Pay with cash, not credit cards!

I'm sure a lot of you may have heard of Kevin O'Leary, the billionaire investor. This particular piece of advice comes from him, not me. In a video where he talks about the things that people in their 20s should keep in mind while considering financial planning, this is one of his first tips.

Now, why does it matter? How does that even make a difference? You might argue that a hundred bucks has equal value as physical cash or as credit card money. Then why should you prefer to carry physical cash, which is rather more bulky to carry and risky as well?

Here's the thing. We all plan when it comes to spending. And more often than not, we end up with things nowhere near what the plan was supposed to be. We outspend our budget, and moan later. And here's how carrying physical cash comes in handy.

Let's look at an example to understand this better. Say you've decided to spend about 1000 units of whatever currency you're using, on your family for this month. Now, what happens when you go shopping or a dinner with your family, when you look at your wife liking a particular dress, you end up buying it without looking at the price tag. Now the whole shopping scene cost you about 700 units. When your daughter points out at something on the menu card that you can't afford, you still order it because obviously, you have about 3000 units on your credit card and you're not gonna make your daughter feel she's born in a poor family. So that dinner costs you another 700 units. Now the total expenses have reached 1400 units. But you had planned to spend only 1000 units. What you say to yourself in such situations is, "Never mind I'll adjust it somewhere in the budget."

But do you actually manage to adjust it? Nope. You don't. Now consider the same scenario but instead of carrying a credit card with you, you took 1000 units of physical cash. Here, you have finite cash, so you can't outspend yourself, so you take your wife to the next shop to see if they have some better dresses and tell your daughter how something else on the menu(that's cheaper) is the best thing that the restaurant is famous for. That's how having limited cash can help in money management.

You might argue saying that what's the point of working if you're not gonna outspend on your family. Here's my answer to that. A dress or dinner can only bring you and your family temporary happiness. Whereas bad financial management can give you unneeded stress, all that will lead to a very bad atmosphere in your house, i.e. permanent sadness. So you need to ask yourself, do you want temporary happiness or permanent solutions. Good financial planning is a very important part of a good marriage. Cheating is not the leading cause of divorce, bad financial management is.

It is the same when you're with your friends. Just ask yourself, how many times have you carried a credit card while with friends and ended up paying for things that you normally wouldn't when you're alone. Just to fit in, you end up spending money on things that aren't even going to matter in your friendship.

Would love to hear what your take on this is. Please comment if you agree/disagree with this and why so.