If you need to stick to a budget, the best way to pay for goods and services is with cash, according to a growing body of research.

New Australian research has found that cashless payments are associated with higher levels of consumer spending compared to cash transactions. This is called the “cashless effect”.

And the cashless effect applies no matter what kind of payment method you are using. It doesn’t matter whether you use a credit card, debit card or buy-now-pay-later – you are likely to spend more money using any cashless method, compared to when you use cash.

More importantly, you're more likely to overspend your budget if you're paying with cashless payment methods, because the psychological "pain of paying" is lower with cashless payments.

Yes this is a psychological effect but the research suggests that the 'pain of paying' is real. Our brain creates actual pain signals when we have to hand over cash, leading us to avoid handing over more than is absolutely necessary.

Australian researchers Lachlan Schomburg, Alex Belli and Arvid O. I. Hoffmann from the University of Melbourne and the University of Adelaide explain that when using cash you "have to physically count out notes and coins and hand them over. Humans seek to avoid losses, and paying by cash sees us physically lose a tangible object.

"Conversely, nothing has to be handed over to pay cashlessly. We don’t lose anything tangible with a swipe or a tap, so it feels less painful.

"Preliminary neurological evidence suggests that the “pain of paying” isn’t just an abstract metaphor, we may feel actual psychological pain. Research employing functional magnetic resonance imaging (fMRI) scans to observe brain activity in consumers has shown that paying activates brain regions related to experiencing psychological discomfort."

Currently millions of Australian consumers and businesses are experiencing a "cost of living crisis."

As the cost of basic goods and services rises faster than incomes, budgeting and spending control becomes more and more important.

"The cost of living crisis has made spending control front-of-mind for many people. Our meta-analysis suggests that returning to “cold hard cash” whenever possible could be one valuable tool to help," say the researchers.

"The increased friction felt when using cash could help people better control their money, even just by providing a moment to pause and consider whether a transaction is necessary."

There's also plenty of research suggesting that we make improved purchasing decisions when we use cash as well. Personally, I lost weight when I switched back to cash and stopped tapping my phone to make all my food and grocery purchases.

“Consumers are more likely to buy unhealthy food products when they pay by credit card than when they pay in cash,” reported Manoj Thomas, Kalpesh Kaushik Desai and Satheeshkumar Seenivasan in Oxford University’s Journal of Consumer Research way back in 2010.

“Results from four studies support these hypotheses. Analysis of actual shopping behaviour of 1,000 households over a period of 6 months revealed that shopping baskets have a larger proportion of food items rated as impulsive and unhealthy when shoppers use credit or debit cards to pay for the purchases.”

So if you want to keep on top of your spending, your weight and ensure you're making healthy choices, carry cash and use it.