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Cashless Society

How to Make Your Budget Work Even in a Cashless Society

As Canada becomes an increasingly cashless society, the Bank of Canada assured Canadians that banknotes will be available to those who still want to use them.

We have become the biggest germaphobes, however. And with good reason. Turns out that the deadly coronavirus persists on metal and paper surfaces for hours, if not days. Aside from an N95 and a hazmat suit, what could provide better protection for those face-to-face transactions?

Cashless payments, a revolution that has already begun across Canada, may indeed be the new normal. But, then there’s the reality of how you manage your money. One highly effective budgeting method, the envelope system, is a simple, low-tech way to keep your purchases in check. You divvy up your cash into envelopes and when the money is gone, you stop spending. But with cashless payments, it’s not cold hard cash leaving your pocket. It’s all Monopoly money. Or so it may seem.

So how can you make a cashless society work with your finances? Well, whether you use the envelope method, an Excel spreadsheet, or have no budget at all, these strategies will help you manage your funds.

Life in a Cashless Country: Day-in-the-Life of Ashley

First, let’s look at how cashless works. Ashley is a typical Millennial mom. Here’s her day:

  • Ashley heads for work, passing her Metro card in front of a digital reader as she enters the bus. She still has a $53 balance.
  • She stops at Timmies to pick up donuts for an office birthday and a small cappuccino for herself, scanning her debit card to initiate a contactless payment of $14.25.
  • At lunchtime, she picks up a roast turkey sandwich from the cafeteria and swipes her badge to deduct $5.50 from her pre-loaded employee account.
  • Her daughter, Emma, texts after school to say that her soccer team uniform fees were due yesterday. Can she get the 200 bucks she mentioned this morning? Ashley transfers the money with a few quick taps through an app on her phone.
  • Back home, as Ashley is preparing dinner, her cousin, Ryan, calls from university where he’s working on his graduate degree. He needs to borrow $167 until his student loan check arrives for an unexpected car expense. She offers to PayPal it, but he would rather she transfer money to his debit card, which she does on her tablet while finishing the pasta sauce.

Ashley accomplishes all of this without ever having to open her wallet. What a costly day! But, Ashley handled no dirty bills, has no bothersome accumulation of coins, and she has a record of every penny she spent.

How Canadians Are Going Cashless

There’s been talk of the demise of the dollar for many years. It’s true for Canada, as well. In fact, 85% of Canadians customarily use a credit or a debit card to purchase goods and services. Current events, including recent epidemics and pandemics, will surely accelerate this trend. There are many benefits to going cashless in our day-to-day lives. Cashless payments help:

  • Speed transactions and reduce the amount of time spent waiting in line
  • Minimize the spread of germs and mitigate the threat of deadly viruses such as Covid-19
  • Reduce the need to carry cash, which can present a personal safety risk
  • Safeguard your data through the use of advanced encryption technologies
  • Facilitate the tracking of spending patterns, allowing you to optimize your budget

Of course, there are many more options besides credit and debit cards. Canadians are using internet banking, smartphone apps, smart cards, and even PayPal. Three of the most promising solutions for a cashless country are:

  • Digital wallets and contactless payments
  • Prepaid cards
  • Reloadable prepaid cards with budgeting apps

Following is a run-down of each.

Option 1: Digital Wallets and Contactless Payments

A digital wallet is the electronic version of a physical wallet. It allows you to store important documents including credit or debit cards and bank account information. You can make contactless payments by opening the app on your mobile or tablet and holding the device over a payment reader.

The heavy hitters include Apple Wallet (Apple Pay), Google Wallet (Google Pay) and Samsung Wallet (Samsung Pay). Although these are very safe technologies, the downside is that merchants have been relatively slow to accommodate them.

Option 2: Prepaid Cards

As mentioned, the credit card has been malaligned for making it really easy to spend more than you have. After all, when you don’t have to reach into your pocket and pull out some toonies for your double-double, it’s much easier to over-indulge. But does it have to be? Not when you use a pre-loaded debit card.

Prepaid cards are just like debit cards. Rather than tying the card to your chequing account, however, you fund the card in advance. For some companies, this means you’ll need cash to load your card. Others accept bank transfers.

Option 3: Prepaid Cards with Budgeting Apps

A handful of innovative companies combine a prepaid card with an app that lets you manage your money. KOHO, a Canadian-based enterprise, features a reloadable prepaid visa card that you can fund using e-transfers from your bank account or via payroll direct deposit. KOHO is a chequing account alternative, a secure payment solution, and a budgeting app all in one. The card is accepted anywhere that takes Visa®.

In addition, KOHO supports the habits that help you manage your budget. You don’t need envelopes with KOHO. Simply explore spending insights and set up savings goals. Round up every purchase to the nearest $1, $2, $5, or $10 to set aside a little extra money for a rainy day. You’ll receive alerts every time you spend, notifying you of the amount spent and the remainder in your spendable account. In addition, you’ll earn cash back on every purchase. KOHO captures your spending in each category, allowing you to stay on track and reach your goals even faster.

Need a joint account? Want to schedule recurring electronic payments? KOHO has you covered there, as well.

Cashless Should Support Your Financial Aims

With so many options, how do you choose? Look for a solution that supports good budgetary habits. The best system would achieve the following:

  • Permit you to spend only what you have
  • Earmark your funds according to your budget
  • Track your spending and provide real-time balances
  • Monitor your spending habits
  • Set alerts and reminders that prompt you to…
    • stop spending
    • start saving or
    • celebrate the achievement of a budgetary goal

Follow the Same Rules as for Cash Spending

Even if you struggle with your finances, the cashless society can work for you. Just keep in mind that the same rules of financial literacy apply as when you use cash. You still need to stick to a budget. In addition:

  • Use the information that your cashless solution tracks to ensure that your budget is realistic.
  • Avoid the bad habit of moving money from one category to another.
  • Spend only as you planned. (So plan carefully.)
  • Establish an emergency fund. If you do not have savings for the inevitable emergency, one of your most important financial goals should be to create one.
  • Make sure that you pay your bills on time and in full.
  • Avoid running up credit card debt that can take years to pay off.
  • Stick to your budget and save for large purchases.

Using these strategies, your transition to cashless will be effortless. On the other hand, don’t hesitate to seek expert financial advice if you are:

  • Having trouble managing your current budget
  • Overwhelmed by credit card debt, or
  • Lacking sufficient income to meet your financial obligations

There is help available. And there is no better time to secure your financial future than right now. Call Adamson Trustee at 519-310-JOHN (5646). We’ll set up a free no-obligation consultation by phone or in person.

John Adamson, CPA, CMA

John is a Licensed Insolvency Trustee (1994), a Chartered Insolvency and Restructuring Professional (CIRP – 1994), and a Chartered Professional Accountant with a Certified Management Accounting designation (CPA, CMA – 1992). His experience includes more than 25 years of helping individuals, small businesses, their owners and even lenders, find solutions to their debt problems.

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