’t need this right now, but it’s a non-perishable that’s on a great sale that we’ll need in the future’ category…I’m not sure I’d be willing to trade the convenience of plastic for the savings of using cash, but I’m interested in reading how it turns out for you!

    • Karawynn says

      Mark, that happens to me too, but more rarely than the forgetting, because I always check the weekly sale ad from home as I’m making my list.

      But occasionally I run across an unadvertised special that’s worth stocking up on — and again, for which I’d need extra cash on hand.

  2. Abby says

    I’m interested to learn more about this experiment! I’ve read a lot of blogs where people say they use the cash system, but rarely do they actually go into detail about the issues with it. It seems like nowadays everything is set up to make buying things with cash too inconvenient to be worth it.

    With your gas situation, would filling up a gift card monthly at Costco be a solution? It seems similar to cash in that the balance will automatically rollover, and you could just take it with you when you go to fill up. I know at Walmart you can save 10 cents a gallon if you use a gift card.

    • Karawynn says

      There are definitely inconveniences! I’m hoping that if I keep tweaking I can create a system which is not onerous.

      Gift cards wouldn’t really help because they, along with debit cards, have most of the same psychological effects as a credit card. The only significant difference is that there’s no chance of accumulating interest, which doesn’t worry me: I never come anywhere close to spending more than I could pay off in a month, and I haven’t been late on a credit-card payment for many years (ever since I dropped back to using just one card).

      I do have an idea for handling the gas that will start in November — I’ll write it up soon and we’ll see how it works.

  3. Margaret says

    We have experimented with switching to cash per Elizabeth Warren’s advice in All Your Worth. She does NOT have you track your spending except in broad categories. If you’re worried you might run out of cash, you can stash some in your sock drawer to pace yourself a little bit better.

    In general, I really love it, because using cash gives me an instant snapshot of how much money I truly have. If I’m running errands and paying with a card (even a debit card), I have trouble keeping up the mental calculator and I easily overspend without really thinking about it. But if I take $40 to the grocery store, I don’t accidentally spend $100 like I would sometimes with my debit card. It’s deliciously finite.

    • Karawynn says

      All Your Worth is a smart book, and a big influence on me. It didn’t get me to switch to cash, however, because it only talked about the credit card traps and not the traps in our own brains!

      I can appreciate the simplicity of the broad-category approach, and I do lump a whole bunch of undifferentiated needs under ‘groceries’ (everything from cat litter to toilet paper).

      But I’m finding I really want detailed data on my personal allowance — I’m spending more money on certain things (wine, mostly) than I should be, and I need to increase my mindfulness, because I have several larger goals that I want to save up for. So I’ve created a simple spreadsheet that will track personal spending, and I hope to use my new colored envelopes to help me save.

      With grocery shopping, I’m very price-conscious — but I’ve memorized unit prices, not package prices. I’m used to evaluating each individual purchase without worrying about the total. I’ve always come in way under my budget (and in fact, I’ve kept dropping the budget — I’m now running on about 2/3 of my original) so I haven’t worried about it.

      But now that I’m paying cash, I’m having to deal with checkout totals — which in the case of Costco (where I’m buying several months’ supplies at a time) can be a shocker. I haven’t decided yet whether this is a useful thing or an unnecessary extra worry.

  4. Michelle says

    Karawynn, I invested in some money envelopes and have tried to pick up the habit of spending cash on-groceries/fun/ and daily incidentals. In the beginning I found that I would sometimes cheat-LOL! Switching money from one envelope to another. It has gotten better, but, I think it will take me at least 6 months to really figure out how much to allocate to each envelope. Am looking forward to reading some of your stories!

    • Karawynn says

      Michelle, how long have you been trying the envelopes? And what goes in the ‘daily incidentals’ category?

      I’m not sure that switching money around is really ‘cheating’. I guess it would be bad if you, say, were skimping on nutrition in order to fund a trip to the mall, but as long as you’re taking good care of yourself and staying within your overall spending budget, what’s the harm?

  5. meera says

    K – when I got to the part about “colored paper and metal discs” I scrolled back up because I figured there was some crazy post-it/medal system you had come up with to track your spending. It took me a full solid minute to realize you were talking about …money.

    I tried envelopes once years ago, when I was a very broke grad student. It mainly didn’t work, but that was in a two-person household that only had a one-person buy-in. I’ve always wanted to try again. Actually maybe after you’ve done this for a couple months and sorted out some kinks you can get a few people in different life circumstances/geographic regions to test out your system.

    • Karawynn says

      Ha whoops! I was too cute with my language, I guess. I was trying to communicate the sense of strangeness that I sometimes feel, dealing with cash after being plastic-only for so long.

      Yeah, I can see how a lack of buy-in would be a problem. Jak agreed to try it with me and has been pretty patient with the kinks, but he reserves the right to revert back to plastic for his own spending in a few months. I’m hoping I can improve the experience enough that he won’t want to, but we’re not there yet. At least the fact that we have separate allowances contains the effects; his reverting to credit won’t have much impact on my own goals.

      Are you volunteering as an envelope system beta-tester? :)

  6. S. Meier says

    I have been doing ‘modified’ cash to for the past few months- it is psychologically harder to turn over cash than a piece of plastic. I started with doing all cash except my monthly-bill pay stuff.
    I too have run into trouble at the grocery store and had to ‘borrow’ from the gas envelope. Also, gas is annoying to pay with cash because when it is raining/cold and I have to get out of the car—ok whimpy me! Plus, when I do buy it at Costco I need a debit card (and Costco is right by my work- so very convenient). One time I used my debit then drove straight to the bank and re-deposited the cash! Nerd!
    I ended up doing a modified version- all monthly bills- electric/tv/phone are paid via bill pay thru my bank and I write any EFT’s out of my check register at the time I am paid (even if not coming out until a week or so). This is because certain bills are assigned to a certain payday. Yes, I keep a register unlike my husband who just estimates what hasn’t cleared and uses the bank balance- we have separate checking acct.
    Anyway, the envelope system I have left is just my ‘allowance’ I give myself and groceries. So, I only have 3 envelopes- I label 1 Groceries and the other 2- Week 1 spend and Week 2 spend. My “group B” expenses I have swept into a savings acct connected to my checking- so when the Vet or Dentist co-pay or my hair needs done- I just transfer that to my checking.
    My system works for me- although paying cash is hard these days- Airline Tickets and hotels you have to have at least a debit. But even on our trip to Europe earlier this year- I had envelopes for each port for food/trinkets.
    On Airline Tickets and hotels- I use my credit card I get points for- but write the cost out of my check book with a ‘code’ by it- so when I get my bill, I just tick off the amounts and pay that lump to the credit card. I have enough points to go to Cabo next month!

    • Karawynn says

      Sheri, you Oregon folk are spoiled — the rest of us have to get out of the car always, and pump our own gas! ;)

      I love that you redeposited cash after using your debit card at the pump. That’s a little bit like the way I’m hoping to finesse the gas situation over here.

      Also, taking envelopes while on vacation? That’s some serious budget-fu. /bows

      So do you write checks for the vet, dentist, etc.? Or hit the ATM when those expenses crop up?

      • S. Meier says

        For vet, dentist, etc- I used my debit then transfer just that amount from my savings to my checking. They are few and far between- but I try and keep a “small emergency” fund in that savings for that and/or for any car repairs- like $1000 min to $2000 :)

  7. Derek @ Freeat33 says

    My wife and I have been wanting to try this experiment for ourselves too. I suspected a lot of the problems you mentioned and that is why we have delayed. Besides I like the points and convenience of going plastic.

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