On a similar note...
On a similar note...
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With the way they allow you to buy now and pay later, credit cards can make it easy to overspend. But with the way they allow you to track and monitor your spending, they can also be a fantastic tool for budgeting, and therefore controlling your spending.
Using credit cards as budgeting tools is a good idea for several reasons. Responsible credit card use can help you build excellent credit. If you have a rewards credit card, you'll effectively get a discount on every purchase in the form of cash back or points. Plus, most major credit card issuers classify purchases by category and let you search transactions and get detailed spending reports.
Before you can create a realistic budget, you need to know how much you’re spending. This is easy to track with a credit card. It's pretty much standard now for issuers to classify your purchases by category, which you can see when you log into your account online. For example:
For a larger snapshot of spending, many issuers provide annual spending reports, or you can create custom reports for any time period within your online account. For example:
Once you figure out how much you’re spending, you can decide whether you need to create a stricter budget. Either way, you can use your credit card to manage your budget by either reviewing your transactions on a weekly or monthly basis or setting a monthly spending limit that you don’t exceed.
If you operate on a weekly or monthly budget, check your purchase activity and card statements at least that often to stay on track. Each week or month, have a specific day when you total up your purchases in each category to ensure you’re staying within your self-imposed budget.
The more frequently you go through your transactions, the easier it will be to make sure you don’t go over what you can afford to pay off each month. For instance, if you went $50 over budget during the first week of the month, you know you need to adjust your budget by $50 sometime during the remaining three weeks.
Setting a limit
For a simpler way to stay on budget, set a monthly spending limit. For instance, if you've budgeted your daily expenses — like groceries, gas, clothing and more — at $1,000 total, put everything on your card and keep your monthly balance below that amount. This is great for flexible budgeters who are more concerned with the bottom line than the specifics.
If you go this route, it’s a good idea to check your overall spending at least once a week to ensure you’re on track. So if your monthly limit is $1,000 and you're at $600 on the 15th of the month, you need to keep your remaining monthly spending at $400 or less. And, of course, adjust your monthly spending limit as necessary when you have irregular expenditures, like your six-month car insurance premium or a vacation.
Make sure you pay your balance in full by the due date. Otherwise, you'll be charged interest — and that's something no one wants to budget for!