Don’t Trust the Card or Yourself Without a Plan
In the world of purchasing with plastic (credit or debit card) we sometimes lose sight ever so quickly of exactly how much we are spending! In fact, I find that by the time I am in the parking lot after making a purchase my mind has already moved onto the next thing. By the end of the week when I am about to make another purchase I have already forgotten that I even made the first purchase which causes me to have a false idea of how much money I actually have left to spend. Before I know it if the plastic I am making a purchase with happens to be a credit card then I could so easily fall into the trap of purchasing an item with future income (money from my next paycheck that hasn’t even hit the bank yet). This can happen to even the best of us.
Let me be clear I am not suggesting we should all revert back to the archaic envelope budgeting system and cash. However, I am suggesting there a few things we can recognize when purchasing everything with a card to ensure financial success.
Here are a few tips that can help lead to financial success if you pay your bills and make all of your purchases with a card, especially if its a credit card.
1) Keep Track of What You Spend.
Don’t fall into the trap of only reviewing the balance on your credit card every couple of weeks or once a month when your bill comes due. If you are using a debit card be careful to avoid only reviewing the available balance in your checking account when in the checkout line at a store or on pay day.
I am not a psychologist by any means, but I know myself well. I do not think I am alone when I say that it is easy to underestimate how much I’ve spent since I last looked at the balance on my card and overestimate how much I can afford to spend when I have not sufficiently tracked my previous purchases. The Consumer Financial Bureau suggests that there is some research to back the assessment that I have made.
It may not be fun at first, but putting a spending plan in place and rigorously keeping up with it will be one of the greatest stress relievers you can experience regarding money. If money is a source of stress or anxiety it can be tempting to ignore the way you spend, your bank account or credit card balance, however, this will create more stress in the long run and financial disaster I might add. I personally prefer to track my expenses through the use of budgeting software called youneedabudget.com. I know others that prefer good ole excel spreadsheets, pen and paper, or mint.com.
2) Don’t Trust Monthly Minimum Payment Offers.
When things are tight and there are extra items needed or wanted, it can be extremely tempting to take advantage of the credit card offer to carry the balance on your card over to the next month and only make the minimum payment. This can be especially tempting during times where there is stress pouring in from other areas of life.
It is important to recognize that when you only make a monthly payment, it means you are committing your future income to interest payments on items that are not worth paying interest on. Also keep in mind credit cards offer some of the worst, if not the worst, interest rates. They can get up to almost 30%! Nerd Wallet, a reputable personal finance website, goes as far as to say they are designed to keep you in debt. Click here if you want read more on minimum payments.
It can be tempting and you might say to yourself that you will be able to pay it all off the next month before the interest takes off and gets out of control. That can be a dangerous place to be especially considering personal finance tends to be one of the most unpredictable areas of life, because it involves almost every aspect of life. You cannot predict when your car is going to breakdown, you are going to have an emergency room visit, animal needs to go to the vet, or some other unexpected expense shows up.
3)Preemptive Planning vs. Reactionary Spending
If you want to beat living paycheck to paycheck, pay down debt, and avoid having to pay only the minimum payment on a card it happens through planning. The words “budget or spending plan” are not everyone’s favorite words. However, they can be such a lifesaver! For some they do not like the idea of a budget because they feel that it will constrict their financial freedom to do as they please. For others it is just an overwhelming, daunting task and an area that causes anxiousness so they just avoid it.
I would like to suggest that choosing to be preemptive in planning, how to spend and save your money, will actually create a sense of financial freedom not experienced beforehand and will help reduce anxiety surrounding money. Planning our spending will prevent those moments when we react to a need or want, have not planned our spending for the pay period/month and then swipe our card, and we can’t help but experience the anxiety surrounding the purchase. The all too familiar questions surface in our mind such as “can I really afford this and will I have enough left for my bills due soon?” I would like to suggest these questions almost steal the joy that could have come from the purchase.
On the other hand, when you take time to plan your spending upon receiving a paycheck and then follow point #1 of tracking your expenses, you can feel comfortable spending money because you have planned the spending and do not have to deal with questions like “Can I afford this and will I have enough for my bills?” It creates a since of freedom and peace of mind. Finally, it is important to be aware that everything might not always go according to plan, however if there is a plan in place you will know how to adjust to ensure that you are staying within your means.