Monday, May 8, 2017

Wealth: One Card Budget

Keeping a bunch of envelopes around the house or at arm’s reach can be a pain in the Kim Jong-Un. It’s one of the primary reasons that the envelope system of budgeting is hard for some people. If you don’t have the luxury of carrying around a purse or a man-bag (AKA: a satchel, AKA: Indiana Jones had one), keeping track of the envelopes can really be enough in itself to stop someone from using that way of budgeting. That’s why I offer an alternative to the equal to zero budget. The alternative is what I like to call the One Card Budget. With this budget, one can easily manage their expenses, track their spending, and make money by spending money.

The budget itself revolves around one simple rule: put everything on one credit card. I know; it seems a bit wild to be talking about savings and credit cards in the same sentence but it works. In fact, it works just about as well as any cut scene in a Marvel movie where Stan Lee gets five more seconds of fame. The best part is that it’s one of the easiest out there to keep track of.

In order to use this budget, one must simply open (if you don’t already have one) a credit card that is most specifically a point credit card that can redeem points for cash back (or simply a cash back card). There are a ton of them out there. Whether it be through the big banks such as Citi or other smaller banks, the card itself doesn’t really matter as long as it does a few things well. Those few things need to be:
  • It allows spending to accrue points that can be redeemed for cashback/credit to your standing balance or it provides a simple cash back percentage
  • It has no annual fee
  • It is accepted most places everywhere

It is important to remember that a point credit card is not always free. That’s why I stress the fact that it needs to have no annual fee. There is little point in stacking up points if you’re going to have to pay it back on an annual fee. Cards that charge you to use them beyond their interest rate on standing balances are the equivalent of mold. They will slowly grow and grow until you realize later how much damage they’ve done. Also, make sure that it can be accepted everywhere. I find that Visa and MasterCard are best for this (at least in the USA). Cards such as Discover and American Express, while backed safely and managed efficiently, can be denied at certain locations and can hinder this type of budget.

Once the card is set up or one is chosen that is already pre-existing, one can simply start placing every one of their normal purchases on that card. Here’s the catch: anytime you spend something on the card, you have to add it to an ongoing list that you have running on your phone, in your pocket on a piece of paper, in a notebook, or whatever you want to do. Just make sure that the list is always present and cannot be left somewhere. It has to always be accessible and basically hovering over your head. This ongoing list will help keep you accountable for your spending and it should help to serve as a buffer those who have a hard time using cards too frivolously.

Once you have both of these items, the card and the ongoing list, you are ready to start the month. Proceed normally through your life but make sure to place every purchase that you would normally make on the card. Each time you purchase something, add it to the list. Once you’ve reached the end of the first day, look at your list. Do you notice any big items that you didn’t need but just bought anyway? Do you notice any small items that you bought a lot of but add up to be a lot when combined? Did you buy seventeen Kickstart energy drinks and subsequently hear the sound of your heart slamming into the wall next to you? Review what you’ve spent and try to locate items that you really don’t feel good about having purchased. Then, the next day, do the very same thing but attack it with the knowledge of what you spent money on the day before. Then, once that day is over, check your list again. Did you buy the same stuff? By keeping track of your items like this, you can easily hone in on what your spending habits are and attack the bad ones.

Continue onward for the rest of the month but try to be adjusting your spending habits as you go. Each day, try to ask yourself if you really need what you’ve been spending money on or if you could forgo that item. Onward you move but with a better understanding of what you’re doing and by the end of the month, you’ll have a fully compiled list of what you actually spend money on. Sit down with the list and analyze it. What were you spending at the start of the month that you are no longer spending money on at the end of the month? What are you spending at the end of the month that you see on your list and feel embarrassed to admit you continue to spend money on? What on your list of items that are still being purchased are actually worth your money and can be used again and again?

Finally, tally all of what has been spent and then breakdown your monthly income. Take your total monthly income and subtract what you’ve placed on the credit card from it. Next, take the points that have been made on your points card and apply it to the balance. Is the resulting number positive? If so, congratulations, you’ve managed to save money this month and you can use the resulting funds to either pay down debt, invest in your future, or place it in a savings account. If on the other hand, you have a negative number, you have taken a loss this month. If you’ve taken a loss, it’ll be a good idea to look through your numbers and see what you’ve been spending too much on. What can be cut out of your spending? Can you add a side-gig to bring in more income?

Or, you could also ask yourself if this budget is really for you. For some people, it will not be the right fit. That’s why there are many different types of budgets available. The art of budgeting is not a one size fits all. What works for one person may not work for another.

Regardless, this budget can be incredibly beneficial for numerous reasons. The primary reason this can be successful is that it places all of your spending habits into one place. That means that you have increased awareness of where all of your money is going. Secondly, it uses credit cards to produce money with the cash back feature. This allows you to make money from the credit card that can be seen as another income source. That of course assumes that you are paying off the full balance each month which is suggested as leaving a balance on the card defeats the purpose as an interest charge would be placed on whatever wasn’t paid. Lastly, keeping track of your spending as you go with the notebook/list should keep you from getting yourself into credit card trouble.

It isn’t without its downfalls though. Placing all of your purchases on a credit card can be dangerous and can quickly get out of control without the proper oversight. That’s why it is important to keep track every day of your list if you are to attempt this budget. I cannot stress enough how horrible this can go if one simply starts to purchase things that they wouldn’t normally have purchased with the false expectations of what they are doing. There is nothing worse in my opinion than credit card debt as the high interest rates can place a person in a hole that is nearly impossible to get out of. Only place on a card what can safely be paid off when the full balance is finalized at the statement date. If you have even a single suspicion that this could happen to you, do not attempt this budget. This budget is best suited to individuals who aren’t in debt but rather have an issue saving money and want a way to optimize how they attack the art of saving.

In conclusion, the one card budget can be a fantastic tool that can fully optimize one’s saving ability. It helps track spending, earns points that can decrease what is owed on what was spent, and it places all of your spending into one space where previously hidden bad spending habits can be identified. However, it can be a foe to those who are already in debt or those who have an issue mindlessly spending beyond their own limitations.

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