Good Morning DINKS. We recently received an email from one of our long time readers named Mike from Silicon Valley. His story was so intriguing that I just felt the need to share. Mike works in Silicon Valley California and he recently experienced something that made him wonder if his spending habits are old school or just out of touch. Think about yesterday when you bought your morning cup of coffee. How did you pay for it?
Did you use cash or credit to purchase your morning cup of coffee?
One morning Mike was in line ordering his daily cup of coffee on the Stanford University campus when he noticed a girl in line pay for her coffee with her American Express Blue Card. Mike stood there for a minute looking for his $2 in change to pay for his cup of coffee, and he noticed that another client paid for his $2 coffee with a Visa Black Card.
Mike’s first and only thought was “Really?” Mike wondered if he is so out of touch with society today that the norm has become to charge a cup of coffee on our credit cards. Mike wondered if he is the only person left in the world who is still paying for his morning cup of coffee with cash.
Mike was not sure if paying for a cup of coffee had become the norm everywhere or if it was just a Stanford University trend. He also wondered why people choose to pay for a $2 cup of coffee with a credit card. Maybe men think that if they pay for a cup of coffee with a credit card that requires a minimum credit limit of at least $100.000 women are going to come running towards them. Maybe paying for our daily cup of coffee with a credit card is an easy way to track our daily spending while earning rewards points at the same time. Maybe some people just like the convenience of swiping their credit card on the go, or maybe paying for a $2 cup of coffee with a credit card is a big red flag that we need some serious financial help.
Mike admits that even though he gets a regular pay check every week from Stanford University he will never use a credit card to purchase a measly cup of coffee. I absolutely understand Mike’s point of view, and deciding whether to live on cash or credit budget has been a long standing debate among financial professionals.
I definitely feel that the “budget question” is a personal decision. Living on a cash budget helps control our spending, but we cannot keep track of where or how we spend our money. Living on a credit budget helps us track our spending and earn some rewards points at the same time. However it can also lead to excessive spending and expensive interest charges if we can’t afford to pay off our monthly credit card balance.
I personally don’t spend $100,000 a year on all of my personal spending combined, even if I included my rent and groceries. Therefore I guess that if I had to maintain a required minimum spending limit I would also charge everything on my credit card, including a cup of coffee. Or maybe an easier solution would be to just get rid of the credit card that has a required minimum spending limit.
Photo by Nina Matthews
Kristina Tahnyak
Tahnya is a Certified Financial Planner and former Investment Advisor turned marketing and communications professional She holds a degree from Concordia University, is debt free and currently works in the field of digital marketing.
CONVENIENCE. I use my credit card anywhere and everywhere I go. I find cash inconvenient (who wants to go to an ATM every couple days or carry around all the money, plus a pocket full of change?) and as you mentioned, using a credit card allows me to keep track of what I am spending. I use mint.com and its nice just logging on and having all my spending habits already there. this makes sure i keep to my budget (if i go over any of my category budgets I get a text message saying the fun is over with shopping, coffee shops, etc… this month!). PLUS i get rewards cash for my spending on credits and nothing for my cash spending.
I’m in the credit budget camp – but I pay off everything without interest charges.
We use our credit cards in order to track every bit of spending we do. This allows us an extra month of interest on our paycheck (measly for now, but better rates will return), and earns us between 2% and 5% back from rewards, plus whatever I get back from Envaulted.
The fact of the matter is that cash is slow, I can do the math just fine, but many cashiers can’t. Using credit gets me in and out faster, plus I know that any tip isn’t getting under-reported.
Back in college, my university offered a cash debit system on the student ID, and that ended up being the perfect compromise between these two.
I use my credit card for nearly everything. I use it for the rewards and the convenience of not having to fish around for cash.
I use credit. Ever penny spent on that card gives me rewards!
I use my American Express for the rewards, even for my $2 Taco Bell purchases. Like PK, I also prefer to use my credit card because it helps me track my spending. I don’t consider convenience when choosing cash or credit.
Sometimes though, I put my card away and pay cash to break a larger bill like a $20. (Smaller cash denominations are always helpful in speeding up payment during group lunches.) That’s usually my only exception.
I use my debit card (that gives me cash back rewards) for pretty much everything. However I set myself a $5 threshold for smaller purchases. I only use cash for anything less than $5. It actually cuts down on a lot of my “entertainment/convenience” budget.
Mike sounds awfully judgmental.
I buy everything on my credit card. Everything. Including the $2.13 cup of coffee from Dunkin Donuts that I treat myself to once in a while. This is how I budget. This way I don’t have to stop halfway through the week and think “huh, where did that $20 go”. It also forces me to rethink the tiny little purchases each day … do I really want that candy bar enough to put it on the card? Am I really going to charge $0.79? No I’m not. And I didn’t need or want the candy bar anyway.
And every 2 weeks I pay off what I’ve charged when I get paid. That’s exactly how I budget my personal spending money – by using one specific card and paying it off the very next paycheck.
Plus as someone else has pointed out, I get rewards for using my card, so it’s absolutely to my advantage to put as much as I can on it and pay it off.
I do love the convenience of using my credit card to pay for my purchases but rewards points are more of an excuse for me to use it and justify my purchases. Using our credit cards for all of our monthly purchases can be a great way to track our spending and stay on a budget, but it can also lead to overspending.
What is the best reward anyone has received from their credit card?
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While I don’t buy or drink coffee, we use credit cards for every retailer that accepts them – I only carry cash for the farmers market. Convenience, tracking, security, rewards, hygiene, transparency, etc. We pay them off multiple times per month.
Putting something on a credit card doesn’t mean your financial skills are so bad you don’t have $2 in the bank! Sometimes it just means you don’t want to go to the ATM. I think the rise of online banking, direct deposit, and all the things you don’t have to go to the bank for make having cash on you at all times increasingly inconvenient.
I do it for the convenience and the cash-back rewards. I know the reward is just a way for credit card companies to rake in more fees from more transactions, but if a retailer doesn’t like that they can institute a minimum charge threshold.
I don’t carry cash probably 95% of the time. I moved last year and my credit union is 1700 miles away. I am reimbursed for my ATM fees, but I don’t like having to pay them in the first place. Additionally, I am much more likely to spend cash since it won’t show up on any of my financial statements. Even if someone gives me cash I usually run to my local bank and throw it in my savings account. I’m also a softie and I work in a financial district in a big city so I get asked for money on the street every day. It’s easier to say no if I don’t have any cash in my wallet.
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