The word “budget” tends to get a bad rap. Maybe because it seems daunting, time-consuming, stressful … or all the above? But what if using your credit card to track your spending could help you stick to a budget but still live a spreadsheet-free life?
Step 1: Use your credit card for all purchases
The first step in building your budget? Know where your money is going. The average American visits an ATM roughly seven times each month and withdraws an average of $60 each time.1 And consumers who use credit cards have 3.9 cards on average.2 Relying on cash and multiple debit or credit cards can make it very tricky to know exactly how much you’re spending on what, and even harder to budget. Using a single form of payment, when possible, can help you consolidate your spending and give you an easily accessible record of every transaction.
By using a credit card (pick just one) to track as much of your spending as possible, you’ll have a digital record of your items purchased. Note: Some of your bigger recurring bills, like your mortgage or car payment, may not accept payments by card—or might require a processing fee to do so—so you will need to account for those separately.
At the end of the month, you can quickly tally each spending category to see where you’re killing it (grocery budget on point!) and where you need to rein it in (like when happy hours turn into happy evenings, perhaps?). Try to get specific, limiting the “miscellaneous” category to no more than 10 percent.
Some categories are fixed expenses that shouldn’t really budge—say, your internet service or car insurance—but for the rest, tracking everything in one place makes it easy to see exactly how much you’re spending each month. The total numbers may surprise you. Frequent ride-share users spend nearly $4,100 per year on the service, for example, while the average American spends more than $1,800 annually on clothes.3, 4
Step 2: Adjust as needed
With your spending insights at your fingertips, you’re better equipped to start the next month with a plan of attack—an idea of where you may need to cut back to reach your money goals. If you’re not into setting up spending limits by category (dining out or charitable donations, for example) then just come up with a total monthly amount for all expenses that you won’t exceed. Hint: This will probably be the fixed expenses we already discussed, plus a conservative estimate for all other line items.
Use your credit card whenever you can. If you have a card with a rewards program, you’ll not only be tracking your spending in one place; you’ll be racking up points along the way. Just be sure you’re not spending more than your budget allows, because your final and most important step is paying off your credit card on time, every month.
It may take a little time to adjust to your new budgeting system. At first, you’ll want to check your online credit card activity every week or so. For a longer-term view, ask your credit card provider if they publish annual spending reports, which you can use to review your habits. If you’re spending more than you thought, it’s time to cut back. If you’re right on track, congratulations. Enjoy the peace of mind that comes from sticking to a budget (and the free time you get by making it simple).