Can Credit Cards Make Your Budget Work Better?
We all love our credit cards, but it’s easy to overspend if we’re not careful. But, do you know you can manage your budget by using credit cards?
Although it may sound unusual, it’s possible only when you keep your expenses under observation.
Why should you use credit cards to plan a budget?
As I’ve said at the beginning, credit cards are useful only if you can keep tabs on your spending.If you incur huge balances on your credit cards, your financial condition will become shaky. It’s because you’ll have to pay off debt.
Credit cards are useful for many reasons, like they:
- Help to improve credit score
- Protect your accounts
- Help you earn reward points and cash back
- Help to keep track of your purchases
- Help you in emergencies, and so on.
Credit cards: A reliable budgeting tool
So, what are we waiting for? Let’s find out how to make a budget by using credit cards:
1. Make a list of your expenses
Before you start planning a budget, make it a point to track your monthly expenses, which is easy if you use your credit cards. Many credit cards allow you to check your expenses according to transaction types like groceries, clothing or restaurants. Your card’s year-end summary will give a clear picture of your expenses.
If you can’t sort your credit card transactions, you can track your spending by using a budgeting software. As miscategorizations are common, make sure your transactions are categorized properly without any error.
2. Review your credit card statements at regular intervals
If you don’t keep track of your credit card transactions, you won’t be able to plan a perfect budget. Most importantly, reviewing credit card statements would help you stay within your credit limit.
If you go through your credit card transactions frequently, you can see how much you can afford to pay each month. For instance, if you’ve spent $40 more in the first week of the month, you must know you’ve to adjust $40 to stay within your budget.
3. Set up a monthly spending limit
The easiest way to manage your budget is to set up a monthly spending limit. For instance, if you’ve set your monthly spending limit to $1,500, make sure you don’t cross it. Keep track of your credit card transactions regularly. If you go close to the monthly spending limit on the 15th of the month, choose to curb other minor expenses. This way, you won’t exceed your spending limit.
4. Look for places to save money
Whether or not you’ve money left for next month’s expenses, you must look for areas where you can cut down your spendings. For this, you can use budgeting tools like Mint or Personal Capital, or you can check out last few months of your bank and credit card statements.
Once you find out where you’re spending more, you’ll be able to plan a more meaningful budget. The money you’ve saved can also be used to pay off your credit card debt.
5. Add your monthly expenses and compare them to your total income
Once you’ve listed all your expenses, you must compare them to your total income. If you import your credit card accounts into services like Mint.com or Personal Capital, the calculation will be done automatically for you. If you compare your monthly spending with your income you’ll find out the areas where you’re overspending.
6. Create a realistic monthly budget
Try to plan a realistic budget which you can follow with ease. It is crucial after you’ve come across the truth about your expenses. It’s better to reduce expenses from each category by few percents the next month.
For instance, if you’ve spent $800 on groceries the previous month, try to buy groceries within $650 from now onward. If this works well, then reduce it by another 5% to 7% the next month. If possible, recreate your budget every month on the basis of your expenses.
We don’t usually use credit cards to plan our monthly budget. But, the truth is, credit cards can become a useful budgeting tool if you can handle it properly.
Credit card statements are helpful in keeping track of your expenses. So, from now on, use credit cards to your advantage and make your finances happy.