Thursday, February 28, 2008

Pay Cash, Write Checks, and Save

As the economy slows, wages and salaries stagnate in real terms, and inflation inflates, just about everyone is looking for ways to save money. One simple way is to pay with cash or checks.

Paying cash is painful, because one moment, you had something valuable in your wallet and the next moment it's gone. Your loss of buying power is immediate. You'll think carefully about spending. Using a credit card defers the moment of truth until the end of the month, and even then you can avoid reality by paying as little as 3% of the cash price. Because it hurts to pay cash, you'll spend less.

Cash is also a bother to carry around. You can't carry large amounts conveniently, because retail establishments don't like large bills. And you don't want to carry a lot anyway in case you loss it. When you lose cash, there's no 800 number to call, cancel the cash and get it replaced. You're just out of pocket. So you'll carry less, and spend less.

Paying with checks also inhibits spending. The money goes out of your bank account almost immediately. You'll have to consider whether your monthly budget will survive your splurge. Carrying a checkbook is a bother. If you happen to forget it, well, too bad. You just won't be able to spend, will you?

Of course, you'll wreck the plan if you take cash advances or write checks against a line of credit. Reduce or avoid borrowing. There's a simple reason why banks and retail establishments are so eager to throw credit cards at you--they get richer. But if they're getting richer, by definition you're getting poorer. That's not a good strategy when storm clouds are gathering over the economy.

Animal News: the running of the reindeer. Hemingway wouldn't have written about this.

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