Guide to budgeting with a credit card

Quick insights

• Budgeting with a credit card is essentially the same as budgeting without one, except you have the potential for added bonuses and rewards.
• Just because you have the option to spend more than you currently have with a credit card, it is important to make and stick to a realistic budget to avoid interest charges.
• A budget is rarely perfect on the first try, but if you stick to it and allow yourself the flexibility to adapt as needed, budgeting can be a powerful tool to positively shape your future.

How to budget with a credit card

Contrary to popular belief, budgeting is not just possible with a credit card, but it may be preferable to budgeting without one. Credit cards may be able to offer numerous perks that aren’t typically available with a debit card and checking account alone. If you already have an organized budget, converting it to work with a credit card could be as easy as changing your primary method of payment. If the entire concept of budgeting is new to you, however, we’ve got you covered with some useful tips to simplified budgeting with a credit card.

Setting up a credit card budget

A credit card budget is similar to any other budget. By following a few easy suggestions, you may find it easier to manage your finances, keep track of spending habits, pay down debt and achieve better peace of mind.

One of the first steps in setting up a budget is establishing goals and guidelines, such as these SMART goals:

• Specific: Each goal should be specific, clear, and concise – such as “saving for vacation.”
• Measurable: Your goal should include a measurable amount – such as “$50 per paycheck.”
• Achievable: Your goals need to be realistic and achievable under your current financial situation – saving $20 per pay might make more sense right now than $100.
• Relevant: Each goal should be relevant to your personal needs, interests and situation.
• Time-bound: Each goal should include a deadline for meeting it, so you can hold yourself accountable and track your progress.

Tracking your spending

The next step in any budget is keeping track of your normal monthly spending. You can do this by writing down every expense after you make it, keeping receipts, or logging into your credit card account at the end of the month and recording all expenses. Another option is to utilize free resources provided by financial institutions, as these electronic tools and dashboards can be a great way to help you visualize and organize your spending.

It can be helpful to break everything down by category to help organize things. Categorization can be easier using receipts than your credit card statement, as some vendors might sell items in multiple categories. Getting a sense of how much you spend per month on each of several key categories – like food, utilities, transportation, etc. – can be very helpful in making and keeping a budget.

Develop a plan

Once you get a sense of your normal spending habits, the next step in budgeting successfully is planning how to allocate your money. Budgets can help eliminate non-essential spending and help you to save more in the long run. There are a few methods for planning out a budget, and you might want to test out different combinations of options to find the best fit for you.

Spending vs. income

Calculate your total income on both a monthly and annual basis to ensure that your spending is less than your income in both timeframes. Pay stubs are a common way to do this, but if you are self-employed, earn tips or do not receive a payment record that captures all your income, you might need to do a little record-keeping on your own.

Set clear limits on spending

Establish and stick to limits on both overall spending and spending per category. This is often harder than it sounds, especially when first starting out, but there are numerous ways to maximize your savings while planning spending on a budget.

Consider budgeting apps

There are numerous free budgeting apps available, and it’s worth experimenting with a few to find the one you enjoy the most. Your financial institution may have online resources to help get you started, such as a budget builder.

Plan ahead to avoid common mistakes

Through the aforementioned budgeting apps, your own research, or advice from friends and family, there are many options for planning ahead. You don’t need to reinvent the wheel or go it alone – there are plenty of resources out there to help you stop budgeting mistakes before they start.

Include savings reserves in your budget

Whether you complete this step first, last or anywhere in between, it’s important to factor in expenses that are less regular – such as medical bills and home repairs – and include the money you put aside for that in your budget. Your budget is designed to help you with your finances in both the short and long term, so planning for the future is a vital part of any budget.

Credit card strategies

One of the dangers of budgeting with a credit card instead of a debit card or checking account is that you might be more tempted to spend more than you can afford, since the bill may not show up for a few weeks after your purchase. When creating a credit card budget, it’s important to ensure whenever possible that you don’t carry debt from one month to the next and you keep your credit utilization ratio at or below 30% of your available credit.

Find opportunities for your credit card to work for you rather than against you. You can prevent the potential drawbacks of credit card spending by avoiding interest payments, as referenced above. It’s also important to familiarize yourself with your credit card’s benefits and carefully review the terms and conditions to find opportunities to maximize your savings. Many credit cards offer extra rewards on certain spending categories, like groceries or gas – but you sometimes must take action to accept or enroll in these bonuses. These rewards could potentially add up to big savings just for carrying out your normal spending habits, so it’s helpful to research bonus categories monthly, or at least once a quarter, to ensure you don’t miss anything.

Implement your strategy

Once you’ve come up with your budgeting strategy, the next step is putting it into practice. Try it out for a month to see how it works, and cut yourself some slack if you don’t hit all your goals right away. You can always modify your budget as needed; there’s no shame or harm in not getting it exactly right on your first attempt. Sticking to your budgeting strategy is a lifelong endeavor, so it’s perfectly fine if you need a little wiggle room at first.

The bottom line

At the end of the day, creating and sticking to a budget is important, whether you do so with the use of a credit card or not. Find the combination of steps and strategies that works best for you, and don’t be so hard on yourself if you don’t end up with a perfect budget on the first try. Allow your credit card to work for you by maximizing your rewards. Viewing this as an achievable process rather than a simple task can help ensure you make budgeting a long-term part of your financial planning.