The NON-cash Budget System
This isn’t a real system. In fact, it’s the opposite of what we learned about from Carolee last week. And while I do plan on giving the envelope system a try, I’m going to tell you what I have done for years.
I don’t have a budget. GASP.
I never carry cash.
I charge every last cent on credit cards. GULP.
*Now a warning before we proceed. THIS SYSTEM IS NOT RIGHT FOR EVERYONE! If you are a compulsive buyer or have no control once a piece of plastic hits your hand, STOP READING NOW!*
Seriously. I’m not kidding. What I’m about to suggest will wreck your finances if you are compulsive spender. But, if you can show restraint with a credit card, I’ll tell you how I never pay for Christmas, birthdays or school clothes out of pocket. EVER.
STEP 1: Identify what you want for free. Credit card companies offer it all: vacations, plane tickets, gift cards and simple cash back. Do you want to accrue points like I do and earn gift cards? Do you want to rack up air miles and jet off to some exotic location? Do you want to give your bank account a little extra cushion each quarter and earn cash back? You decide what’s best for your family.
STEP 2: Find the perfect credit card to match your needs. NEVER pay an annual fee. You don’t have to. There are plenty of rewards cards out there with no annual fee. Just find the one that’s right for you. I use a CHASE card. My goal is to earn gift cards, so we have a card that maximizes points earned. Your current credit card may already be perfect. Call your company to see what options they offer. Using this system, you will pay off the card every month, so the interest rate is not a concern. *If you know you don’t have the will power to pay off your card each month, please refer to the above warning!*
STEP 3: Make a plan. Sit down and figure out what monthly expenses can be paid using your credit card. Some credit cards (and mortgage companies) allow you to make your house payment on a credit card, while others do not. You would be surprised at how many monthly bills you can pay with a credit card. Then take an average of what you spend each month on everything else, ie. food, clothes, eating out, fun money, etc. Get a grand total and immediately after you get paid, schedule a credit card payment for that amount.
Paycheck: $10,000 (this is a fake scenario so let me dream please)
Monthly bills that can be paid on credit card, ie. power bill, car pymt, etc.: $3,000
Additional monthly expenses, ie. food, fun money, etc.: $3,000
Payment scheduled (I use online bill pay & schedule in advance on my credit card due date): $6,000
STEP 4: Monitor your expenses as you rack up rewards. Just like you would your bank account, log into your credit card account frequently and make sure you are sticking to your budget. If you happen to be going over the amount you allotted, adjust the amount of your scheduled credit card payment to reflect that. Most banks allow changes to be made to a scheduled payment within 24-hours of the payment date.
STEP 5: Redeem your rewards. Because in STEP 1 you have already identified what freebies you are working towards, this step will vary for everyone. We redeem our rewards 3 times a year. Near Christmas we use our points to buy Toys R Us gift cards and use those cards to buy our children’s presents. As summer approaches we cash our points in for birthday gift cards (we have a lot of summer birthdays in our family). And right before school starts we use our points to buy gift cards to clothing stores for school clothes.
I like getting paid to spend what I normally would anyway. I have earned THOUSANDS of dollars in gift cards through the years. And while this system is tough for a lot of people because seeing such a high balance remain in your checking account all month may be tempting, if you stick to your budget, this system will work for you!