Can You Budget with a Credit Card?
Credit cards are such a common form of payment in society today that it’s rare for someone not to have a credit card. But can having a credit card help you balance your budget better? Or do credit cards just cause more budgeting blunders?
Max Cash® is here to help you learn how it works.
What Does a Balanced Budget Look Like?
A balanced budget is a phrase often heard when it comes to dealing with financial issues. But the meaning of a balanced budget can be confusing to those new to the lending process. To help clients of all experience levels, we’re going to go over what exactly the phrase means before we get to the part about achieving it.
A balanced budget is a rather simple concept. Broken down to the most basic terms, it’s a budget in which your spending is equivalent to or exceeded by your income. The use of the word “balanced” is a bit of a misnomer in this case. In the end, it refers more to the stability that comes with having this kind of budget than it does the actual balancing of funds.
That is generally the goal of having this kind of budget though: stability. Your budget falling out of balance means you’ve spent more than you’d normally be able to afford. Continued imbalance of your budget can result in significant financial distress, so it’s important to try maintaining balance.
How Credit Cards Can Help Balance Your Budget
Credit cards have aspects to them that are helpful for budget balancing. Some of those aspects will passively assist you when it comes to balance, while others will require a more active approach. A few of those aspects are:
- Tracking- One of the biggest assistances credit cards provide is a guaranteed way to track spending and totals. With cash, you’d have to keep track of your own spending statistics: when, where, and how much. But with credit cards, every charge is tracked online on your provider’s website, letting you chart your costs.
- The Payment Delay- Unlike other types of funding, credit card charges don’t take out of your account immediately, only coming due after 30 days. Seeing as how most types of income occur either weekly or bi-weekly throughout the month, this allows clients to build up funds before their payment is due.
- Rewards Systems- Many types of higher-end cards end up having rewards systems included as part of the package, which can directly help your budget balance. Most common are cash-back and points programs, which reward you for paying off bills regularly with a point conversion. These points can then be used to make purchases or even be converted back to money.
- Inherent Benefits- Some varieties of cards, like travel cards, have bonuses you can get just from being an owner. These benefits can include everything from fraud protection to free entry at certain kinds of establishments, like museums.
Budget with a Credit Card: the Game Plans
The benefits we listed in the prior section won’t help you much if you don’t have a plan laid out to make use of them. There are all kinds of different possible paths you can take to plan your financial life.
Picking the right method for your specific situation can be just as important as picking out the right type of credit card. Let’s cover some common strategies and what makes them so effective.
- Spreadsheet Method- If you’re a whiz in Excel or Google Sheets, this is the method for you. Before each month, the spreadsheet method allows you to divvy up your expected income amongst your planned expenses. All of this occurs before you even spend a cent. Then, throughout the month, you track your actual expenses. Comparing the two can help you know where to make improvements.
- The 50/30/20 Method –This method allows you to give yourself hard limits when it comes to your credit and spending, by giving you hard number categories for your income. 50% of your income goes to required payments, like bills. 30% goes to desires and splurges. The final 20% goes into your savings, helping to build a stable foundation.
- The Reverse Budget- This one can take a bit of fine-tuning to get right, but does away with all of the math. Instead of covering expenses first, you determine how much of your income goes to savings immediately. The rest is all you’re allowed to use for your remaining monthly costs.
- Online Budget Sites- There exist multitudes of different budget assistance websites, each with different specialties and offerings. Check out this handy list of options and give them a shot to find out which one is the right one for you.
Learn How to Budget Today
As you can see, there are all kinds of different ways you can get your budget perfectly balanced, as all things should be. Make use of this advice, and as always, stay tuned to Max Cash’s credit card section to keep learning about how to get the most out of your credit card.