Barbara Corcoran is a real estate mogul, successful investor, and a star on ABC's "Shark Tank." She's also a self-described "bad saver."
"The truth is, I don't save [money]," Corcoran told Grow earlier this year. She was influenced by the way her family handled their finances: "My parents never saved a dime. They had 10 kids and could barely pay the rent."
Corcoran went on to build up The Corcoran Group and sell it for $66 million in 2001. But as a young adult, she bounced checks and racked up credit card debt, and she now says she wishes someone had suggested, early on, that she use only cash for one week, without charging anything to a credit card. That's because sticking to a cash diet can help you see how much you're spending, and on what.
"When you put it on a credit card, somehow, in that moment, [what you are buying] seems like great value, but when you're putting cash out — you have limited cash, what you've earned that week — you're surprised at how quickly you realize how much money you're truly wasting," Corcoran explained to Business Insider.
Instead, Corcoran says, she developed bad habits, and they cost her: "By my late 20s, I realized I couldn't afford the things I really desired, and by my early 30s I realized I had to work like crazy to get what I wanted rather than spending it before I had it."
Studies show people do indeed tend to spend more when making purchases with credit. An MIT study found that some shoppers are willing to pay 83% more when paying with a credit card than when paying with cash, for example.
By making spending less automatic, using cash can help you avoid impulse purchases and make smarter spending choices. That's because you're more likely to feel "the pain of paying" when you're handing over dollar bills.
Paying with plastic, however, means that you don't feel the impact until much later, when you get your credit card statement. "You're not paying, you're signing a promise to pay later," says Jeff Kreisler, editor-in-chief of PeopleScience.com and coauthor of "Dollars and Sense: How We Misthink Money and How to Spend Smarter."
While it can be hard to stay focused on a budget, paying in cash can help keep you accountable. Twenty-three-year-old Kristy Epperson told Grow that using cash helped her pay off $20,000 in debt in one year.
The type of cash you carry matters as well. If you carry a $100 bill in your wallet, you may be less inclined to spend than if you carry five $20 bills, according to a research paper published by The Journal of Consumer Research.
"We treat money differently depending on how we categorize it," Dr. Mary Gresham, an Atlanta-based psychologist, told Grow earlier this year. "We associate a lot of small bills with miscellaneous, petty cash, while we associate large bills with special money."
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