Yesterday I blogged about an economist's answer to the question of how much cash one should carry, which was a surprisingly large amount; almost $500. His conclusions factored in the time required to visit an ATM, the interest lost by withdrawing cash, and the potential loss by theft.

However, I doubt that anyone I know carries even a small fraction of this amount. I rarely have more than $40 in my wallet. Reading various posts about this topic, one message showed up time and time again, that carrying more money would tempt one to spend more money.

I'm very skeptical about this conclusion, however. I believe that we are much more likely to overspend with credit cards than cash, which is why retailers are so anxious for us to use plastic rather than greenbacks. I know that, for me, paying with cash makes the transaction much more tangible. Every time I pull out a $20 bill, I think to myself just how much work I'd done to earn it. This never happens with a credit card.

So while I would be uncomfortable carrying $500 around all the time, I would be well served if I used cash more often. I know it would cause me to think twice about ordering that steak, novel or CD.


Increase your money and finance knowledge from home

Introduction to Retirement Funds

Target date funds help you maintain a long term portfolio.

View Course »

Intro to different retirement accounts

What does it mean to have a 401(k)? IRA?

View Course »

Add a Comment

*0 / 3000 Character Maximum