Introduction
Though credit cards make it easy to overspend, they also make it easy to keep track of and control your spending. If you have a hard time balancing your finances, there are many methods you can use to create a realistic and effective budget with a credit card.
General Tips
Most major credit cards group purchases by category and allow you to search through transactions and get detailed spending reports. This includes:
- The option of viewing spending reports for any given period of time within your account (ex. for the week or monthly)
- This allows you to not only devise a budget based off of when you get payed, but also make any necessary adjustments due to unexpected expenses
Establishing and Estimating Your Expenses and Income
Expenses
A good way to do this is by making a note of everything you pay each month, including:
- Mortgage/rent
- Insurance payments (auto, health, home, etc.)
- Utilities
- Cable, phone, and/or internet
- Food
- Non-essential purchases
It is important not to dismiss small purchases, as these can add up quickly. If you are not actively paying your credit card balance off, you must include an additional charge for interest from the card issuer. Try your best to avoid this by paying the account balance off at least once or twice per month.
Income
Calculate exactly how much income you generate each month. This includes your base salary and any extra money you have from other sources. It is a good idea to consider how often you get paid, so that you do not end up with bills you cannot cover before your paycheck.
- For example, if you know your next paycheck does not come until the end of the month, do not schedule any major expenses on the last week of that month
- If this happens, you can easily get behind on your bills
Comparing Expenses and Income
The next task is to analyze your income versus your expenses. If your spending is more than your income, it is likely that you will run into debt. However, if your income is greater than your spending, you should end up with money left over.
There are services available that can do this for you and make it easier to see where you are overspending. The difference between the two values will show the excess/inadequacy of your funds. When considering your budget, it is always a good idea to set aside a contingency fund for any unexpected costs that you may incur.
Some of these service capabilities include:
- Grouping your expenses by category
- These can include retail shopping, dining out and other food costs, rent, and insurance payments
- Some of these programs allow you to set a budget per category and may even notify you when you are approaching the set limit
Alternately, you can do it yourself by going through your bank and credit card statements:
- Group your purchases into your own categories and calculate the total for each month in each category
- You may want to use the same or similar categories that are generated automatically by credit card services, but you may want to use others instead
- Compare the values to see where and on what you are spending the most money and make any necessary adjustments, such as wanting to shop online less
Both of these methods have pros and cons. Using services is:
- Quicker and easier
- But there is always the chance that programs will make mistakes:
- They could input incorrect values or group expenses into the wrong category
- Though these problems are uncommon, it’s not a mistake you want to make
Conversely, doing it yourself has its own pros and cons:
- It is more thorough because you have the ability to nitpick through your expenses
- However, it is tedious and takes much longer
Conclusion
The bottom line is that looking at a visual breakdown of your expenses is the most effective way to determine your budgetary status. Your goal, whether you are in debt or have surplus, should always be to save money and cut expenses.