Happy almost-240th birthday, America! It’s just the dog and me at home for a couple of days, and I took myself out to dinner at a favorite restaurant last night: The Vegetable Garden. I ordered my delicious meal and then remembered something: there’s a 10 percent discount if you pay in cash. And there’s a Capital One ATM right next door. So I took home an extra couple of bucks with my leftover Chinese food. And I started thinking about other ways that paying cash can put us ahead.
We are a nation of debtors, with the average household owing north of $7,000 in credit card bills.. Today’s lifestyle tip should only apply if you’ve got money in the bank: you’re free from high-interest debt, have an emergency fund of a few months’ savings available in case of a job loss and have some other, unrestricted savings you can use.
I’m generally not a cash guy. You’ll rarely find me with more than $20 in my pocket, unless I have to pay a babysitter or am about to make some sort of unusual purchase. I like using my debit card because the expenses are easier to track in Mint. I feel safer knowing the money’s in the bank until I need it. For large expenses, we use our Chase Southwest Rapid Rewards Visa card and get airline points. Still, there are exceptions, including my dinner last night.
For many vendors of products and services, paper currency is the best way to get paid. The money’s right there, immediately upon sale. It must be bundled and deposited in the bank, but there’s no charge for doing that. Compare this to accepting a credit card: you pay your merchant bank a transaction fee of several percent, and you get paid periodically but not immediately. In short, it costs you money to get paid by credit card.
Many of us have offered up a credit card at the end of a taxi ride and heard grumbling in return. Swiping takes time. The driver has to pay a fee, so the fare isn’t as lucrative as a rider who pays cash. Customers don’t like it when vendors pass along their “swipe fees” and doing so isn’t legal in every state. So here’s the good news: some merchants will offer a discount for cash payment, or any payment that’s right up front!
Example 1: Cash for Ballet School
Our 7-year-old daughter is about to start her third year of weekly ballet lessons during the school year. It’s not a cheap class. The provider wisely recognizes that ballet is an attractive extracurricular for lots of families. It offers an interest-free payment plan for those who want to stretch out the tuition over the course of 10 months instead of paying it all up front. We did this last year, in fact. But this year, we looked at the options and realized there’s a 10 percent discount for paying up front — and you can do this with a credit card! I don’t know of another investment with a 10 percent payout over 10 months and very low risk. So we jumped on it this time.
We simply put the upfront tuition on our credit card, and will pay it out of our savings account when the bill arrives next month. Then, for the 10 months of the school year, we’ll simply pay ourselves the installments we would have paid the ballet school by putting the money back into our savings account. At the end of the school year, with little effort, we’ll be in the same place we would have been with the installment plan. But we’ll have paid 10 percent less for class.
Example 2: Cash for Before and After Care
XY’s before and after care provider, Kids After Hours, is outstanding. We’re so grateful for the ability to start and end her school day in line with our two working-parent schedules instead of just 9-3:30. She’s made friends of different ages at KAH and we’ve found several babysitters among the staff. A high-quality operation that just happens to be a locally-owned small business. The only downside: it’s expensive!
Like the ballet school, KAH offers interest-free tuition payment over the course of the school year. This is a wise move — before and after care is probably the highest monthly bill aside from housing for most families, especially families with more than one kid. But KAH also offers a significant discount for upfront payment. You save 5 percent for paying the whole thing, and 2 percent if you pay half.
We didn’t take this one on in kindergarten or first grade, though we’re considering it for second. There are downsides. First, no credit cards. The money must be withdrawn electronically from a bank account, so we’d forfeit all of those Southwest points. Second, that’s a significant chunk of our savings to pull out initially and put back in gradually. Third, paying for KAH is already slightly complicated. I receive a portion of the tuition back each month from my dependent-care flexible spending account* at work. There would be a little more bookkeeping involved. So it wouldn’t be a worry-free, effortless endeavor, but saving several hundred dollars during a school year might make it worthwhile. We’ll see.
*If you have school-age children, both parents work outside the home and you don’t have one of these things, get one. It’s free money! You can contribute up to $5,000 a year pre-tax, split up among your paychecks. The plan then reimburses you for child care expenses. Some employers will even match what you put in.
Paying up front isn’t a foolproof or risk-free strategy. You have to have the money in your savings to begin with. You have to be comfortable with it not being there for a few months while you’re restoring it gradually. If you have an unexpected relocation or job loss, you may have a harder time backing out of a contract or getting a refund if you’ve already paid your entire balance. But as long as you understand these risks, you’ll put yourself ahead in a way that you couldn’t if the money were just sitting there. And there’s certainly no harm in using cash to save money for small purchases.
Have you ever taken advantage of a cash discount? Where and how?
Also published on Medium.