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Cash Only: One Route Out of Debt

Cash Only: One Route Out of Debt

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    There are more than a few ways to deal with credit card debt, as well as other financial crunches. More than a few financial gurus recommend making the switch to a cash-only lifestyle: getting rid of credit cards and using only the cash in your wallet to make purchases. There’s a reason that the cash-only approach is so popular. If you stick to only cash, it’s virtually impossible to add to debt. But there are some drawbacks worth looking at before you jump on the cash-only lifestyle.

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    Managing Savings

    Taking a pure cash-only stance is difficult, if only because saving up a lot of cash on your own is impractical. Even if you have a safe place to store your cash, it won’t be insured, like it would be in a bank. You also won’t earn any interest on your savings — while we may be talking about pennies, it’s important to remember that pennies add up. So, for most people, a cash only lifestyle still involves a bank. It doesn’t necessarily involve a debit card, however. Because one of the benefits of cash only is the fact that making it harder to spend your own money usually translates to less spending, a debit card is out. If you’re planning to make a large purchase (and you’ve got the cash in the bank), checks are generally considered a good compromise.

    Using Checks

    You can use a credit card virtually anywhere, but it’s much harder to use a check. In some cases, it can actually be harder to use cash, rather than a credit card, as well. Want to rent a car? You’ll be asked for a credit card. Offering cash will only flummox the guy behind the counter. You’ll find yourself jumping through some hoops to spend your own money if you switch to using only cash.

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    There’s an argument that because it’s so much harder these days to use checks, you’ll be less inclined to go out and spend money. That may be true, but for some people, the ease of renting a car and making other payments is far more important than sticking to a cash only approach. That’s not a reproach on such individuals’ approaches to money: it’s a fact of doing business in the modern world. It’s a more than reasonable objection to the cash only system.

    Building Credit

    Credit reports are crucial for a lot more than getting a new credit card these days. Employers look at the credit reports of prospective employees, landlords look at the credit reports of prospective tenants and even utility companies look at credit reports before deciding to connect someone’s electricity. And that’s assuming that you don’t want to buy a house — while mortgage may not be a bad kind of debt, it’s hard to get one with no credit history whatsoever. If you go cash only and eliminate your credit cards, it’s much harder to build a solid credit history.

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    It’s not impossible: you can take out a loan that you have the money for and pay it off quickly or take a similarly roundabout route. You can also point those individuals who would otherwise check your credit score to the FICO Expansion service — essentially a credit score for those individuals who use cash only. You can also use services like PRBC, which reports your bills that you pay on time (such as telephone) that aren’t reported on your credit report, to build up your credit. There are fees involved in using such services, however.

    A Credit-Based World

    The simple fact is that living a cash-only lifestyle these days is a rarity. Many companies just aren’t set up to help anyone planning to pay cash with the process. If you walk into a car dealership and try to pay cash for a new car, for instance, you’ll have a much harder time completing the transaction than if you finance it. It’s not because car dealers don’t want your money: it’s because that situation is so unusual that a dealership’s staff really doesn’t know how to handle it.

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    Sticking to cash for all your transactions can end up costing you more time than you might expect. If you feel that your time is more valuable than the money you can save by using only cash, that approach just may not work for you.

    Pros and Cons of Cash Only

    There are definitely plenty of drawbacks — as well as benefits — to living a cash-only lifestyle. But the thing about personal finances is that they’re personal. Using only cash works really well for a lot of people. But it doesn’t work perfectly for everyone. You may find that a complete conversion to cash only doesn’t work for you, but a modified approach — like limiting your eating out budget to the cash in your wallet — works out great. It is worth at least checking out the cash only approach and seeing if it can at least save you some credit card fees.

    If you have gone cash only, successful or not, please comment on your experiences. What worked? What didn’t? What tips can you offer to someone thinking about going cash only? I know what my experiences have been, but I’m always interested in seeing why someone else has an easier or harder time with relying more on cash and less on credit.

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    Last Updated on July 17, 2019

    The Science of Setting Goals (And How It Affects Your Brain)

    The Science of Setting Goals (And How It Affects Your Brain)

    What happens in our heads when we set goals?

    Apparently a lot more than you’d think.

    Goal setting isn’t quite so simple as deciding on the things you’d like to accomplish and working towards them.

    According to the research of psychologists, neurologists, and other scientists, setting a goal invests ourselves into the target as if we’d already accomplished it. That is, by setting something as a goal, however small or large, however near or far in the future, a part of our brain believes that desired outcome is an essential part of who we are – setting up the conditions that drive us to work towards the goals to fulfill the brain’s self-image.

    Apparently, the brain cannot distinguish between things we want and things we have. Neurologically, then, our brains treat the failure to achieve our goal the same way as it treats the loss of a valued possession. And up until the moment, the goal is achieved, we have failed to achieve it, setting up a constant tension that the brain seeks to resolve.

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    Ideally, this tension is resolved by driving us towards accomplishment. In many cases, though, the brain simply responds to the loss, causing us to feel fear, anxiety, even anguish, depending on the value of the as-yet-unattained goal.

    Love, Loss, Dopamine, and Our Dreams

    The brains functions are carried out by a stew of chemicals called neurotransmitters. You’ve probably heard of serotonin, which plays a key role in our emotional life – most of the effective anti-depressant medications on the market are serotonin reuptake inhibitors, meaning they regulate serotonin levels in the brain leading to more stable moods.

    Somewhat less well-known is another neurotransmitter, dopamine. Among other things, dopamine acts as a motivator, creating a sensation of pleasure when the brain is stimulated by achievement. Dopamine is also involved in maintaining attention – some forms of ADHD are linked to irregular responses to dopamine.[1]

    So dopamine plays a key role in keeping us focused on our goals and motivating us to attain them, rewarding our attention and achievement by elevating our mood. That is, we feel good when we work towards our goals.

    Dopamine is related to wanting – to desire. The attainment of the object of our desire releases dopamine into our brains and we feel good. Conversely, the frustration of our desires starves us of dopamine, causing anxiety and fear.

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    One of the greatest desires is romantic love – the long-lasting, “till death do us part” kind. It’s no surprise, then, that romantic love is sustained, at least in part, through the constant flow of dopamine released in the presence – real or imagined – of our true love. Loss of romantic love cuts off that supply of dopamine, which is why it feels like you’re dying – your brain responds by triggering all sorts of anxiety-related responses.

    Herein lies obsession, as we go to ever-increasing lengths in search of that dopamine reward. Stalking specialists warn against any kind of contact with a stalker, positive or negative, because any response at all triggers that reward mechanism. If you let the phone ring 50 times and finally pick up on the 51st ring to tell your stalker off, your stalker gets his or her reward, and learns that all s/he has to do is wait for the phone to ring 51 times.

    Romantic love isn’t the only kind of desire that can create this kind of dopamine addiction, though – as Captain Ahab (from Moby Dick) knew well, any suitably important goal can become an obsession once the mind has established ownership.

    The Neurology of Ownership

    Ownership turns out to be about a lot more than just legal rights. When we own something, we invest a part of ourselves into it – it becomes an extension of ourselves.

    In a famous experiment at Cornell University, researchers gave students school logo coffee mugs, and then offered to trade them chocolate bars for the mugs. Very few were willing to make the trade, no matter how much they professed to like chocolate. Big deal, right? Maybe they just really liked those mugs![2]

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    But when they reversed the experiment, handing out chocolate and then offering to trade mugs for the candy, they found that now, few students were all that interested in the mugs. Apparently the key thing about the mugs or the chocolate wasn’t whether students valued whatever they had in their possession, but simply that they had it in their possession.

    This phenomenon is called the “endowment effect”. In a nutshell, the endowment effect occurs when we take ownership of an object (or idea, or person); in becoming “ours” it becomes integrated with our sense of identity, making us reluctant to part with it (losing it is seen as a loss, which triggers that dopamine shut-off I discussed above).

    Interestingly, researchers have found that the endowment effect doesn’t require actual ownership or even possession to come into play. In fact, it’s enough to have a reasonable expectation of future possession for us to start thinking of something as a part of us – as jilted lovers, gambling losers, and 7-year olds denied a toy at the store have all experienced.

    The Upshot for Goal-Setters

    So what does all this mean for would-be achievers?

    On one hand, it’s a warning against setting unreasonable goals. The bigger the potential for positive growth a goal has, the more anxiety and stress your brain is going to create around it’s non-achievement.

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    It also suggests that the common wisdom to limit your goals to a small number of reasonable, attainable objectives is good advice. The more goals you have, the more ends your brain thinks it “owns” and therefore the more grief and fear the absence of those ends is going to cause you.

    On a more positive note, the fact that the brain rewards our attentiveness by releasing dopamine means that our brain is working with us to direct us to achievement. Paying attention to your goals feels good, encouraging us to spend more time doing it. This may be why outcome visualization — a favorite technique of self-help gurus involving imagining yourself having completed your objectives — has such a poor track record in clinical studies. It effectively tricks our brain into rewarding us for achieving our goals even though we haven’t done it yet!

    But ultimately, our brain wants us to achieve our goals, so that it’s a sense of who we are that can be fulfilled. And that’s pretty good news!

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    Featured photo credit: Alexa Williams via unsplash.com

    Reference

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