Using credit cards with the system
I’ve gone through this one thoroughly, as I’m a sucker for a good credit card deal. I see three potential places for credit cards in this system.
- Living Expenses
- Planned Expenses
- Big Purchases
Living Expense
First, let’s just assume that your credit card of choice has a 2% cashback value. Let’s also assume you spend about $1000 a month on random living expenses. Simple math tells us that your putting 12,000 a year on your card. 2% of that is $240. All we have to do is spend $240 more than we normally would and the benefit this card has given us is moot. If you are putting a grand on your card every month, chances are your going to overspend your living expense budget by more than $20 a month.
Also, there isn’t really a way to give yourself an adjustable allowance between your cash and your credit card. You could spend cash and then spend on the credit card. You would then have to check 2 balances to see how much you’ve spent. It’s just not simple.
Planned Expenses
There are a few bills you can put on a credit card. These include cellular bills, telecommunications (cable/internet/phone), some utilities, some autoinsurance, etc. You can be pretty sure you can’t put your mortgage or auto loan on your credit card (probably your biggest expenses). So let’s say you can put $400 a month on that same 2% cashback card. That’s a total of $4800 a year and $96 cash back.
That’s a free $100 a year, plus you get to consistently hang onto your interest earning money an extra 30 days. It may even be a convenience for you to set up these autopayments to go to your credit card and just pay that bill once a month. Just make sure and follow the rule that you don’t use a “planned expense credit card” as a “living expense credit card”. I also recommend that you wait till you have your budget system running on two checking accounts for a while before you try adding a third account (credit card) into the mix.
Big Purchases
You save money so you can spend money. You save for big toys and big vacations. If you are going to spend $3000 on a vacation, you might as well get $60 back by booking your travel with your credit card. Just make sure you have the money saved up for it first.
Summary
I see two good uses for credit cards in the system, Big and Planned expenses. The priority here is to keep control of the money your earning. If you are prone to overspending on credit cards, then just don’t use them at all. The benefits reaped are very small in comparison to the risk.
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