Budgets are great… for some people. Creating a spending plan by looking at all bills and regular payments can give you a complete picture of your spending and saving habits. And sticking to that plan can really help you keep your finances in check.
But let’s face it: Traditional budgets aren’t for everyone. For some, even the word “budget” fills them with dread. For others, such as freelancers and contractors, unpredictable income and random one-off expenditures can make traditional monthly budgets difficult, if not impossible.
Don’t worry, though: This doesn’t mean you’re stuck in an endless loop of unknown financial outcomes. If creating a formal spending plan isn’t for you, there’s an alternative solution that, at first, might come as a surprise: Use your credit card as a financial planning tool.
Credit Card as a Budgeting Tool
Sure, we talk a lot about credit card pitfalls. And we stand behind our conviction that there can be many! When used irresponsibly, credit cards can make it easy to overspend, which paves the way to high-interest debt, a lower credit score, and increased financial worries.
On the other hand, responsible credit card use (as in, paying on time and preferably in full) helps you establish a solid credit score and a sturdy credit history. When you learn how to manage your card use responsibly, that little piece of plastic in your wallet can do a lot for your financial well-being. In fact, it can be more than just a spending mechanism. You can actually use your credit card as a means for saving!
Using your credit card to help budget your funds works well for a lot of reasons.
Too much cash on hand. One common budgeting suggestion is a “petty cash” system: The idea is to take out a set amount of cash, then stick to that amount to limit your spending. But it can be inconvenient to carry cash around. Plus it’s hard to track every little expense when you’re paying cash. If you’re not good about keeping receipts and logging them into a spreadsheet later, you can essentially kiss this plan goodbye. It’s easy to forget a dollar here and five bucks there – until you realize you’ve spent $20 and can’t remember what you bought.
Know what you’re really spending. Your credit card makes it easy to track spending and review transactions. Most online portals now offer easy ways to track and categorize your spending habits, and many lenders provide end-of-year summaries for a big-picture snapshot of your spending.
Don’t forget your rewards. To attract and keep customers in today’s competitive credit card market, lenders have learned to spice up the deal. Many credit cards offer rewards to loyal customers. But when you use cash, you don’t accrue rewards. Whether you opted for your credit card to earn cash back, rack up airline miles, accrue hotel loyalty points, save for your next car, or some other personal benefit, chances are good that your account is working for you.
Pay early and often. A good strategy is to pay off your balance weekly. If weekly payments sound like a no-can-do, consider every other week instead. The more often you pay, the less likely you’ll end up with a large balance at the end of your billing cycle.
Take a breather. While you shouldn’t make a habit of it, using your credit card can allow some wiggle room during financially tight spots. You essentially have 30 days without interest to figure out how to manage cash flow to cover a big expense. Also remember that many lenders allow you to establish your own payment collection date. If payday is always on, say, the 15th, contact your credit issuer to ask about setting your due date on the 20th to make sure funds arrive in your bank account before you need to make your payment.
Don’t Skip the Weekly Review!
Even if you don’t opt for a weekly pay-off, at least check your online statement once a week to rule out suspicious activity. Reviewing all your transactions from the past week can point out places you can trim back. This keeps you flexible and helps you adjust your spending throughout the month. If Week 1 was a high-spend week, keep that in mind for Weeks 2 and 3 as you’re considering another purchase. Perhaps you’ll decide it’s wise to hold off on that new bowling ball until next month.
Schedule yourself a regular review time each week. Block that off your calendar, and set an alert to prevent yourself from forgetting. You might try first-thing Monday before starting your work week, over lunch on Wednesdays, or end of the day on Thursdays as you begin winding down your work. Obviously, find a time that works best for you – and stick with it.
Remember, your finances are your business. But helping you get a stronger handle on your finances is ours. If you’re struggling to find a budgeting solution that best fits your lifestyle, the financial experts at American Credit Foundation can offer guidance and suggestions.