6 Disadvantages Using Cash in 2022
1. Cash Doesn't Come With a Zero-Fraud Liability Guarantee
Even outside of the possibility of theft, there are still protections that you forego by using cash.
“With cash, once you hand that over to someone, and if you don’t have a written contract or anything, there’s not a lot to say that you’re getting your money back,” says Monarch Benefit Advisors.
For example, let’s say you pay a handyman $500 in cash to install a new chandelier over your dining room table, and a week later it falls through the ceiling. Or maybe you pay a mechanic $750 for a flux capacitor, only to find out that nothing happens at 88 mph.
If you use a credit card, you can contest those purchases and you’ll most likely get your money back. If you pay with cash, you can potentially sue someone over the faulty purchases, but even that costs money.
2. Your Cash Isn't Earning Interest
Not everyone has a checking account that offers interest on your everyday spending money. But, it can be a good way to earn cash to save towards your goals.
The highest-earning checking accounts, for example, offer as much as 1.01% APY, which can net you an extra $25 over the course of a year if you keep around $2,500 in your checking account. That’s money you’ll miss out on by keeping your spending money in cash.
3. You're Not Building Up Your Credit
If you opt to use credit cards responsibly by keeping your spending under control and paying off your entire balance in full each month, you’ll lose a valuable opportunity to build credit.
Like it or not, the world revolves around credit. It’s your key to getting a good rate on loans (including a mortgage), foregoing security deposits with utility providers, renting a good apartment, and even getting a good job in some cases.
4. You're Missing Out on Credit Card Rewards
Similarly, if you use the cash you miss out on a lot of good credit card rewards. Whether it’s free to travel, cash back, extended warranties, or free rental car insurance, there are a lot of benefits that come with credit cards that you’ll never get if you opt not to use them.
Of course, the caveat is always that you need to carefully consider whether credit cards are right for you. If you use them correctly, they can help propel you forward. But if you rack up debt that traps you, wait until you’re in a better position to use them.
5. You Can't Pay For Online Purchases With Cash
Online shopping can be a source of overspending (hello, Amazon). But if you’re careful, online shopping can also be a good way to save time and money.
Instead of being limited to what is available at your local store, you can research the best products online. That’s especially true for large purchases. It’s better to spend more on a quality suitcase that’ll last a lifetime, for example, than spend money over and over again on cheap Walmart suitcases that fall apart after a few flights.
You can also use rebate websites, online coupons, and comparison shopping websites to find the best deal on these products, saving you lots of money. And since you can have the items shipped to your door, you can save time as well.
None of this is possible, however, if you use cash to pay for your purchases. This is one of the big disadvantages of cash.
6. It's More Difficult To Track Your Expenses With Cash
One of the most important things in budgeting is to track your expenses, so you can see where your money is going and have a record of your purchases.
This is especially helpful when you’re creating your budget for the first time because using a debit or credit card gives you an easy list of your past—and present—purchases. It gives you real data to work with, so you can see where to improve. Over time, you’ll see patterns in how you’re getting better, and how you’re getting closer to your financial goals.
“If you were to switch to an all-cash budget, it would be difficult,” says Monarch Benefit Advisors. “And I’m big on tracking expenses… If you get one thing out of me, make sure you track your expenses.”
Sure, you can collect a pile of receipts. But it’s easy to misplace them. It’s a mess to categorize them. And after a while, the ink on thermal receipts fades, leaving a blank paper of confusion. Instead, when tracking your expenses in a budget, electronic records reign supreme.