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Beginning Balance

Jan 27, 2023

Mark and Jesse have discussed the advantages of being cash focused since the beginning of the show -- such as episode #3: Your Cash Is Your Strategy -- and part of being cash focused is not being focused on debt, or using debt to fund business operations. Most followers of YNAB can agree with this outlook, however credit cards fall into a grey and sticky area.


Jesse contends that credit cards actually pose a number of problems, even for people who use them "responsibly," that is, pay them off regularly and never carry a balance or pay interest. His main problem is the fact that banks push them so hard -- there must be an incentive to have people transact with credit cards rather than with debit cards or cash. Of course, banks and payment processors make money with every swipe, about 3% of the transaction value in fact. As credit cards have become ubiquitous, this transaction cost has been baked into the price of goods, too.


Jesse also cites some research that revealed spending with credit essentially provides you with a dopamine hit similar to what you get just buying things. Credit is an appeal to the lizard brain, the idea that you are getting something without giving something. Of course you are giving something, just not yet. It's the "not yet" part that short circuits our brain. And this psychology often leads us to simply spend more than we would otherwise when we use credit cards.


So, can you stop using credit cards in your own business and personal life? Mark and Jesse are going to give it a try in 2023, and see what happens...



Mark Butler, Virtual CFO