Budgeting with a credit card may seem like a contradiction in terms. But using a credit card can actually be very beneficial to your financial plan.
Responsible credit card usage can build your credit and will likely save you money next time you purchase a car or refinance your house. That improved credit score may get you a better interest rate. If you use a card with rewards, you could save on each purchase. If you maximize your grace period, you can also give yourself a few more weeks of wiggle room in your budget.
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But like any other budget, a budget with a credit card needs to be intentionally developed. Your financial situation and comfort in using credit cards will help guide the development of your plan.
Track Your Spending
Keep a Record of Everything
In creating or maintaining a budget, it's important to track your spending. Variable costs like groceries, gas and eating out can be difficult to accurately estimate. Instead of guessing, keep a record of every expenditure for the month. You can collect your receipts, keep a written log or use a spending app. Don't rely solely on your credit card statement since some purchases may be cash or electronic transfers.
Categorize Your Spending
Now divide those expenses into key categories. The number and specificity of the categories is up to you. Be careful not to make it too complicated.
This concept pushes back against the idea of saving what's leftover. Paying yourself first means that you contribute a set amount to savings for emergencies, college, or retirement at the beginning of the pay period.
Emergency savings create an extra buffer when the unexpected happens. If car or home repairs occurred unexpectedly, having additional savings can help you cover all or a larger portion on that credit card statement.
Calculate Your Expenses
When creating a budget, begin with all your fixed expenses like your mortgage or rent, car payments, daycare costs and insurance, if you pay the same amount each month. Make sure you also account for any debt payments including student loans and credit cards that have a balance.
Make a Plan for Debt
If you carry a balance and are trying to pay down debt to reduce interest, make a plan for any additional payments towards your principal.
