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, hereâ€™s a quick précis of the envelope system:
First, 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 â€˜Groceryâ€™ 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 â€˜Gasâ€™ envelope is empty), you have to physically transfer money from some other categoryâ€™s envelope into the gas account.
There are numerous ways to adapt this to various personal circumstances, but thatâ€™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 doesnâ€™t capture any more granular information, like where you spent the money or precisely on what.
In our normal, U.S.-based life Iâ€™ve been using Mint.com to run a sort of â€˜virtualâ€™ 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 â€˜prescriptionsâ€™ and â€˜dentistâ€™ categories to compensate.
Our expenses break down into three main groups, based on the frequency of payment, whether itâ€™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 donâ€™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). Iâ€™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
Itâ€™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.
Afterward, 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 â€˜groceryâ€™ cash and then had to try to sort that mess out later. Even if Iâ€™d had a â€˜veterinaryâ€™ 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 Iâ€™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 donâ€™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).
Group 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 Iâ€™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 wasnâ€™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; Iâ€™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.
Weâ€™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, Iâ€™ll give that plan its own post soon.
Tweaking the system
After some deliberation, Iâ€™ve decided that I should give the Cash Experiment my absolute best shot before giving up on any part of it. So Iâ€™m going to put together envelopes for the rest of group B. Iâ€™ll see how it works over the next couple of months; if itâ€™s too much hassle (and discounts are not forthcoming) I may revert to cards or billpay for those expenses.
In the meantime, Iâ€™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.
The sad fact, however, is that my grocery lists are rarely 100% complete. Iâ€™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 hadnâ€™t remembered to put on the list. Lame brain gets triggered only when I see the item in the store and go, â€˜Oh, right!â€™
This has been the case for a long time (maybe forever), but of course with plastic it didnâ€™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 â€˜Crap, I donâ€™t have enough moneyâ€™ 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 — â€˜Karawynnâ€™ and â€˜groceryâ€™ — and Iâ€™ve already stocked my wallet from the wrong envelope once. Adding group B will make a minimum of seven (and possibly more, as Iâ€™ll cover later).
I 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; Iâ€™ve been able to stay on top of the filing ever since.
The irony? Colored envelope packs arenâ€™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 Iâ€™ll save those for another day.
Have you run into any trouble making purchases with cash? How did you handle it?