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How to Reduce Your Cash Tax

Yep, you read that title correctly. You pay a cash tax – likely every time you are at the store. Never heard of the cash tax? No worries. Today I’m going to tell you about the cash tax and the secrets to reduce your cash tax.

What is a Cash Tax?

Don’t feel bad if you’ve never heard of the cash tax. It’s a term I coined to explain the impact to your bottom-line due to the influence of credit and debit cards.

(Note: I am not talking about taxes paid in cash, which is a common cash tax definition.)

Reduce Your Cash Tax

These days a business that does not accept cards is unusual. Not only that, but not accepting cards can harm business’s sales. Me, you, and the vast majority of US consumers demand the convenience of paying with a card – not fully understanding the cost of such convenience.

Yes, it’s costing you money to use your credit and debit cards “everywhere where you want to be”. Plus, when you pay with cash, it’s costing you even more. Oh, the joys of convenience!

Let me explain.


Cash Tax – The uniform increase in price of goods or services where credit or debit cards are accepted.


First you need to know when merchants accept credit or debit cards, they pay processing fees to the credit card issuer, network, and payment processor.

These fees range (on average) from 1.5% to 3.5%. And that’s on average! The actual fee varies by merchant based on several factors and may be more than 3.5%.

In layman’s terms, this means the merchant has marked up the cost of your purchase by 1.5% to 3.5% to cover processing fees. Regardless of if you use cash or card, you are paying this marked-up cost!

I don’t know about you, but my savings account isn’t earning 3.5% interest right now. If I can reduce a 1.5% to 3.5% fixed up-charge on things I buy – sign me up!

You may be asking, “Is this really a tax?”

Yes. A tax is a compulsory financial charge imposed on any payer (you) to fund various public expenditures. Only instead of funding roads and emergency services, this tax is to fund a public system of financial convenience and protection – but only for certain, non-cash payers.

Which I why I refer to it as the “cash tax”.

Why Should I Care About the Cash Tax?

In case you missed it above, you are being charged an extra 3.5% (maybe more!) on every purchase you make where cards are accepted.

Every. Purchase. People.

Unless you’re a super saver – saving 50% or more of your income each year! – you are bleeding money at an upwards rate of 3.5% on the majority of your hard-earned money.

The Cost of Cash Tax

Let’s say you make the average US household income ($59,039 in 2017 per Wikipedia) and saving the recommended 20% of your income. Which means you are spending $47,231 per year.

You follow the cash is king mantra and pay for everything in cash. All purchases are at places where credit and debit cards are accepted. (Not realistic but play along with the simple math please.)

At a 3.5% rate, you are spending $1,653 in cash tax ($47,231 x 3.5%). If you can invest this $1,653 a year for 45 years at a 7% rate of return, you will have approximately $360,000!

Um, that’s a lotta moola in my book. And a huge price tag for a cash tax doing you no good as a cash user.

If you can invest even half of this amount ($826.50 a year) for the entirety of your average 45-year working career, under the same conditions, you will have approximately $180,000. Still a large enough number to want in your wallet!

How to Spot the Cash Tax

While more common than not, there are merchants who do not charge the cash tax. Simply because they do not accept card payments.

Typically, it’s very easy to spot cash tax-free places. Here’s an example where using cash won’t cost you more.

No plastic accepted means no cash tax imposed!

There are even certain situations where using cards costs you more because the processing fees are passed along to you directly.

Cash is king when spending here.

And let’s not forget online cash taxes.

Cash Tax = Convenience Fees
Calling cash tax what is really is – a convenience fee.

In these situations, cash is king!

Cash may also be king when negotiating large purchases like cars or houses. Or when shopping at local businesses who accept cards. However, the business kindly asks you to use cash when possible to put more of the profit in their pocket.

And cash will always be king if you carry existing credit card debt month-to-month at an outrageous interest rate.

How to Reduce Your Cash Tax

You may be wondering, “If everyone has to pay the same cash tax regardless, doesn’t it impact all of us the same?”

No.

As a cash-only buyer, you lose out on the various credit card rewards structures. These reward programs will return some of your cash tax in the form of airline points, cashback, gift cards, and a whole host of other ways.

Plus, cash payers are simply paying more for the good or service because the merchant (store) doesn’t adjust the price and doesn’t have to pay the card processing fees for cash transactions. Basically, as a cash payer, you are helping pay for someone else’s card rewards!


The magic answer to reduce your cash tax:

Responsible use of a rewards credit card to pay for items where cards are accepted for payment.


I emphasize responsibly using a credit card. If you can’t be responsible, the cost of the interest rate on monthly credit card balances may be crippling to your financial well-being.

It’s true you won’t necessarily get to invest the difference as demonstrated above (unless you invest cashback rewards), yet you get more benefit overall than if you pay cash.

I like this NerdWallet credit card rewards selector to help figure out the rewards card just right for your spending satisfaction.

How to Use a Credit Card Responsibly

Most people would define responsible credit card use as simply paying off the balance in full every month. While I agree with this whole heartedly, I believe you must do more than pay the full monthly balance to be truly responsible.

Responsible credit card use also means not overspending – even if you can afford to pay the monthly bill in full. There is study-after-study showing people spend more when using plastic cards than cash.

Some might claim subconsciously overpaying is an indisputable reason to never use credit cards. However, that’s like blaming a shovel for digging a hole that’s too deep. Shovels don’t have any control over the depth of the hole they create any more than credit cards have any control over how much you spend. Period.

Credit cards also have many benefits. Including fraud protection and building good credit scores. Which translates to lower insurance premiums, lower loan interest rates, etc. and, once again, putting more money in your pocket!

If you don’t use a credit card simply because you overspend when using a card, you are only costing yourself money.

So how do you use a credit card responsibly?

  1. Repair your money relationship
  2. Track your spending
  3. Practice mindful spending

Repair Your Money Relationship

Repairing your money relationship will take months, if not years, of hard work and plenty of self-reflection. One thing you can do immediately is answer the following question with one word to start identifying your complex relationship with money.

“To me money means _____________.”

Keep this meaning in mind as you swipe your card. It just may shift when and how often you swipe.

Track Your Spending

Basic awareness of where you are spending money is the number one way to improve your financial well-being . If you only do one thing with your money, track your spending.

If you don’t already track your spending, use one of the many free tracking tools like Mint.com or Personal Capital.

Practice Mindful Spending

Mindful spending is a touch easier to begin and make a habit of. A quick start tip is to ask yourself with every purchase,

“Does this purchase push me toward one of my goals?”

If the answer is no, take a deep breath and put the item back. For want purchases, walk away. If it’s a need purchase find ways to reduce the cost before buying.

Spend less on cash tax and be a little happier!

(And no, ice cream is not a need regardless of its general classification as food. Though I am guilty as charged for justifying ice cream purchases in just a way!)

In the end, reduce your cash tax with responsible rewards credit card use anywhere cards are accepted. This simple action will make your wallet happier and your spending life a little more satisfying!

What is a Money Relationship and What are the Benefits of Improving Mine?

What is a Money Relationship?
Are you nuturing a healthy money relationship?

We all have a money relationship. As a matter of fact, your money relationship is the longest relationship you may ever have. Money is discussed before you are born and will be a topic of discussion after you’re gone.

Further, the health of your money relationship directly benefits your financial health.

Did you catch that?

Your money relationship supports your financial health. Which means, your money relationship is not the same as your financial health.

What Is A Money Relationship?

You may have confused your financial health with your money relationship in the past. It’s easy to do. I know I did.

Financial Health

First, let’s clarify what financial health is.

According to Investopedia, financial health is a term used to describe the state of one’s personal financial situation. Financial health may be measured using many different metrics, including (but not limited to):

  • Condition of your credit score
  • Regular contributions to savings (short or long-term)
  • Low debt-to-income ratios
  • Appropriate levels of insurance
  • Strategic use of debt (i.e. use of credit cards for convenience or student loans)

I want you to note, the common metrics used as signs of financial health are all concrete in nature. You can clearly see your financial health by looking at hard numbers on a page.

Money Relationship

Finacial health is supported by your money relationship

Financial health can be an indicator of your money relationship, but it’s not the relationship itself.

A relationship is the interaction between people, objects, or concepts. Your interaction with money creates the relationship – not the end result seen in black-and-white numbers.

Therefore, your money relationship is all the actions when pursuing or maintaining good financial health. How you feel when you interact with your money is a key indicator of your money relationship.

A healthy money relationship has some of the following emotional indicators:

  • Time spent reviewing your finances is not stressful
  • You don’t have extreme emotions when thinking about money (i.e. you don’t lose sleep over money nor is receiving your investment statements the highlight of your month)
  • Guilt-free spending with minimal buyer’s remorse
  • You are financially generous with others
  • Thoughts of money do not create anxiety

It is possible for you to have wonderful financial health and a terrible money relationship.

If you struggle daily, weekly, or monthly with doing all the actions required for good financial health, your money relationship is likely to blame.

If you obsess over your next financial move or can’t ever seem to spend money on yourself without excessive thought or guilt, your money relationship is also the likely culprit.

Any continuous emotional struggle to what is needed for good financial health is a direct reflection of your money relationship. For a healthy money relationship you must understand (and address) all three areas that create your money relationship.

3 Areas of Your Money Relationship

There are three main areas forming your money relationship.

  1. Your Money Habits (present actions)
  2. Your Money Mindset (future actions)
  3. Your Money Story (past actions)

Let’s take a brief look at these three areas and how they work together to form your money relationship.

Your Money Habits – The Present

Your money habits are how you regularly handle your money (especially spending) and have an undeniable link to your financial health. Your money habits directly influence if:

  • you pay your bills on time
  • actively use money-saving techniques, such as using coupons or buying based on discounts
  • paying with cash or credit
  • whether you impulse spend or shop with a list

Side Note: Automating savings or bill payments of any type is not a habit. Automation is an excellent tool to improve your financial situation without further thought or action beyond the initial set-up. And yes, it can lead to improved financial health, but automation will never repair your money relationship.

Cash or Credit? Discount shopper or full price? Both decisions are often habit-based.

The beauty of money habits is, once established, they will naturally propel you to better (or worse) financial health with minimal thought required on your part.

Regardless of which direction your money habits take you, they are so ingrained in your life, they generate little to no emotion when you are doing them. This is good. If we had to engage emotions for daily actions, we would be emotional exhausted everyday.

Lack of emotion for daily or routine money actions frees up more mental and emotional compacity for longer-term money moves. Which leads us to the second area of your money relationship – your money mindset.

Your Money Mindset – The Future

Your money mindset is your general attitude toward financial decisions.

Many personal finance programs do an excellent job of addressing your money mindset. They do so by emphasizing the creation of budgets and providing strict guidelines for improving financial health (i.e. have an emergency fund, review insurance amounts, etc.).

Budgets

Budgets are a money tool that requires thinking about your spending before it occurs. By thinking about your spending before it happens, you are forced to see the bigger financial picture and address your life priorities to keep cash flow positive.

Reviewing your life priorities (goals) is the why behind your spending. And your why is the emotional force you need to make decisions and changes. Decisions and changes to propel life in the direction you want. Addressing the emotions behind large financial choices make budgets a powerful money tool.

When budgeting and following specific money guidelines, you will naturally shift your money mindset. This shift in mindset often changes (or establishes new) money habits thus improving your financial health with less emotional effort.

Mindful Spending
Where your money mindset leading you?

However, to get the most emotional pull from your money mindset, you should dig a little deeper into the life whys behind all your money choices.

Practicing mindful spending is a way to pull all emotion from every purchase decision, in a way budgets do not. Mindful spending brings to the light all the emotions driven by your various life needs and wants. It allows your heart to lead the charge. By letting your heart lead, you will be happier and more satisfied long-term with your spending decisions.

Yet even with mindful spending, your emotions may still hold your spending decisions captive – and you won’t even know it.

This is because we often fail to recognize the third area of our money relationship, your money story. Just as your past interactions with people influence how you act around them now, your past interactions with money determine how you act today.

Your Money Story – The Past

The third area of your money relationship hides in your past money experiences and beliefs established throughout your life. Your past experiences and core money beliefs form your money story.

Without being aware of and addressing your money story, you may forever be held hostage by emotional forces preventing you from being satisfied with your money. This is true even if you have excellent financial health.

Your money story is the final piece to shift your money relationship and understand all the emotional money forces in your life.

Unlike money habits and money mindsets, you cannot change your money story. But that’s okay. Simply knowing your money story will improve your money relationship.

Often hidden deep in your psyche, your money story drives you on a core level. And, unless you intentionally pull it out and look at it, you will never understand just how great its influence is on your life.

Money stories are the emotional root of the natural money tendencies you are working so hard to change in your money habits and mindset. A few examples of ways your money story impacts your life:

  • How you perceive what “rich” and “poor” individuals look and act like
  • Where you shop and the shopping patterns you have when in the store
  • Beliefs about how to earn money and how hard (or easy) it is to get money
  • Whether debt is normal and what type of debt is okay
  • Giving to others either as general support or gifts
  • Ability to spend money on yourself

When you understand the story behind your natural money tendencies, shifting your habits and mindset becomes easier.

A Money Story…Story

I once spoke with a woman whose husband refused to shop at a discount grocery store. He knew it was a way to save money and he was happy to let her go, but he did not go.

Then, by fluke, one day he was forced to go. He was pleasantly surprised at the people and how comfortable he was inside the store.

It turns out he unknowingly associated discount grocery stores with being “poor” and unpleasant based on experiences from his youth. Once he recognized discount grocery stores aren’t for the “poor” and have pleasant shopping environments, he’s had no issue going with his wife.

This individual was lucky that life forced him to confront a money belief he wasn’t consciencelessly aware of. But what if he never did?

What if he routinely overspent on food? Would this ruin his life? Destory his financial health?

Obviously not. However, spending more on food than necessary – all due to unconscientious core money beliefs – has a greater potential long-term impact than say the oh-so-famous latte factor. Yes?

What core money beliefs and experiences do you have emotionally preventing you from achieving a better money situation?

The Benefit of a Healthy Money Relationship

Whether your financial health is good, bad, or downright ugly, improving your money relationship makes sense. Why exactly you should improve your money relationship is simple.

Your Money Stool

Your money picture, your money relationship and financial health, is like a three-legged stool your entire life sits upon. The three legs are your money habits, mindset, and story. These three action areas create the emotional drivers supporting your financial health which is the seat of the stool.

How solid are the legs of your money stool?

When all three legs and the seat are weak, life is likely very tough. Can you imagine trying to sit on a stool with three weak or damaged legs and balance on a seat that is only partially there (or maybe sticky, greasy or otherwise not friendly for long-term sitting)? The constant effort just to stay on the stool and upright would be emotionally and physically exhausting!

On the other hand, you can have fabulous financial health, habits, and mindset. The seat of your stool is sound and you may have two solid legs upon which to perch. However, if you have never looked at your money story, you have no clue what shape the third leg is in. Is it solid or infested with termites? Is it longer or shorter than the other two legs? Is it wiggly or firmly attached?

In both situations, the life perched upon the stool must constantly be putting effort into staying upright or steady on the stool.

Even if you prefer both feet resting on the ground, a wobbly stool that you must keep your muscles at-the-ready to balance is downright annoying and frustrating long-term. (Unless of course you like wobbly stools and wondering if your next sip will land in your mouth or down your front.)

Relaxing and enjoying life is hard to do if you are continuously expending physical and emotional energy trying to stay balanced!

Your Money Relationship

Knowing your whole money picture (financial health and money relationship) allows you to take action according to your unique life. Maybe you need all the financial actions touted by experts, but maybe you just need one or two.

The benefit of a healthy money relationship is it requires less emotional and physical effort to stay perched upon your money stool and savor your life!

When you address all three areas of your money relationship, you can clearly see the path and any obstacles to improving your money picture.

It’s true that money is just a tool. But it is a tool irrevocably bound to your emotions much like your home, cars, and clothes.

Though, unlike those other tools, money influences and drives your entire life. It can propel your life forward or hold you back. You don’t want money to consume extra emotional energy you could be using to live your life.

By understanding and fostering a healthy money relationship, you create a solid base for your money stool. A base upon which to build a life that is uniquely yours!

How to Improve Your Money Relationship

Fortunately, everyone can improve their money relationship and relax a little bit more on their money stool than they did before.

Ask any therapist and they will tell you a healthy relationship requires various elements including:

  • Transparent, honest communication
  • Trust including loyalty and safety
  • Respect and equality
  • Patience and acceptance (or at least compassion)

To jumpstart repairing your money relationship, I recommend these four actions.

  1. Track Your Spending – Tracking spending is a cornerstone habit. It requires you to spend quality time with your money. It is a key way to communicate with your money in a transparent and honest way.
  2. Pay Yourself First – When you pay yourself first you lay a foundation of safety with your money. You can trust the money will be there when you need it whether for emergency or fun.
  3. Practice Mindful Spending – Acknowledging the choices you have with money as they relate to your life and emotions establishes respect between you and your money. It shifts your money mindset above and beyond a traditional budget.
  4. Examine Your Money Story – Reflecting back and knowing your core money beliefs and experiences, and emotions triggered by them, allows you to adapt your present and future money management. As you bring awareness of your money story, remember to show patience, forgiveness and general compassion to your past self.

Establishing a healthy money relationship will take time and effort (what realtionship doesn’t?). Be dilgent and you will reap great rewards.

Your money will become a life mentor. As you walk along life’s journey, it will neither pull you forward or hold you back. It will share wisdom and shout warning. Money will no longer generate extreme emotions, but be a wise and faithful companion for whom you have warm feelings. You will be happy to see your money, but not always thinking about or striving for it.

As your money relationship becomes healthy, you will think less about money. The less emotional energy you use balancing your money stool, the more you may focus on loving life.

Recent Posts

  • How to Reduce Your Cash Tax
  • What is a Money Relationship and What are the Benefits of Improving Mine?
  • What is Mindful Spending And Why Should I Practice It?
  • 5 Questions for Mindful Spending: Stop Impulse Shopping
  • What a Budget Looks Like: Why You Need A Budget

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  • How to Spend Money
  • Increase Your Spending Satisfaction
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How to Reduce Your Cash Tax

What is a money relationship?

What is a Money Relationship and What are the Benefits of Improving Mine?

What is Conscious Spending?

What is Mindful Spending And Why Should I Practice It?

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