Over the past few decades, society has been trending away from using physical cash to greater use of cashless and contactless transactions. This move is both good and bad. Let’s take a look at what a cashless society is and how to manage your money in it.
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What Is a Cashless Society?
A cashless society means that businesses and consumers are using other payment methods. They’re using more debit and credit cards and mobile apps instead of cash or checks to pay for purchases and bills.
You can have your payroll checks deposited directly into your bank account. Your funds are available immediately. After the money is in your account, you can set up electronic payments so you’ll never be late again with car payments or utility bills. You can set up digital payments that automatically send funds directly from your bank account to the vendor.
Most of the time, this doesn't require any action on your part. You just have to remember to keep enough cash in your bank account to cover the automatic debits. Otherwise, you’ll get hit with some stiff overdraft charges.
Is Cash Obsolete?
You no longer have to manually balance a checkbook. All you have to do is open your account on your computer or cell phone, and you can see a history of your transactions with up-to-the-minute balances.
If you like to conduct business on your cell phone, mobile wallet apps, like Zelle, Venmo, ApplePay and PayPal make it easier to send money person-to-person. All it takes is a few simple taps, and you're done. Splitting a restaurant tab with your friends is a common usage.
However, just because we're in an economy that’s becoming cashless doesn’t mean you shouldn’t keep a little cash on hand. Occasionally, you may still find a merchant who will only accept cash payments, like yard sales or flea markets. Or, you may want to give a tip to someone who has provided a service for you. For instance, the valet who parks your car at a luxury hotel can’t accept a card while holding the car door open. They prefer cash on the spot.
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Living in a cashless society is more convenient, but you have to find new ways to manage your money to prevent overspending.
Pros of a Cashless Society
Here's why a cashless society is becoming more likely.
Convenience: Whenever you want to buy something, you just pull out your card. You don't have to worry about having cash in your pocket or going by the bank to cash a check or withdraw from an ATM. Besides, ATM fees can get very expensive, especially if you make out-of-network withdrawals.
Lower crime rate: There are fewer robberies because people have less cash in their pocket or aren’t carrying any cash at all. Thieves can't take cash from someone who doesn’t have any cash on them. Laundering money is more difficult because there's always a paper trail with debit and credit cards.
Better money management: It's easier to manage your money. With cashless payments, you have records of everything you spend. When you're spending cash, unless you're very good with keeping receipts or riding down your expenses, it's easy to lose track of where your money went.
Easier to make loan payments or pay bills: You don't have to worry about writing out a check, putting it in the mail and hoping it gets to the merchants by the due date. There’s also no need to make sure you always have postage stamps on hand.
Cons of a Cashless Society
These are the downsides of a cashless society.
Risk to private information: Personal information could be stolen with a data breach. With your personal information, hackers could steal money from your bank account, make purchases on your credit cards and take out new loans in your name.
Overspending: It’s more difficult to control spending because you don't see the physical money going out of your hands. You don’t feel as much pain when you hand over your credit card. Using credit cards to pay for everyday expenses, like groceries and gas for your card, is a good way to run up your debt and destroy your budget.
High fees: Companies that offer cashless transactions, like Visa and Mastercard, charge fees. Some retailers require you to purchase a minimum amount when using a debit or credit card. Businesses have to pay fees on debit and credit card transactions ranging from 1 to 3 percent. They will usually pass on the cost to the consumer by raising prices. So, as a consumer, you actually wind up paying to use your cards.
Technology glitches: Technology is not perfect and sometimes it fails us. Occasionally, card systems go down because of a glitch or a power outage, and you can’t use your cards. It doesn’t happen often, but it does happen.
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Managing Money in a Cashless Society
Moving into a cashless society requires different ways to manage your money. Here’s how to do it.
Set up a budget: Use a budget planner to decide where you want your money to go every month. Set up limits to spend on rent, groceries, utilities, car payments, entertainment and clothing. And don’t forget to budget for savings.
Track your spending: After you've gotten your budget set up, track your expenses to make sure you're following it. If you stick to your budget, you'll have enough to pay for living expenses, pay bills and build up your savings account.
Set up notifications on your cards: Set up notifications with your card providers to let you know when bills are coming due, when loan balances are getting high and when cash balances in your bank are getting low.
Pay off your credit cards: There's no need to wait until the end of the month to pay off your balance. You can make a payment each time you get paid, which could be weekly, biweekly or monthly. It's much easier to come up with the money to pay rather than waiting to pay a larger balance at the end of the month. This will also help you avoid charges from high interest rates.
Use a prepaid card: If you have had credit problems or are just afraid of using a credit or debit card, but still want to go cash, then use a prepaid card. You don't have to apply for credit. Just purchase a prepaid card from your grocery store or drugstore, and load it with your money. Once you use up the balance on the card, you have to put money in, but this is a good way to control your spending. You can’t spend more than you have on the card.
James Woodruff has been a management consultant to more than 1,000 small businesses. As a senior management consultant and owner, he used his technical expertise to conduct an analysis of a company's operational, financial and business management issues. James has been writing business and finance related topics for work.chron, bizfluent.com, smallbusiness.chron.com and e-commerce websites since 2007. He graduated from Georgia Tech with a Bachelor of Mechanical Engineering and received an MBA from Columbia University.