Hacker News Reader

Comment by malfist | Hacker News Reader

This goes against everything I'm familiar with around budgeting.

One of the big tricks to getting your budget in check is to pay cash so you can see the money leaving your wallet. Swiping a credit card makes that all invisible

View on HN

IMO, that's outdated advice from the days before online automatic bookkeeping, before credit card transactions were immediately visible online, before your bank could auto-classify your credit card purchases into spending categories, before configurable spending alerts, before budgeting apps with bank integration, etc.

If you spend cash, you don't benefit from any of that and as soon as you forget about the transaction, it's like it never happened. Nothing will be able to help you retrospectively see where your cash is going. You can lie to yourself about it. Charges on a card statement don't lie.

It really depends on the person. I found that budgeting apps with bank integrations were quick and convenience, but I wound up in the trap of only doing the most superficial analysis. ("Yep, sure did spend that much.") For myself, manually logging purchases is far more effective. It's a similar observation as I had in college, where I found that hand-writing my notes helped me learn better than typing them.

It's not. The point of cash is to make you more psychologically aware of what you're spending so that you're less likely to buy something you don't need in the first place.

All of the online transaction tracking only helps with purchases that you've already made, so you can say "maybe I shouldn't have done that"...after the fact.

Cash based budgeting works beautifully, but it requires a change from what you're used to and there are certainly trade offs. If you're looking to save money though, cash budgeting is like magic.

It comes down to how you budget and pay your bills. If you take out large chunks of cash at a time then psychologically seeing the cash leave your wallet might personally help you if you treat budgeting as a once a month task. It's easy to get into trouble with a credit card if you never look at your transactions until the end of the month and treat the amount on your statement as a big blob you just have to pay while just glancing through your statement.

If you actually use budgeting tools like YNAB which get you into the habit of spending a couple minutes every morning to confirm and categorize where your money went you end up with all the psychological benefits of cash, it's impossible to forget a transaction, you know exactly where your money went for years, and you end up with even more money due to the credit card rewards. I also usually take that time every morning to pay or partially pay on all my cards to make it even more obvious the cash that is leaving my checking account each day.

If you pay with cash then once your wallet is empty you’re done. I could spend far more on my credit cards than I actually have if I wanted to.

If you do then you can enjoy yourself the night, and limit your purchases for the rest of month.

You also would have more money in your account if you had been getting the credit card rewards for years and could extend your night without spending more than you have.

I'm sure it does work for some people, but the popularity and success of budgeting apps suggests that it's not for everyone. The tradeoffs you mention are all of the accountability features I mentioned. The article is reporting on research that suggests that unaccountable cash spending is a problem for many people.

For me, I need to have it the other way around. Regular withdrawals of similar amounts on my bank statement tell me nothing about how I spent my money a month from now.

When paying with card, I leave a paper trail for myself to review later. I can also look at my banking app anytime I want to check how much is left. I actually do that before most purchases that go beyond a few bucks.

While I could make the same reply to almost every comment in this thread I have chosen yours at random.

I believe you are conflating the goal of "spending less" (which is hard) with a simpler goal "knowing more about how I spent my money" (which is easy). You claim to review your paper trail to gain insights, but again, even if you truly did this consistently (and knowing human nature, I doubt that you do) this in no way means you spend less.

You are right, I left out an important part of my budgeting setup: Every month, after income, everything above a set amount is transferred automatically into a savings account. So at the beginning of each month, I have the same amount of money in my checking account.

Still, even just the number going down tells me exactly how much money I have spent this month – like looking into my wallet would. But I have the added benefit of knowing what I spent it on even long after the purchase.

I don't always review the paper trail, only if my spending is higher than what I expected it to be. But I always check the balance before any bigger purchase. In both cases, I know to spend less in advance and can make an informed decision.

* I am translating from German here using some quick Google searches. I hope these account types make sense for a US reader.

I've heard that said, but it doesn't feel right.

When I pay by card I have to ask myself: is there enough money in my spending account? Is this transaction going to fail? (I keep that balance low on purpose).

Cash lets me sidestep the accounting: if I have it here at all it's pre-approved for spending. Lower cognitive burden there at the POS = easier to part with.

Maybe that would be different if I did anything important in cash.

“I spent $100 on incidentals”

“I spent $100 on pizza and beer”

Cash doesn’t sit there in your ledger month after month reminding you of your weakness. Instead you have a generic line-item that doesn’t threaten your ego; it could be anything.

You will never know you spent $1200 a year on junk food and booze. It’s just some vague category you can safely manage.

About the only place I spend cash regularly is the farmers market. I typically take out 80-120 dollars on my way to the market and come home with anywhere from 0-60 dollars and a pile of produce. I also probably bought coffee and something for breakfast. As far as spending goes, I know the money probably went towards food (or was it flowers or some crafty thing?) but it's really just a black hole where I ultimately end up categorizing it as "cash spending" in my budget software rather than trying to rebuild where exactly it went.

Credit cards work much better for me.

I think this is ignoring that different approaches to budgeting are needed for different people.

For me, I have a Monzo account that I put my monthly "disposable" income in. Monzo is a (mostly) UK digital bank with a good app that gives instant feedback on transactions. This means that after every transaction, Monzo tells me "you have £X left this month". This allows me to regulate my spending (e.g. not buy X until next month) if I've spent a lot of my budget half way through the month. It also means that when I'm spending a lot I can go and look at my transaction history for the last few months and work out where it's going so I know what spending to moderate. With cash that's just a black hole.

Also, I just find cash to be a pain to deal with and have basically eliminated it from my life. You have to regularly visit machines to make sure you've got some, you have to carry it around (notes are fine, coins are annoying), you have to faff when paying to give and receive the correct change.

The research is on your side. Spending cash makes you spend less. Most respondents to your comment are making a category of error that is common in our Internet age: "I have more information, therefore I am making better decisions."

This article is also a summary of research and it offers a disagreement. Just saying "I have research" isn't persuasive when the article at hand is newer research.

This is the paper being discussed: https://www.gsb.stanford.edu/faculty-research/publications/p...

I can easily see both depending on how diligently people track their spending. I have a budgeting system setup that adds a task to my daily to-do list if my bank balance differs from what is in my hledger files (ie if I have transactions in my bank account that I have not yet put into hledger). The chances of me not being aware of on-card spending is extremely low. Cash money is not tracked nearly as accurately though, I don't bother tracking it when I spend a few euro on some sandwich from a roadside stall.

That sounds like a pretty interesting setup, how do you have it work with your bank accounts?

It's extremely hacky and there is barely any automation at all. Everyday at 0500 a cronjob uses https://github.com/djc/abna to fetch the bank balance and makes no effort at all to automatically parse more than the balance. It then compares that with what the balance "should" be according to hledger and sets up a todo item if there is any difference. Somewhere during the day I manually reconcile the two and check off the todo item.

I'm sure it could be smarter with automatic parsing and whatnot, but I actually kinda like the manual action. It makes sure I'm aware of everything happening to my bank account. Time spent per day is actually quite low because it's kept updated and there is never any big backlog of transactions. I would say it takes 2-3 minutes if there are any transactions, or zero ofc if I didn't spend anything.

Can I ask how you get the current balance from your bank (i.e., do you have a bank that provides a nice API, or is there another trick you're using)? I've spent a lot of time looking for a way to automatically download transactions from all my accounts but still have to either enter them by hand or manually log in and download a CSV to import.

This is more about hiding/perpetuating bad habits vs enabling stupid purchases. Not about impulsively buying something just because it was on sale, but rather buying something you know you shouldn't... but it's just this once, I promise! No more after just this last one...

I did this a long time ago, for a while I kept myself on a strict monthly cash budget to deal with some debts. In those days it was still relatively easy to get everything you needed locally for cash. It did mean that it didn't really matter that much what you were spending your money on, as long as the total didn't exceed the budget. You just had to be conscious of the choices. Even now, with the debts paid off I still live that way--I don't buy things unless I know I can pay for it, and I save some money every month. And I don't care that much about the details. I like spending cash just so I can forget about it. Do I really need an eternal record of that scone I bought on the way to work last week? I do not need that.

On the other hand, I can book keep all my electronic transactions thanks to the many Yodlee-powered sites whereas the effort it takes to do that for cash transactions is phenomenal.

My personal experiment in 2013 exactly matches your comment. I spent less when I used cash. I withdraw the same amount if monwy every month once a month, but the action of giving that money to cashier & checking the change and sorting out the notes in wallet made it real impact.

Uhhh what. Credit gives you a literal list of all the dumb purchase you made.

Cash is just pieces of paper.

How strange - if I use my card it stings, I know I'll see it later (and I tend to tally up monthly expenses from CC statements). Cash in my wallet feels almost like free money by comparison.

Looks like people are divided on this - I would say, when paying by card, it only stings once (if you even bother to go through the list regularly); when paying with cash, it stings twice: once when you have to fork out the actual money, and a second time when you realize you are out of cash (again) and have to get more from an ATM.

It depends on the person I suppose. I use cash rarely (mostly for tradespeople who are evading taxes) and when I "run out of cash" I don't really think more of it than when I run out of toilet paper.

Reply on news.ycombinator.com