One of my readers brought up a good point–what if the deal you receive from a credit card company is too good to pass up AND you pay off your credit card monthly? What do you do? Well, if you are disciplined enough to always pay off the balance, then it is possible to work your budget from strictly your credit card.
In order to have this work, you are going to need two types of budgets. First you are going to set category budgets for food, housing, clothing, etc. Determine which of these purchases will be solely purchased on the credit card.
From those category budgets you add them together to obtain your annual credit card budget. From the sample budget above you can see that the categories clothing, food, insurance, gas, and rent are all added together to obtain one sum — $26,000. This sum would be the annual credit card budget.
When you receive your first credit card statement for the year, you must make entries into two budgets. The first is the credit card budget. Say you spend $2,163 in January. Then that amount is deducted from your annual credit card budget.
Then you must deduct the individual purchases that make up the category budgets in Excel. For example, if you purchase $180 worth of food, the $180 would be deducted from the $12,000 food budget.
There is one caveat needs mentioning. Not every item in your budget will be able to be purchased by credit cards. For example, if you are in a wedding and need to send a check to the bride to cover the cost of the bridesmaid dress, the cost of the dress may be put in the clothing budget. However, since it was not purchased by a credit card, you are going to have to make a “manual adjustment” on the credit card budget. If the dress cost $200, then you are going to need to deduct $200 from the credit card budget so that your credit card budget and your clothing budget are equal.
If you do manually deduct the $200, it will appear that you have more money in your budget than you really do. It may give you a false sense that you can spend more money because your credit card statement came in so low. This is one of the reasons why using “sola credit carda” (Super Frugalette’s Latinized term for “only credit card”) can be very deceptive for someone who does not track purchases in Excel. You “think” you are putting all of your purchases on the credit card, yet you are using cash for other purchases and have a false sense of how much money you are spending each month.
When you enter each individual purchase in its category budget, you should also list as a note if the purchase was not made on the credit card, just so you can ensure that you are able to tie out your budgets.
Another situation you may wish to consider is how frequently do you adjust your budget. If you find that you are tweaking your budget from month to month, you are going to have many manual adjustments in your Excel spreadsheet to tie your credit card statements to your various spreadsheets. Administratively, you might find it more complicated than you expect–especially if you have business expenses or if you consider your credit card as your “emergency” fund. Moreover, you always have the option to not pay off your credit card at the end of the month, which will incur interest that will offset your budget. I am not sure I would be disciplined enough to tie out my budget to a credit card each and every month, especially if I had ten or more transactions on the credit card.
Do you use your credit card instead of your debit card for purchases? Are you able to stick to a budget using your credit cards exclusively?
