Great post, and it makes me think a little deeper about credit cards — like back to a time when there weren’t any and cash was the only option. That was just 30 years ago. My father raised me to understand that cash is king, even though I grudgingly have two cards to “build up credit to get a mortgage” (something most people in our generation will never have enough cash for upfront). If anything, what’s happened in the financial markets recently should encourage us to question the common dogma (aka “lies”) about how to best manage our money. Glad you’re here helping us with that.

I have tried the ‘cash envelope’ system, and it also works well. But looking back at my records, I don’t see a difference in spending patterns. What DOESN’T work is just loose cash in the wallet – if I have cash in my wallet, it just melts away.

This is all before I enter my receipts by hand into a pen/paper ledger to track my weekly expenses, so if I skip this last step as I often do when life gets too busy, I’m still needled by, and in pain from, the electronic reminders.

There are ways for CC to help keep spending down, but this works because it’s a consciously developed system with multiple barriers in place that prevent me from doing the more common out-of-sight, out-of-mind accounting that prevails with CC use.

You just need to know yourself well enough to recognize if and when you are lying to yourself about your financial habits, and how to adjust your system to accommodate.

@Finance Nerd: I’d argue you’re either in denial or, as you say, an extreme case. For what it’s worth, I use credit cards myself and would like to believe it doesn’t affect my spending. Yet when I spend cash different spending decisions are made. Consider leaving them at home for a day or two and let me know what you think. Can’t hurt.

@Tom: Thanks for the kind words and for sharing your approach.

Basically it is a credit card that I treat like a debit card — transactions are entered into my checkbook immediately, so the emotional connection to spending is still there. I just don’t like debit cards, because they are more risky, especially online.

I may be an extreme case, but there are other examples as well. Recurring bills like phone, internet, cable etc. can be set up to be paid by CC and then paid off online. This way you get the cash back rewards, and you don’t spend any more than usual because these bills are typically fixed.