Credit cards vs. Cash

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
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VictoriaF
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Re: Credit cards vs. Cash

Post by VictoriaF » Thu Feb 16, 2017 9:01 pm

Nick True wrote: There's one thing I haven't seen anyone point out yet that I would like to propose:

Perhaps this is only an issue in our current state of the world and that future generations will actually not have a difference. Also, what happens when cash is no longer a means of transaction. Places like Belgium are getting close to this.

Let me say this another way.

Thousands of years ago cash didn't exist. It was coins. Before that gold bars and jewels. Before that cows and chickens. When people stopped trading cows to buy clothes and started using gold bars, I'd be willing to bet that the people using the gold bars bought more clothes. In the same way that people who used coins instead of gold bars bought more. And now people buy more with credit cards than with cash.
And I would venture to guess that my grand-kids (i'm currently 23) will spend more on their virtual reality payment processor that's voice activated, than with a credit card.

Currently, people in general tend to spend more with credit cards than with cash... But what about the people in-between. I literally never used cash growing up. I've had a debit card since I was 14, a credit card since 18, and my dad taught me how to manually track my spending and income at 16 using Quicken. I've been manually tracking and entering every single receipt into my budgeting software since I was in high school. I would argue that I do not spend more with a credit card than with cash because I plan my dollars ahead of time. And also because I don't "feel" the cash as money any more than I "feel" the credit card when I swipe. I grew up nearly cash-less.

In fact, when I first started budgeting, I didn't even track cash. So when I pulled money out of the ATM my budget saw the money as already spent. So I would often find myself buying little things here and there more than If I swiped... If I swiped, I knew I had to enter the receipt when I got home.
Nick,

You are right that people's purchase decisions are influenced by the familiarity. In general, the farther away you are from cash the more negligent you become. But if you look even closer, if you needed to barter with your belongings you would be even more careful than buying with cash, would bargain longer, and would be more willing to walk away from an exchange. Behavioral economists call it endowment effect: you value your possessions higher than those who do not possess them and higher than you valued them before they have become your possessions.

The role of the method of payment was demonstrated in different kinds of experiments. For example:
- people paying with plastic were more likely to buy candy while they were waiting for checkout
- students in dorms were more likely to drink someone's coke than to take an equivalent amount of cash
- students were more likely to cheat when they were paid with tokens than with cash, even when tokens were exchangeable for cash a few steps away.

Victoria
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mak1277
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Re: Credit cards vs. Cash

Post by mak1277 » Fri Feb 17, 2017 10:57 am

As I mentioned up thread somewhere, I've had my credit card number stolen many times. After the third such experience in a year, my wife and I went to all cash/checks for about 6 months. It was significantly less convenient, so we ultimately switched back. I do have the records that show we did NOT spend less money in those months than we did in the preceding or subsequent months when we were using our credit cards.

Nick True
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Re: Credit cards vs. Cash

Post by Nick True » Fri Feb 17, 2017 1:49 pm

VictoriaF wrote: Nick,

You are right that people's purchase decisions are influenced by the familiarity. In general, the farther away you are from cash the more negligent you become. But if you look even closer, if you needed to barter with your belongings you would be even more careful than buying with cash, would bargain longer, and would be more willing to walk away from an exchange. Behavioral economists call it endowment effect: you value your possessions higher than those who do not possess them and higher than you valued them before they have become your possessions.

The role of the method of payment was demonstrated in different kinds of experiments. For example:
- people paying with plastic were more likely to buy candy while they were waiting for checkout
- students in dorms were more likely to drink someone's coke than to take an equivalent amount of cash
- students were more likely to cheat when they were paid with tokens than with cash, even when tokens were exchangeable for cash a few steps away.

Victoria
Good points. I can definitely see that. Especially that part about valuing your personal possessions, there's something to be said for giving inanimate objects personal qualities because their "yours" or your grandmothers etc...


I'm not disagreeing with you at all, I just can't help but wonder what the next evolution is and where we are in the cycle... I'd be super interested to see a study that compared Apple pay with Credit cards... My gut says due to even easier use, Apple pay makes you spend more.

EX: There's no doubt in my mind that people started buying more when Amazon implemented a 1-click buy button vs. entering your information everything single time.

I guess, to me the big question is when does TV become the Radio, when does Football become Baseball, when do credit cards become cash.... Because whenever that evolution happens, you'll find first movers who to them, credit cards are cash.... It certainly seems that technology will eventually make cash irrelevant and people won't even accept it.

Thanks for your helpful response Victoria :)

np81
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Re: Credit cards vs. Cash

Post by np81 » Fri Feb 17, 2017 2:01 pm

In summary:
  • Some people spend more on their CC than they would cash
  • Some people spend the same the same, regardless of the payment type
  • Some people spend more with cash than they would on their CC

Nick True
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Re: Credit cards vs. Cash

Post by Nick True » Fri Feb 17, 2017 2:07 pm

np81 wrote:In summary:
  • Some people spend more on their CC than they would cash
  • Some people spend the same the same, regardless of the payment type
  • Some people spend more with cash than they would on their CC
Nailed it.

Jags4186
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Re: Credit cards vs. Cash

Post by Jags4186 » Fri Feb 17, 2017 2:17 pm

David Scubadiver wrote:
Earl Lemongrab wrote:
David Scubadiver wrote:
Earl Lemongrab wrote:
David Scubadiver wrote:If you are poor and miserly or rich and miserly, you are a miser nonetheless.
Well, what's a miser? Someone who doesn't waste money and regret it later?
You quoted my response to a user who stated, "If you have no self control and don't understand the concept of arithmetic then you shouldn't have a credit card." In that context, a "miser" can be epitomized by Ebeneezer Scrooge, one who is wretched, unhappy and mean toward others.
You are using an idiosyncratic definition of "miser". The fact that you don't like what he said didn't give you right to name-call. You admitted that you overspend with your credit card so yeah you shouldn't be using one until you get spending under control. Sorry if that makes me a "miser".
We can agree to disagree as to whether suggesting that I "don't understand the concept of arithmetic" is name calling. It is like trolling fitness boards telling people they have no business buying sneakers if they can't count their steps without a pedometer because they are too stupid to do the math.
No I wasn't calling you a name. I'm saying that people who do not have the ability to keep track of their spending and who have impulse control issues should probably not use a credit card.

As for me being a miser, I would pose this question. Who is the bigger miser, the person who spends $4 a day, 5 days a week, 50 weeks a year on Starbucks coffee or the person who doesn't but spends $1000 and a weekend getaway with the spouse? I choose to do the latter. Me being conscious of my spending isn't being miserly, it's a willful choice of appropriating my limited dollars towards their highest utility.

avalpert
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Re: Credit cards vs. Cash

Post by avalpert » Fri Feb 17, 2017 2:21 pm

np81 wrote:In summary:
  • Some people spend more on their CC than they would cash
  • Some people spend the same the same, regardless of the payment type
  • Some people spend more with cash than they would on their CC
Yes, except as with stock returns we know these outcomes aren't equally likely but are biased towards number 1. While we may not know for certain which way we (as an individual) lean, we should be very wary of accepting our own conclusions especially when it runs counter to the known bias - when it comes to identifying cognitive biases, self-identification is highly unreliable.

David Scubadiver
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Re: Credit cards vs. Cash

Post by David Scubadiver » Fri Feb 17, 2017 2:35 pm

Jags4186 wrote:
David Scubadiver wrote:
Earl Lemongrab wrote:
David Scubadiver wrote:
Earl Lemongrab wrote: Well, what's a miser? Someone who doesn't waste money and regret it later?
You quoted my response to a user who stated, "If you have no self control and don't understand the concept of arithmetic then you shouldn't have a credit card." In that context, a "miser" can be epitomized by Ebeneezer Scrooge, one who is wretched, unhappy and mean toward others.
You are using an idiosyncratic definition of "miser". The fact that you don't like what he said didn't give you right to name-call. You admitted that you overspend with your credit card so yeah you shouldn't be using one until you get spending under control. Sorry if that makes me a "miser".
We can agree to disagree as to whether suggesting that I "don't understand the concept of arithmetic" is name calling. It is like trolling fitness boards telling people they have no business buying sneakers if they can't count their steps without a pedometer because they are too stupid to do the math.
No I wasn't calling you a name. I'm saying that people who do not have the ability to keep track of their spending and who have impulse control issues should probably not use a credit card.

As for me being a miser, I would pose this question. Who is the bigger miser, the person who spends $4 a day, 5 days a week, 50 weeks a year on Starbucks coffee or the person who doesn't but spends $1000 and a weekend getaway with the spouse? I choose to do the latter. Me being conscious of my spending isn't being miserly, it's a willful choice of appropriating my limited dollars towards their highest utility.
Understood. Not to quibble, but concept 1, "the ability to keep track of [my] spending" has nothing to do with concept 2, "[my] understand[ing] the concept of arithmetic." When you state that I do not understand the concept of arithmetic" you are, indirectly, calling me stupid. At a minimum, you are making baseless assumptions about my ability to understand the concept of arithmetic when arithmetic was not being discussed and is not particularly relevant to the topic. The two concepts are pretty much independent of one another (tracking expenses can be done by someone who can't add, multiply, subtract or divide 1 and 1. And, people who can do arithmetic in their head, know their multiplication tables up to 25 and are spreadsheet savvy, may do a poor job of tracking their expenses.

As for your particular spending habits, you sound very happy with them.

David Scubadiver
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Re: Credit cards vs. Cash

Post by David Scubadiver » Fri Feb 17, 2017 2:40 pm

David Scubadiver wrote:
Jags4186 wrote:
David Scubadiver wrote:
Earl Lemongrab wrote:
David Scubadiver wrote: You quoted my response to a user who stated, "If you have no self control and don't understand the concept of arithmetic then you shouldn't have a credit card." In that context, a "miser" can be epitomized by Ebeneezer Scrooge, one who is wretched, unhappy and mean toward others.
You are using an idiosyncratic definition of "miser". The fact that you don't like what he said didn't give you right to name-call. You admitted that you overspend with your credit card so yeah you shouldn't be using one until you get spending under control. Sorry if that makes me a "miser".
We can agree to disagree as to whether suggesting that I "don't understand the concept of arithmetic" is name calling. It is like trolling fitness boards telling people they have no business buying sneakers if they can't count their steps without a pedometer because they are too stupid to do the math.
No I wasn't calling you a name. I'm saying that people who do not have the ability to keep track of their spending and who have impulse control issues should probably not use a credit card.

As for me being a miser, I would pose this question. Who is the bigger miser, the person who spends $4 a day, 5 days a week, 50 weeks a year on Starbucks coffee or the person who doesn't but spends $1000 and a weekend getaway with the spouse? I choose to do the latter. Me being conscious of my spending isn't being miserly, it's a willful choice of appropriating my limited dollars towards their highest utility.
Understood. Not to quibble, but concept 1, "the ability to keep track of [my] spending" has nothing to do with concept 2, "[my] understand[ing] the concept of arithmetic." When you suggest that I "do not understand the concept of arithmetic" you are, indirectly, calling me stupid. At a minimum, you are making baseless assumptions about my ability to understand the concept of arithmetic when arithmetic was not being discussed and is not particularly relevant to the topic. The two concepts are pretty much independent of one another (tracking expenses can be done by someone who can't add, multiply, subtract or divide 1 and 1. And, people who can do arithmetic in their head, know their multiplication tables up to 25 and are spreadsheet savvy, may do a poor job of tracking their expenses.

As for your particular spending habits, you sound very happy with them.

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Doom&Gloom
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Re: Credit cards vs. Cash

Post by Doom&Gloom » Fri Feb 17, 2017 2:44 pm

np81 wrote:In summary:
  • Some people spend more on their CC than they would cash
  • Some people spend the same the same, regardless of the payment type
  • Some people spend more with cash than they would on their CC
I agree. Not everyone behaves the same way. Who woulda thunk it?

pyld76
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Re: Credit cards vs. Cash

Post by pyld76 » Fri Feb 17, 2017 5:29 pm

NotWhoYouThink wrote: Also, if you use cash you have already made the decision on whether to color your hair or let the gray take over. Because no one whose hair is not gray uses cash any more.
I find this interesting. On a purely anecdotal basis, the vast (vast!) majority of the folks I know who pay in cash are younger millennials who either cannot get credit or have never bothered. It seems to me that in my orbit, the remaining greatest/silent generation folks are cash-only, the vast majority of boomers and GenX utilize credit to some degree of abuse or responsibility, and a lot of millennials pay cash.

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linenfort
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Re: Credit cards vs. Cash

Post by linenfort » Sat Feb 18, 2017 11:07 am

Interesting thread. Didn't nisprius have a classic post once about using cash, complete with an image of Gulliver tied to the ground? (The implication being that using cash frees you from some things).

- For me, the problem isn't just the ease, the abstract nature of using a credit card, although I'm sure that's an issue. It's being able to order something online and have it delivered to my door with a button-click. I wouldn't buy as much stuff if I had to brave icy sidewalks and cold wind and lug my cash to the store, but the same goes for bringing my credit card to the store!

- I have tried putting a pile of cash in front of the screen while shopping at Amazon, and it does have an effect on me. Still, I buy more than I should.
Glad I'm getting that 2% cash back.
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Re: Credit cards vs. Cash

Post by gerntz » Sun Feb 19, 2017 6:00 pm

TxAg wrote:

Agreed. I rarely have cash on me and when I do, I tend to spend a few bucks here and there without a second thought. I prefer using the card...keeps my wallet thin
So how do you gift to the guy that asks if you can spare some change?

VaR
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Re: Credit cards vs. Cash

Post by VaR » Mon Feb 20, 2017 11:49 am

linenfort wrote:- I have tried putting a pile of cash in front of the screen while shopping at Amazon, and it does have an effect on me. Still, I buy more than I should.
This goes to an idea that has been floating around my head while diligently reading this entire thread. If part of the benefit of cash is that seeing it part from my wallet to the hands of the cashier, then one could construct some analogues to this pain and still get one's 2% cash back:
1. Never buy more on your card than you have cash in your wallet.
2. When buying something, count out the cash, then hand over your credit card. This may slow down the line, but it's for a good cause. Maybe it will catch on? At worst, you can tell people "At least I'm not one of those people who want to write a check!".
3. Pay your credit card bill every day based on what posts.

avalpert
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Re: Credit cards vs. Cash

Post by avalpert » Mon Feb 20, 2017 1:50 pm

VaR wrote:
linenfort wrote:- I have tried putting a pile of cash in front of the screen while shopping at Amazon, and it does have an effect on me. Still, I buy more than I should.
This goes to an idea that has been floating around my head while diligently reading this entire thread. If part of the benefit of cash is that seeing it part from my wallet to the hands of the cashier, then one could construct some analogues to this pain and still get one's 2% cash back:
1. Never buy more on your card than you have cash in your wallet.
2. When buying something, count out the cash, then hand over your credit card. This may slow down the line, but it's for a good cause. Maybe it will catch on? At worst, you can tell people "At least I'm not one of those people who want to write a check!".
3. Pay your credit card bill every day based on what posts.
That's an interesting thought - I wonder if you could convince people to stick to the process. At the very least, someone could get their PhD with a well constructed experiment testing whether this impacts the previously found effects.

I was at a casino the other day playing poker and reflecting back on this thread as well. I was curious if people with similar bankrolls play differently based on how their stacks are distributed by chip color - my non-controlled observation in the moment was I saw the same person increasing the size of their bets (relative to their hand and pot) based on whether they had large stacks of $5 chips or smaller stack of $25 chips at the time.

In any case, the human mind is a fascinating, complex and still barely understood phenomenon. Anybody that thinks they fully understand how theirs (let alone others) works is fooling themselves - though, ironically, that is probably exactly what their mind wants.

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linenfort
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Re: Credit cards vs. Cash

Post by linenfort » Mon Feb 20, 2017 2:10 pm

VaR wrote:
linenfort wrote:- I have tried putting a pile of cash in front of the screen while shopping at Amazon, and it does have an effect on me. Still, I buy more than I should.
This goes to an idea that has been floating around my head while diligently reading this entire thread. If part of the benefit of cash is that seeing it part from my wallet to the hands of the cashier, then one could construct some analogues to this pain and still get one's 2% cash back:
1. Never buy more on your card than you have cash in your wallet.
What if I want to get my Dad a $2,000 solar cell generator? Or, in general, what if I want to buy something worth $500 or more, when I never have more than $120 cash in my wallet at any given time?
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VaR
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Re: Credit cards vs. Cash

Post by VaR » Mon Feb 20, 2017 7:13 pm

linenfort wrote:
VaR wrote:1. Never buy more on your card than you have cash in your wallet.
What if I want to get my Dad a $2,000 solar cell generator?
Are you going all reductio ad absurdum on me? :)
I *could* say, obviously, there are exceptions. Or perhaps getting the $2000 solar cell generator at Costco is exactly the rule is meant for? It's a visualization exercise to make sure you appreciate how much money you're spending in a linear fashion instead of the log base 10 of numbers on a screen.

My dad said he would buy his cars with cash. He said it threw the car salesmen off their game and made the negotiating go more quickly. I imagine it was harder for my dad to overspend or to get extras he didn't want.
linenfort wrote:Or, in general, what if I want to buy something worth $500 or more, when I never have more than $120 cash in my wallet at any given time?
You will think twice about buying something for $500 or more now, won't you? :) I think that's the whole point.

Note that the reason for the rule is to reduce one's spending, not to make one's life more convenient or meaningful.

Having lived in NYC, maybe I'm used to carrying around more cash than most people? Or maybe it's because I'm on the young side of Gen-X? Or maybe it's from all the trips to Vegas, where most vacationers never have less than $120 cash in their wallets. :)

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Re: Credit cards vs. Cash

Post by carofe » Mon Feb 20, 2017 7:29 pm

Our own experience doing the cash envelop system for few years vs YNAB for one year so far.

When in YNAB we enter the transactions immediately and see the available money going down we will spend less regardless of if it is cash or it is card.
It is more about:
* the hard limit in how much you can spend (call it budget category or checking account balance)
* and the visualization of the immediate effect on how much money you have available.

We setup our CC to auto-pay everything at the end of the month and they work as cash in our YNAB budget.

BTW, I love carrying around my new slim thin wallet :D.
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David Scubadiver
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Re: Credit cards vs. Cash

Post by David Scubadiver » Mon Feb 20, 2017 8:48 pm

carofe wrote:Our own experience doing the cash envelop system for few years vs YNAB for one year so far.

When in YNAB we enter the transactions immediately and see the available money going down we will spend less regardless of if it is cash or it is card.
It is more about:
* the hard limit in how much you can spend (call it budget category or checking account balance)
* and the visualization of the immediate effect on how much money you have available.

We setup our CC to auto-pay everything at the end of the month and they work as cash in our YNAB budget.

BTW, I love carrying around my new slim thin wallet :D.
When I finally broke down and decided to use a budget program (about 2 months ago), I landed on "Daily Budget" (iOS) because I enjoyed the simplicity of it, and could not see myself limiting my expenses for more than a single category of expense. It is a handy app and has really helped curtail our spending just because we have to do something besides opening our wallet when we make a purchase.

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linenfort
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Re: Credit cards vs. Cash

Post by linenfort » Tue Feb 21, 2017 10:37 am

VaR wrote:Are you going all reductio ad absurdum on me? :)
On the contrary, I'm getting all practical on you. :happy
linenfort wrote:Or, in general, what if I want to buy something worth $500 or more, when I never have more than $120 cash in my wallet at any given time?
You will think twice about buying something for $500 or more now, won't you? :) I think that's the whole point.
It definitely has made me think harder on it in the past. It's a good exercise.
However, it's really the small amounts of cash spent that build up- disappear, rather -- that surprise me. I tend to withdraw a large amount of smaller denomination bills that I can't get from an ATM and spend them at places like farmers' markets. It's amazing how quickly a big pile of :moneybag vanishes through small purchases.

My wife uses a check card or credit card for tiny purchases like a cup of coffee (Yes, I brew at home, but coffeehouses are great places to meet friends). Seeing charges of a few dollars here and a few there just doesn't have the same impact as the above.
...Having lived in NYC, maybe I'm used to carrying around more cash than most people? Or maybe it's because I'm on the young side of Gen-X? Or maybe it's from all the trips to Vegas, where most vacationers never have less than $120 cash in their wallets. :)
I think there's a thread somewhere on how much people carry. I carry less than most, I'm sure.
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TxAg
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Re: Credit cards vs. Cash

Post by TxAg » Tue Feb 21, 2017 3:14 pm

gerntz wrote:
TxAg wrote:

Agreed. I rarely have cash on me and when I do, I tend to spend a few bucks here and there without a second thought. I prefer using the card...keeps my wallet thin
So how do you gift to the guy that asks if you can spare some change?

Perfect excuse.... I tell them all I have is plastic. I am occasionally generous when I have cash.

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Re: Credit cards vs. Cash

Post by patrick » Tue Feb 21, 2017 4:18 pm

VaR wrote:Having lived in NYC, maybe I'm used to carrying around more cash than most people? Or maybe it's because I'm on the young side of Gen-X? Or maybe it's from all the trips to Vegas, where most vacationers never have less than $120 cash in their wallets. :)
It's easy to arrive in Vegas with $120 or more in cash ... not so easy to leave with that much.

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Re: Credit cards vs. Cash

Post by toto238 » Tue Feb 21, 2017 4:30 pm

TxAg wrote:
gerntz wrote:
TxAg wrote:

Agreed. I rarely have cash on me and when I do, I tend to spend a few bucks here and there without a second thought. I prefer using the card...keeps my wallet thin
So how do you gift to the guy that asks if you can spare some change?

Perfect excuse.... I tell them all I have is plastic. I am occasionally generous when I have cash.
I keep an envelope in my glove compartment with $50 of $1 bills in it. When I see a homeless person on a street corner I give him a dollar and move on. One of the very few things I use cash for.

I will say that going to the bank asking the teller for a bunch of $1 bills definitely gave the teller a different idea though.

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Re: Credit cards vs. Cash

Post by JDCarpenter » Tue Feb 21, 2017 6:16 pm

I've found that using only Rai is the best way to limit my expenditures.... :twisted: https://en.wikipedia.org/wiki/Rai_stones

(actually all reward credit cards and ACH, save for one small local shop that is cash only and takes $10.50 a week from me for snacks, my wife's hairdresser, and pocket cash when traveling...)
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