Personal experience: I used cash only for several months and it greatly affected my budget

Going entirely cash for a period of time has become a popular trend to “reset” spending. But does giving up non-cash funds really help curb impulse purchases and increase the level of financial consciousness, I found out Yahoo Finance.

GOBankingRates asked three professionals with a short-term, cash-only mentality about what they learned from this money experiment. That's what happened when they ditched credit cards and switched to cash.

Less temptation to spend money

Everyone we spoke to agreed that switching entirely to cash could curb impulsive spending by creating a psychological deterrent.

“Using cash for everything brings a psychological aspect to spending that I hadn't thought about before,” says Olivia Stettler, who spent a month going cash-only. “The tactile experience of handing over physical money makes every purchase feel meaningful, which leads to smarter spending decisions.”

Richmond Harris, who hasn't paid cash in a year, feels the same way. “When you see physical bills leave your wallet, it makes it harder to part with them,” he said. “The temptation to spend impulsively has decreased.” Counting physical money adds a mindful approach that many find helpful in cutting down on wasteful spending.

More effective budgeting

Both Stettler and Joe Manktelow-Pimm, who has been cash-only for six months, say sticking to a cash budget is difficult. To stay on track, Stettler used a simple method called the “envelope system.” She divided her expenses into different categories: groceries, entertainment and bills. She then put aside a certain amount of money for each category in separate envelopes.

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Stettler found this system very useful. It helped her stick to her budget and, more importantly, made her more aware of her spending habits. “This simple but effective method helped me stay on track and better understand my spending habits,” she said.

The idea is that when you see real money in an envelope, it makes you think twice about spending it. It's like a reality check on your budget, making you question whether you really need to spend that money.

No interest charges

Using cash only has a big advantage, as Manktelow-Pimm notes: “When you use cash, you don't have to worry about interest charges on credit cards or loans. This can save you a lot of money in the long run.”

Simply put, if you use cash, you won't have to pay extra money in interest, which can accumulate if you use credit cards or loans. Avoiding interest charges is a big plus, but before you switch to cash only, you need to weigh the pros and cons and consider your financial habits and needs.

Limited purchasing power

As Manktelow-Pimm points out, living a cash-only life has its downsides. “When you use cash, you are limited by the amount of money you have on hand,” he said.

This limitation can be a serious disadvantage in the event of an unexpected large purchase. Without credit or debit cards to fall back on, your spending is strictly limited to the physical currency in your wallet. This limitation can make it difficult to make large purchases or emergencies that mean an inconvenient trip to the ATM and associated fees. If you only use cash, you'll have to plan ahead and have a well-stocked emergency fund.

Additionally, in some situations, such as when shopping online or paying bills, using cash may simply not be an option. “In the digital age, it's a lot of hassle,” Harris says. “Online purchases or subscriptions become onerous.”

Difficulty tracking expenses

During his six-month experiment, Manktelow-Pimm noticed that it was difficult to keep track of expenses when using cash.

“When you use cash, it can be difficult to track your expenses,” he said. “We have to save receipts and manually record expenses, which takes a lot of time.” This kind of financial management requires a lot of discipline, especially considering that there is no way to use bank statements.

Lack of opportunity to improve credit rating

According to Manktelow-Pimm, living on cash alone does not provide any improvement to your credit score. “Using cash doesn't improve your credit score because you're not using credit,” he said.

While short periods of cash-only living can increase consciousness, long-term experiments can be fraught with serious difficulties. But as an occasional budget cleanse, it can help you break wasteful habits and get your budget back on track, one $20 bill at a time.