An easy way to control your spending this Christmas

This article was first published in November 2024 and has been republished by The Independent ahead of Christmas.

The holiday shopping season is now hereAnd Americans are ready to spend money. Surveys show that the average American shopper expects to spend more than US$1,000 on gifts for Christmas and other winter holidays this year.

These days, consumers have no shortage of payment options, each seemingly more attractive than the last. Do you swipe your credit card and pick up “free” miles? do you use buy now pay later And spread payments over time? Do you use a debit card to avoid getting into debt?

As a business school professor who writes about the holiday shopping season, I’ve been wondering about the best way to pay for holiday gifts without breaking the bank. My advice will be found in my upcoming book power of cashCounter-intuitive. Do not use any of these things. instead, Use good old fashioned paper money,

Yes, using cash instead of paying electronically is an easy way to help others as well as control your holiday spending. And I speak from personal experience.

Before spending any money, it’s important to set a holiday budget. The problem is that while everyone thinks setting budget It’s a good idea, very few people do it and even fewer stick with it.

Budgeting is like dieting: Temptation and time pressure thwart good intentions.

I have seen this in my life. One holiday season I carefully set a budget. However, with only a few hours left for the exchange of gifts, I had nothing for the three nieces. In my desperation, I wildly overspent on gifts I doubt he would ever use.

Using cash can help you avoid making the same mistake I did. This works for a few simple reasons:

First, the commitment to using only paper currency provides an automated way of budgeting. When you run out of cash, your purchases are complete. Now I don’t recommend putting all your money in your wallet at once. Instead, carry only a portion of your budgeted cash when you go shopping, or if you’re going to carry it all, split the money and keep some in a separate reserve.

Second, using cash helps you spend less due to the “pain of paying”. Research in consumer psychology shows that spending paper money causes momentary regret. This in turn helps slow down purchasing. When people use credit cards they don’t feel as much pain, because the bill comes in the future.

Third, in the long run, it’s cheaper to pay cash for things because you don’t have to pay interest on purchases. Nearly half of all credit card users carry a balance each month. With the average balance currently exceeding $6,000, the interest charged on gifts alone could cost you hundreds of dollars.

And one more thing: Many people buy holiday gifts for themselves, and research shows that paying with cash makes you value the purchase more at the beginning than paying by electronic means. Cash payers feel stronger ownership because they have made a “mental investment” in the item.

It’s easy to use cash for personal purchases, but you can’t stick paper money through a computer or phone screen to make an online purchase. Yet this holiday shopping season, online purchases are expected to exceed $240 billion.

Using only cash is possible even if you rely on e-commerce. A simple way is to buy gift cards from online retailers using cash and add that gift card to your account balance. If you want to spend more, you have to physically go to a place that sells cards, like your local supermarket, and spend the cash.

This takes the hassle out of paying and also takes a little time, giving you a chance to think about whether this is really the right gift and the right amount to spend on it.

One final point: The holiday season isn’t just supposed to be an exercise in consumerism. Instead, one goal is to help others. Paying cash for gifts does exactly that. There are many people who do not have credit cards, debit cards or mobile payment apps who are excluded from stores that refuse to take cash.

People deprived of electronic means are mainly the poor and the elderly. Surveys show that millions of Americans are cash payers, so using cash helps them because it provides a clear signal to businesses that paper money is still wanted and necessary.

Holidays are supposed to be fun, but they aren’t so enjoyable if you’re stressed about money. How do you stick to a budget and make sure you don’t have huge bills to pay after the holidays are over? The answer is simple: use cash. By itself, cash won’t make the holidays fun, but it takes away a big problem.