Having your first credit card comes with a lot of mixed emotions. It brings both a sense of pride from getting approved and a hint of uncertainty if you’re not sure how to use it. Pros and cons aside, many don’t realize that credit cards can be a great tool for budgeting. So, whether you’re a new credit card holder or an experienced consumer, there’s something for everyone to take away from this article to better their financial management skills.
Start a Budget
Just because you have a credit limit up to thousands of dollars available, doesn’t mean you should use it. That’s why the first step to managing your balance is to create a feasible budget. Tracking expenses, personal spending and bills can be a tedious task, but we’ve simplified the process to help you stay on track.
List all of your expenses
First things first—add up all of your expenses. This means everything that you pay for on a monthly basis, including your mortgage or rent, utilities, groceries, car payments, insurance, phone bills and others. If you already pay most of these through a credit card, you can easily access a breakdown of your payments in your credit card statement. Referencing your statement can help remind you of small expenses you otherwise would have forgotten to include.
Compare expenses to your income
You should already have an idea of how much you spend month-to-month, and hopefully, your expenses total less than your income. If not, then your budget’s primary focus should be to pay off debt.
By understanding your expense-to-income ratio, you can determine how much you should spend on your credit card, and how much you should set aside for different forms of payment like cash or direct withdrawals.
Minimize your spending
Tools like Mint or Personal Capital help you create a digital budget by categorizing your expenses for you. So, while you might think you’re spending $200 on entertainment each month, budgeting services like these could give you a more definitive answer. With access to your daily purchases, these budget tools allow you to set limits on certain categories and alert you when you’re reaching your limit.
Track Your Spending Throughout the Month
Now that you’ve created a budget, the key to managing your money is to stay in control of that budget. This could take time, maybe even a few months—but the key is consistency.
Be wary of impulse purchases and how often you’re swiping your card. If you’re not willing to pay for something in cash, then swiping your card shouldn’t be any different. Stick to this rule of thumb and you could find yourself putting some extra money back in your pocket for savings.
Another tip is to check your credit card balance and activity often to make sure you’re in line with your goals and more importantly, not a victim of fraud charges. Most Credit Unions offer a notification setting that sends alerts every time you charge your card. This rids the “out of sight, out of mind” approach and puts your budget at the forefront of your everyday decisions.
Pay Off Your Card Monthly
Part of what makes budgeting through a credit card effective is paying off your credit card monthly. If you decide to carry over a balance, it’s best to do it with a credit card that offers a low interest rate. Racking up interest fees could deter you from staying in budget, defeating the purpose of using credit cards for money management.
Use a mobile app to access your credit card balance and stay on top of your activity and payments. While we’re not all programmed to pay off our balance on a set day of each month, your credit card services are. So, be sure to take advantage of autopay and set up a time and date that works with your pay schedule, or create the habit of paying off your credit card on each payday. This will help you determine how much you’re spending monthly and how much you’re putting into savings.
Once you’ve mastered the art of budgeting, it’s time to reward yourself (without dipping into your hard-earned savings). The biggest perk to budgeting with a credit card is accumulating the rewards along the way. Many credit cards will reward you for everyday spending, whether it’s dining out or buying gas. And just by getting 2% back on daily purchases, you could earn back enough to put toward your balance, a loan, or your savings. Whether your card offers cashback or miles for travel, your rewards should help you save money in other ways while motivating you to maintain healthy financial habits. Check out Go Energy Credit Union’s credit card options or explore some of the best-ranked credit cards of 2020 to start managing your money.