When you think of budgeting, you think checking account – right? Well, did you know that you can stretch your budget by paying for your daily expenses and bills with a credit card? Credit cards can help you manage your expenses, build credit and earn cash back or rewards.
How a Credit Card Can Help You Budget
You may be wondering: Is using a credit card to create a budget responsible? There has always been a myth that many of us believe: you shouldn’t use credit unless you have to. However, believe it or not, credit cards can actually help you track your spending and can serve as the foundation of a simple budget.
Most people already use some form of plastic to make their purchases, so instead of putting all your transactions on a debit card, get into the habit of putting them on a rewards credit card. This simple change can make a huge difference in what you can get in return. Additionally, some credit cards allow you to use reward points for flying, store discounts, and even cash back rewards like those at KEMBA Financial Credit Union in Ohio.
As long as you can afford the purchases you are charging on your credit card, using a credit card can not only benefit you financially, but can also provide you with a peace of mind with perks such as travel insurance, covering any interrupted flights or cancellations. Other cards offer coverage for damaged rental cars or roadside assistance, which may help you eliminate other services like AAA.
Create a Credit Card Budget Spreadsheet
Now that you have a better understanding of the benefits of using a credit card, it’s time to use it to your advantage by developing a credit card budget worksheet. A budget spreadsheet can create a clear view of your current spending habits, while listing areas you should cut back on. Here are the three simple steps to turn your credit card statement into a helpful budgeting spreadsheet.
- Track Expenses
The beauty of making purchases with your credit card is that you are provided with documentation that reveals where your money is going. If you are using your credit card to handle your monthly bills and spending, you’ll get an itemized list on your monthly statement or right within your account, which can be easily transferred to your credit card budget spreadsheet. This will give you an overview of your spending history which will help as you develop your new budget. - Categorize Spending & Bills
Now that your expenses are laid out in your spreadsheet, it’s time to make sense of them. Some credit cards allow you to categorize transactions "by type" inside their app or website. If not, you can do this manually by creating a new category on your spreadsheet and labeling your transactions or use a budgeting tool like Mint. This allows you to see how much you are spending on certain categories and makes it that much easier to see where you are overspending. - Compare Spending to Income
Depending on if you plan to budget weekly or monthly, credit cards allow you to track your past purchase activity as often as you’d like to fit with your timeframe. It’s helpful to designate a specific day (e.g., last Sunday of the month) that you plan to total up these purchases to better keep track of them. For further understanding of where you stand financially, add up your expenses and compare this number to the final total of your income. If your monthly spending is lower than your income, you are doing something right! You may even want to funnel some more money into a savings account to build an emergency fund. - Make Adjustments
Credit cards actually have a built-in budgeting tool, which allows you to set up any necessary spending limits. This will prevent you from overspending each month and can even be customizable to your budgeting needs. Perhaps your credit card spreadsheet makes you aware that you are overspending on groceries. In this case, you can use your credit card to limit your spending specifically on your groceries so you can continuously improve your finances, or you can outline how much you want to spend in certain categories on your credit card budget worksheet.
Advantages of Creating a Credit Card Budget
Creating a credit card budget is not only easy, but extremely helpful to your financial health. It only requires one checking account, it budgets your spending accurately, it racks up loyalty points based on your spending habits, and as a result, it brings more cash flow into your wallet.
As a rule of thumb with any credit cards, you should always make sure you can pay off what you spend each month so you don’t go into debt, you should pay your bill on time each month, and only utilize up to 25% of your credit limit to keep a healthy credit score.
Now it’s your turn! Create your credit card budget spreadsheet to better keep track of your transactions and reach your financial goals. For any further assistance, please contact a KEMBA representative today.
