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Hybrid Spending Strategy on Credit Cards and Cash

Let me share with you our personal spending money strategy that both maximizes rewards and minimizes spending.

You might be wondering how to manage your money to maximize rewards while minimizing extra spending. Many of us in the personal finance sphere like to run every possible cent of spending through our credit cards to get the coveted reward points, frequent flyer miles, or whatever else we're after.

The marketing company I used to work for would call us the “Bang for Your Buck” consumers − we never pay interest rates because we pay off our credit cards in full each month before the grace period is up, so we're essentially just siphoning off free stuff from credit card companies.

I used to be one of these people.

I found it particularly awesome when, in Florida, my apartment complex allowed me to pay my $975 rent each month by credit card at no extra charge. Those reward points really added up! I also charged my gas, groceries, leisure expenses, and anything else that I was going to spend money on anyway.

But I say that I used to be one of these people, because our spending money strategy all changed when my husband was laid off on Halloween in 2013.

Why We Started Using Cash

We took his layoff as an opportunity to spend more time together and to do some travelling; after all, since we had a fully stocked emergency fund, we knew we could take the gift of time we were given and enjoy it while it lasted. Also, both of us having been laid off before, we knew that it was a temporary situation and it was best to take advantage of the time we had been given instead of wallowing on the couch wondering “why me”.

On the other hand, we knew we had to keep a close eye on our money — everyone needs to when looking at how to manage your money after a layoff. Suddenly we were thinking about how to manage your money when a good bit of it stops coming in.

Spending needed to be tightened up just in case we were in this for the long haul. So while we extended a Thanksgiving trip to also include two nights' stay at Hot Springs Arkansas and a detour to see the Duck Dynasty headquarters on the way home, and went on a trip to Austin, and had an extended stay in PA for the holidays, we used our heads to do so (stayed with family in both Arkansas and PA, used reward points for the hotel stay in Austin, etc.).

Even though I had denied this line of thinking in the past (the line that says you will spend more money if you use plastic than if you use cash), I decided we should give a full-cash budget a try for one of our main money management strategies (my husband, who admittedly was not as disciplined in his credit card spending as me, was game).

The Results of a Cash-Only Budget

I can confidently say − after a year on cash-only personal spending budgets (that means for things like haircuts, eating out, coffee, clothes, etc.) − that you can control your money much better when you physically hand it over to someone.

And honestly, I never thought I would be making that claim.

I thought for sure that I was on top of my spending with my credit cards. I loved how all of my spending could then be tracked and categorized automatically by a free program like Mint.com, and I loved how I was earning free gifts to boot.

But when I'm wrong, I admit it. And I was wrong!

Here's why I think this is the case:

  • Reason #1: Because if you take a certain amount of money out of the ATM each week to drip-feed your monthly personal spending money (a cure for end-of-the-month droughts), then you would have to hop into a car and go back to an ATM to get more money out if you overspend in any given week. That alone is enough to stop and make you think about it.
  • Reason #2: It's harder to part with the green stuff than it is to swipe a card through a machine. I love the green stuff! I love having the green stuff in my wallet! My relationship to plastic is not nearly so strong, and no matter how many times or for how much I swipe plastic for it doesn't dwindle down. It still ends up back in my wallet.

Why We're Using a Hybrid Approach Now

So going all-cash was a very good idea on our part.

Except…it wasn't the complete answer for us, the Bang-for-Your-Buck consumers. Because I still like to maximize our resources, and those reward points are super juicy and feel like a bonus.

I did say this is one of our personal money management strategies, right? So, I decided to make it more personal.

What I figured out is that for things that you were literally going to spend anyway − as in there is no way out of it − such as the internet bill, cell phones, medical bills, etc., then it absolutely makes sense to run those payments through a reward-earning credit card.

For personal spending money? Cash is king in our household.

And Don't Forget the Travel Hacking in Your Money Strategy

And then of course add one more layer onto this whole thing to really take your rewards up a level when figuring out how to manage your money. If you have large bills coming − such as the $5,000+ in medical bills we had from the birth of our son − then by all means sign up for a new credit card with a juicy travel rewards opening bonus where you have to spend a certain amount in the first few months in order to reap it.

If you have to pay a large bill, might as well get a trip out of it at the same time! Tweet this.

So how do you manage money when spending for your household? Do you spend only cash, pay by credit card to reap the reward points, or do some sort of hybrid system? Are you a believer that spending on plastic will result in spending more than if you paid by cash? I'd love to hear your thoughts.  

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Amanda L. Grossman is a writer and Certified Financial Education Instructor, Plutus Foundation Grant Recipient, and founder of Frugal Confessions. Over the last 13 years, her money work has helped people with how to save money and how to manage money. She's been featured in the Wall Street Journal, Kiplinger, Washington Post, U.S. News & World Report, Business Insider, LifeHacker, Real Simple Magazine, Woman's World, Woman's Day, ABC 13 Houston, Keybank, and more. Read more here.

Bill in Houston

Monday 26th of September 2016

We had a major home repair back in August. The evaporator coil on our air conditioner somehow sprung a leak. We thought, "Great, we'll have to shell out for a new A/C-furnace unit." How did we get lucky? Our A/C guy is honest. He told us that our compressor and the rest of the air conditioning unit works, as does your furnace. They're not the most efficient, but they work.

He quoted us $1600 for the job of removing the old coil and replacing it. Our unit dates back from 2001, so parts aren't plentiful. He cut a new opening for the new, larger evaporator, installed it, built a new front panel from sheet metal, screws, and weather stripping. Charged the system (because the freon had leaked out) and only submitted a bill for $1500. I'm beyond thrilled at the savings! I wish I could have used your credit card hack, but he only takes cash or checks.

Amanda L Grossman

Wednesday 28th of September 2016

Woohoo, Bill! That is so great to hear. $1500 is still a lot, but not in comparison to what it could have been. Thanks for sharing.


Thursday 3rd of March 2016

For the first time in our adult life, I am not really paying much attention to our spending (cash or credit), and loving that our financial world is not falling apart. The credit card bills each month are about the same, we still are fully funding our Roth IRA's, and we still are making more than we are spending. It's nice to not overthink it as much...


Thursday 3rd of March 2016

Very cool, Crystal! It's great that you have gauges set so that you know you're still roughly spending the same anyway.

Abigail @ipickuppennies

Wednesday 2nd of March 2016

For a long time, we only used credit cards for emergencies and a few recurring expenses. But we got a rewards card to replace an old one, and there's a sign-up bonus. So we're now using cash and credit at the same time.

We just do a lump sum for weekly spending. So each time we use the credit card -- and we do any time it's allowed -- I transfer money out of the main account (where we keep the weekly sum) and into the secondary account (where we keep the rest of the monthly money). We're about three weeks in. So far, so good. Once we have the bonus dealt with, we can reevaluate whether it's sustainable for the long-term. Hopefully it is because... ka-ching!


Thursday 3rd of March 2016

Nice system, Abigail!