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Can a Credit Card Be Used for Budgeting?

May 16, 2017

Credit cards are usually looked upon as a spending tool. In fact, that’s one of the reasons why so many people are scared of them. However, did you know that this piece of plastic, if used wisely, can help you save money instead? Yes, you read that right! Credit cards can be used to create a budget and help you to stick to it. This way, they can be instrumental in increasing your wealth, instead of diminishing it.

There are two reasons why credit cards are invaluable when it comes to budgeting. Firstly, cards help you distribute your income and spending requirements across the month. This is because you get 30 days to pay, and on an interest-free basis.

Secondly, before you start budgeting, you have to know how much you’re really spending on various categories. Credit cards can help you understand this detail easily. In fact, some of these instruments come with online tools through which you can chart your expenses by type, such as restaurants, groceries, clothing, and so on. This way, you can get a clear idea regarding how much you’re spending in which department. Else, you can simply scan your last year-end card summary to get a snapshot of your spending habits.

Once you’ve analyzed how much you’re really spending, the next step is to compare it with your income. This will help you decide whether you should maintain your ongoing trend or create a stricter budget. 

If your monthly expenses tend to be higher than your income, you’re probably in deep debt, or soon likely to be. To turn this situation around, first identify problem areas or places where you can afford to cut down on your expenditures. For example, if your monthly income is $4,000, and you spend $400 on eating out, you can reduce your monthly bills by budgeting your expenses in this category (say by limiting it to $200). Once you’ve decided on your budget, make sure that you stick to it by reviewing it on a weekly or monthly basis. Another option is to set up a monthly spending limit that will ensure you don’t exceed the predetermined amount.

Weekly or Monthly Review

Set aside a day on a weekly or monthly basis to total your expenditures in each category and compare them with your budget. The main benefit of using a credit card to track your expenses is that since all your purchases are listed online, you don’t have to keep receipts. The more frequently you track your expenditures, the easier it will be for you to ensure that you’re not racking up more balance than you can afford to pay off. For example, if during the first week of a month you realize that you’ve overshot your budget by $300, you’ll know that you need to reduce your expenses by the same amount over the next three weeks.

Monthly Spending Limits

Another way to stay on budget is to establish monthly spending limits. For example, if you have established $50 as your daily expenditure for groceries, gas etc., make sure you keep your expenditure well below this limit. In fact, you can even consider lowering your credit limit to this amount to ensure that you don’t exceed your budget.

In order for credit card budgeting to work, you should keep two things in mind:

  1. Make sure you pay off your bills at regular intervals so that you don’t end up accruing a balance on which you have to pay interest.
  2. If the budget is established for the entire family, ensure that you are aware when another family member makes a purchase in a particular category, so that you can adjust your spending accordingly. If there are two cardholders or more within the same family, this goal can be accomplished through online account access.

Thus, by using credit cards, you can not only see where your money is going, but also budget your expenditures and save money effectively.

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Ari Page Ari Page is the CEO of Fund&Grow. He resides in Spring Hill, Florida with his wife and two children.

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