Digital payments offer you a TON of convenience, but you need to be careful. Too much convenience can sometimes lead to some bad decisions… especially when it comes to money!
It has come to the point where some people are mindlessly trusting that the cash register is accurately calculating the purchase. People have gotten so used to the convenience of it all that we check our phones instead of paying attention to the prices that are being rung in. Afterward, when the cashier gives the total amount, it is easy to tap and go with a card and not even realize or remember how much you spent.
The act of buying something has become autonomous. And some people are seeing the consequences in our bank accounts.
With so much innovation around “payments,” it’s almost hard to imagine the day where you had to physically write a check, drive to the bank, and talk to a bank teller to get your money. And the innovation is moving at lightning speed!
E-commerce is now built around 1-click payment.
You can now use your smartphone and “tap-and-go” to pay for things.
Heck, some digital payments are physically on you with “wearables.”
And it’s not just for the younger generation either. Across all segments, digital payments are becoming more popular.
In fact, nearly half of consumers prefer using digital apps to make payments. And while 49% of millennials prefer digital payments to cash, baby boomers aren’t far behind at 32%.
Do you blame anyone? Digital payments offer a TON of benefits…
- They offer reward points, and cash back offers – You can collect up to 2% on some of the best credit cards out there
- Offer 24/7 payment – You can collect and transfer money anytime, anywhere
- You have a clean history of payment – Because it’s digital, you have an easy to record of previous payments, making recordkeeping a breeze
- More secure – You don’t have to worry about misplacing cash
- More convenient – Your wallet or purse can be slimmer and weigh less with fewer coins and bills!
Now I’m all for the use of digital payments – in fact, I pay for everything on my credit card to collect loyalty points. I even recommend a lot of people do the same (only if you can pay the balance in full each month!) But if you do pay for things electronically, you need to do so with eyes wide open!
The convenience of digital payments hurts those who are unaware or lack discipline when it comes to money.
Really? Too much convenience can be a bad thing?
Yes, it’s true!
I believe there’s something about seeing a physical exchange of something that makes the process real. Many years ago, you had to take out a wallet, count the money, and hand it over to pay. The money actually left your hand and went into someone else’s hand. It was real! By paying for something with cash, you felt lighter with fewer coins or a thinner wallet… it almost felt like you “lost something.”
Today the buying process is entirely different, and if you’re not careful, the extra convenience of digital payments can impact what you buy, how much you spend, and keep track of where it goes.
Let me break each own down for you…
You might be quick to buy something you shouldn’t
How often have you bought something you really wished you didn’t?
Now my wife and I aren’t wasteful, but we’ve had a few items that we have bought that we should have left at the store over the years… these things include a few board games that we don’t use, an ottoman that acts more like a bookshelf than a piece of furniture, and a beautiful blue pinstripe suit (that my wife pokes fun at) that I think makes me look like The Wolf of Wall Street (for the record, I love it still!)
If I was honest, convenience had a HUGE part in all of these purchase decisions. That “buy” button online was just a little too easy, or the buying process was so simple just to throw that extra thing in.
The idea of impulse buying has been studied a lot.
According to researchers at Carnegie Mellon, Stanford, and MIT, people spend money ’til it hurts. Their research has shown that “swiping” or “clicking” to pay doesn’t feel like you’re giving anything up to make a purchase, unlike paying cash where you have to hand over bills.
As we move more and more into digital payments, we need to check our intentions and be aware of this trap.
Not everyone may be guilty of this, but if you lack a bit of money discipline, just watch out! Be sure to think twice before clicking the “buy” button, or reaching for plastic to pay.
One suggestion to avoid impulse buying is taking extra time before making a purchase. Think it over for a week or two. If after that time you feel you still need that product, go for it! A cooling off period is always helpful to avoiding spur-of-the-moment buying.
Related post: Top pitfalls that cause you to miss your money goals
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You might spend more than you have to
Slightly related to #1 above, when purchases are convenient, you might find yourself spending more than you anticipated.
Rather than spending $75 on shoes, you upgrade to $120. Or maybe rather than the Basic cable package at $35 you choose one that has the sports channels for $50. I’m sure if you look carefully at your own spending you know what I mean.
MIT has research that also shows how you pay can affect how much you spend.
In one study at MIT, researchers asked business students to bid on Boston Celtics basketball tickets, telling some they’d eventually have to pay with cash and others they’d need to use a card. The average bid for those expecting to pay by card was $60, more than twice the average bid from those primed to pay with cash. The idea of “virtual money” heavily impacted their wallet.
Studies have also shown that digital payments can influence consumers to spend more than 10% more than if cash was used. That’s important to note as more and more people move away from cash!
Cash has long been regarded as the best way for shoppers to budget, as there is a physical action associated with it. In other words, as shoppers take the money out of their wallet and count out the bills, there are multiple reminders that they’re making a payment. By removing the physical action though, it has the chance of becoming “less real.” It’s easier to disassociate yourself from the money you’re spending when you use plastic.
Related post: How not to overspend and save money
It can be harder to keep track of your finances
Now, this last one can be a bit subjective, but I think it’s worth mentioning.
In a world where everything is moving to digital, it can be a lot harder to keep track of where all your money is!
If you have multiple credit cards, you have different sets of balances to pay off (likely all with different due dates).
On top of that, if you use digital payments for everything, you might not know how much you have left in your bank account unless you reconcile your statements across different accounts.
The opposite is true when you use cash. Sure, you might not know where you spent all your money, but it’s easy to see when you’re running out… your wallet or purse is thinner and lighter!
If you are a big user of digital payments, I’d highly suggest you consolidate all your products with one provider – that way you can get a clear view of how much money you have and owe.
Another thing that I’ve found helpful is to have some way to track the progress of your spend over time. It doesn’t have to be fancy, just some way to track how you spend your money.
My wife and I use a simple piece of paper, and that hangs by our fridge. Each time we spend, we make a note of it. Whether it’s a coffee, gas or groceries, we deduct the amount each time from our list. We have 6 big monthly spend categories outside of our fixed expenses (food, gas, clothing, entertainment, dry cleaning and “slush”) and track against them. For us, it’s an excellent way to stay accountable to our budget and make sure we’re not going spend-crazy in any one area. We both see what we have spent and how much we have left.
Other popular ways to keep track of your spend include the envelope system, Excel, Google Docs, or you can find a bunch of budgeting apps online. The important thing is to find one that works for you!
Don’t avoid digital payments, just be smart with them and build good money habits
Before I wrap-up, I just want to be clear with everyone… digital payments aren’t bad! In fact, I love the convenience, and my wife and I wouldn’t be able to accumulate points and travel like we do without them 🙂 That said, you need to be smart about using them.
For me, it merely comes down to building good money habits right from the get-go. If you have that, you don’t have to worry.
Do you have a budget? I know they’re not fun to make and track against, but they’re critical to making progress financially. Without a plan, how do you plan on making progress?
Do you have a good awareness of what you spend your money on? If not, you should start tracking it. And better yet, compare what you spend with what you hope to save each month.
Lastly, if you’re just not good with money, maybe digital payments aren’t right for you, and that’s OK. Perhaps a cash-system will help give you the visibility to how much you spend and how much you save. The most important thing is to find what works for you, and stick to that.
Think it through
- Is using plastic negatively impacting the way you buy things? How so?
- Is the way you spend your money aligned with your savings goals? If not, what needs to change?
- What’s the one thing you can do to spend less, and save more money?
- Top pitfalls that cause you to miss your money goals
- How not to overspend and save money
- Why budgeting gives you more freedom, not less
- The one thing most people forget when budgeting
- Budgeting is more about goals and freedom than dollars and cents
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