Do you use credit cards? How many do you currently have in your wallet?
Many financial advisors advise their clients to pay for items in cash and avoid using credit cards entirely. Have you ever heard of the cash envelope budget? These advisors claim that credit cards encourage people to take on more debt.
While it’s important to remember not to spend more money than you have or can afford (I recommend keeping your credit card balance to less than 30% of your total credit limit), it’s also important to make your money work for you. As long as you’re paying off your credit cards in full each month, you can reap the rewards, too!
One method of making your money work for you is by saving your money and investing it in some type of interest bearing account (stocks, bonds, savings accounts, etc.). However, it’s also possible to make your money work for you as you’re spending it by using credit cards.
I currently have two main credit cards in my wallet that I use for everyday purchases. I use one card for groceries, and I use the other card for everything else.
I use my credit cards for several reasons, and there are times when it would be just as easy to use cash (like when I spend $3 at McDonald’s), but I try to use a credit card whenever possible.
By using credit cards for every purchase, I make (or save, depending on your perspective) hundreds of dollars every year. Here’s how I do it:
1. Make Your Money Work For You
My main reason for using credit cards is to make my money work for me. For example, if I go to the grocery store on June 1 and pay with a credit card, then receive a bill from the credit card company on July 1, I have until July 20 to pay the credit card company.
Instead of paying at the grocery store with cash (or a debit card, which immediately withdraws the money from my bank account), I am able to keep the money in my bank account and earn interest for almost two months. When my credit card bill is due, I pay my bill with the money that I would have spent at the grocery store.
The saved interest is especially noticeable when we make huge purchases for the farm, but even during months when we only make regular purchases, every cent adds up.
2. Earn Cash Back Points
In addition to earning interest on my money by keeping it in my bank account for an extra two months, I also love earning “cash back points.”
Depending on the time of year, I sometimes get gift cards with my points or have the cash directly deposited in my bank account. For example, my husband and I typically celebrate our “date nights” by going to dinner and a movie (exciting, I know, but with two kids at home, we make do).
Who doesn’t love free cash and gift cards? We were able to celebrate our anniversary in style for free simply by planning ahead and ordering gift cards with our “cash back points.” Best of all, I was able to save $5-$10 on each gift card ($50 gift cards used $40-$45 worth of points).
3. Track Your Expenses
I also use credit cards as a method to track my expenses and simplify my budgeting. This is why I even track my $3 purchases at McDonald’s. While I do have a “cash” category in my budget, I try to use it as little as possible so that I know exactly how I’m spending my money.
This simplifies my budget. When I use a credit card, I’m able to automatically upload all of my transactions into my budget. I can then easily run reports and ensure that my shopping, dining, and other habits haven’t gotten out of hand for the month.
Using credit cards on a regular basis may not be for everyone (especially if you currently carry a large balance on your credit card or if you’re tempted to buy unnecessary items). Credit cards shouldn’t be a license to go on a shopping spree, but when used with common sense, they can be a wonderful addition to your financial planning toolkit. As long as you pay your balance off in full each month, credit cards can be a great asset.
I love the perks of using credits cards. Most importantly, using credit cards for everyday purchases helps to simplify my life.
How do you use your credit cards?