No this is article is not about whether you should choose paper bags or plastic bags when you go grocery shopping. You probably try to use those reusable shopping bags anyway! This article is about what you should use to pay for those groceries – and other things too of course.
We live in a society that has moved from paying for things with cash to using plastic cards almost exclusively. Paper money is so old-fashioned nowadays when all you need to do is swipe a plastic card through a slot, or tap a smart card against an RFID reader to pay for something. It’s so much easier and more convenient. Heck, with a credit or debit card you don’t even have to worry much about whether you actually have enough money in your account or not.
But therein lies the problem as well. It’s no secret that many Americans have become reckless in their spending. In fact, a large portion of the American population actually has a negative savings rate meaning that they spend more money each year than they make. How is that possible you ask? Well it’s not only possible, it’s easy by using credit cards.
Because it’s so easy to use debit and credit cards, they are the first choice for most people when it comes time to pay for something. And since you don’t actually have to physically give anything to anyone in order to pay for something with them like you do with cash, it’s psychologically easier to buy things using them as well. And if you see something on sale that you just have to have, but don’t have the money for at the moment, you can just charge it instead. After all, you’re saving money by buying it while it’s on sale right?
No! You can’t save money by spending it. It doesn’t matter if something is on sale or not; if you don’t have the money, then you shouldn’t buy it. It’s a simple concept, but so many people ignore it by justifying to themselves that they’ll be able to pay it back later. But later when they get the money to pay off their credit card, they have to use it for other things that happened to have come up. So then they carry a credit card balance which starts accruing interest.
Once it starts accruing interest, you start paying for the privilege to use the credit card. So that widget that you charged since it was on sale, starts costing you more than what you first paid for it. And the longer you carry a balance on your credit card, the more interest gets racked up and you end up paying more for that widget than if you would have just waited and bought it at its regular price. This is compound interest (something that Albert Einstein called the most powerful force in the universe), working against you!
If you carry a credit card balance from month to month, then maybe you should try switching to using paper money to pay for things instead of a credit card or debit card. Yes, I’m suggesting this rather than debit cards too since if you overdraft your account, you will be charged an overdraft fee which is almost worse than credit card interest. You may even want to use the envelope budget system that Dave Ramsey advocates – it has worked well for many people.