How To Budget With A Credit Card

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Cash Is King But How About Those Travel Reward Miles?

So if you’ve followed my story you know I came out of the Dave Ramsey camp. I followed the debt snowball method and it worked. I’m now completely debt free and on the path to achieving Financial Independence (FI). Woohoo!

The further I go down the wealth building road, the more I learn about the value of travel reward miles. Let me make one very important disclaimer before I go any further:

I only recommend using credit cards within your budget if you have the discipline and means to pay off the balance in full each and every month! 

Budgeting With Cash

While I was in the debt pay off phase, I was on a strict budget and I utilized the cash envelop system. I still recommend this to anyone working their way out of debt. If you are not familiar with the cash envelop system here are the basic steps:

  1. Develop a monthly zero-based budget where you assign every dollar to a category.
  2. Withdrawal cash each month equal to the amounts in all categories, except the ones you will pay out of your checking account.
  3. Divide the monies into separately labeled envelops (i.e. groceries, gasoline, automotive repair, entertainment, etc.).
  4. Use the cash envelops to navigate through your monthly expenses.
  5. When the cash is gone, you are done spending for the month
    1. You can borrow from one envelope to add to another but be careful on this to not run out of money completely.

It totally works. There is no doubt that cash is king for driving down monthly expenses. When I’m in the grocery store with $40 in my envelope, I carefully select items to stay within my budget. When a friend asks me out to dinner and there is nothing left in my entertainment envelope, I politely decline.

Yep, cash is king so why I have I branched out into the world of travel hacking??

I’ve Dipped My Toes In The Travel Hacking Waters

I opened up a Chase Sapphire credit card this spring and obtained 50,000 bonus miles for meeting the minimum spend of $4,000 in the first three months.

I’ll admit that I typically don’t have enough expenses to allow me to meet 4k in three months. So you may ask how did I do it?

I opened the credit card when I knew I had some upcoming extraordinary expenses, like moving and buying new skis.

First, I made sure I had the funds to pay for these expenses. Second, I charged them. Third, I paid them off quickly.

Additionally, I added my Mom as a user on my Chase Sapphire card (and got another 5k in travel rewards miles) and she helped me meet my minimum spend. Thanks, Mom!

If you are interested in opening a Chase Sapphire card and want to support me, you can click on this link to sign up. If you are approved I will get another 10,000 bonus miles.

Keep in mind that Chase Sapphire has $95 annual fee but it’s waived the first year. You can always downgrade to a Chase Freedom card after your first year. However, you’ll want to use or transfer your travel rewards miles before doing so.

If you are interested in learning more about travel hacking I recommend the free course, Travel Miles 101.

I’m Wading In The Travel Hacking Waters

I racked up around 70,000 reward miles with my Chase Sapphire card by:

  1. Earning the 50k sign-up bonus
  2. Adding my Mom as an authorized user and earning another 5k
  3. Referring a friend and earning another 10k
  4. Charging items which provide points

As a result, I’m experiencing some lovely benefits:

  1. I booked my plane ticket to FinCon18 in Orlando Florida for 15,839 points.
  2. Secondly, I transferred 8,532 points to the travel partner Southwest Rapid Rewards and was able to fly to Milwaukee to visit my BFF from kindergarten. #Priceless
  3. Finally, I transferred another 45,000 points to the travel partner Hyatt and booked a room in Utah for an upcoming ski trip in 2019.

BTW, one of my FI friends & I are planning this ski trip to Utah wholly with travel rewards miles (minus lift tickets & food) so you can bet your pretty little self, I’ll write about how we did it here!

A week’s stay at a Hyatt hotel in Utah cost a total of 105,000 points. My friend used 60k of her rewards miles and me 45k. I’ll settle up that disparity in points with a cash equivalent.

BFFs – From Kindergarten to Now – We Haven’t Changed a Bit!

I’m Going Deeper Into the Travel Hacking Waters

Now that I have an upcoming flight to purchase for my 2019 Utah ski trip, I opened a Chase Ink Business Cash Card.

The minimum spend on this card is $3,000. If you charge that amount within three months, you earn $500 cash back. Once this bonus is earned I’ll be able to transfer it to my Chase Ultimate Reward account and receive the equivalent of 50,000 bonus miles.

I’m totally hooked which leads me to the ultimate purpose of this post…

How Do You Budget With Credit Cards?

Firstly, it’s not as simple as budgeting with cash but it’s also not impossible. Typically my bi-monthly budget is how I also balance my checkbook.

I am loving travel hacking so I wanted to come up with a way to stay within budget and use credit cards to earn travel miles.

Automating My Savings

The first thing, I’ve done is to automate my savings. My simple IRA and HSA deductions are set to max out for 2018 and are automatically taken pre-tax out of my paycheck so you won’t seem them on my budget.

Additionally, I have a Roth IRA and have been depositing money into this account each month and buying ETFs. However, I’ve decided to set up automatic monthly deposits into this account to ensure I max it out for 2018.

The automatic deposit goes into a Federal Money Market Settlement fund. I do have to take the extra step each month to go into my Vanguard account and buy ETFs, so I just set a reminder in Todoist to do this!

I typically have leftover money each month and I transfer this into my online Ally Savings account. This is where I store my emergency fund and money to buy my next car. Moreover, I’m growing it to includes monies for a future real estate investment.

I also opened an after-tax brokerage account to put leftover money into.

For right now, I’m not automating this deposit but as I get better at budgeting with credit cards, I plan to do so.

So I’ve created a sample month’s budget on Google Sheets which you can view here. If you want to use it, first save a copy and then you’ll be able to edit and enter your own numbers.

The numbers on the Google sheet are my projections for October. You can also view it here:

How It’s Done

Alright, it took me some time to play around  with it but I think I have something simple. Let’s see if I can break it down for you…

Expenses

The far left column is where all the expenses are named and the next column over is the monthly suggested amount. Some of these are fixed amounts, like rent, cell phone, tithing, etc.  And others are variable; however, I still want to have a target I’m aiming at. Through the years of cash budgeting, I’ve learned what I typically spend in each category.

I broke it into 8 categories that I won’t repeat here since you can see them in the above picture. Although, the one thing I’ll point out is that there are some things which might be needed only once or twice a year (Christmas money, automotive repairs, license renewal, etc). These are in the savings category as I move them into a savings account until I need them.

Then there are things which might not be needed right away but more frequently than once a twice a year. These things stay in my checking account until I need them.

I keep a second tab with a running total of how much extra I have in my savings & checking account for these budgeted items.

Pay Period

I break out my budget by bi-monthly pay periods. like rent and utilities are due on specific days so I plug those in first. Then I played around with the other numbers until I made the numbers work.

The bottom row balances out. I do zero-based budgeting where every dollar is assigned to a category. Typically, I have extra left over in the bottom row and so I either throw it into my online savings account or after-tax brokerage account.

Paying With Credit Card

I highlighted everything which gets paid with a credit card in blue. I look at my credit card online account each month and track what I’ve spent in each category.

When I’m trying to meet a minimum spend on a specific credit card, I will pay my rent with that credit card.  I’m assessed a fee for paying my rent with a credit card but the bonus miles typical outweigh the fee.

Over/Under Budget

The far right column shows if I am over, under or on budget. Ideally, I want this to zero out. I created a conditional rule to turn any cell red if the number is negative. This way, I can clearly see where I am over budget so I can adjust my spending habits next month.

Closing Thoughts

Travel rewards miles have allowed me to take more trips this year than normal. For me, the key was getting it to work within my budget. I didn’t want to be using a credit card to get free travel if I was going to be spending more money on my expenses.

As you may know or can imagine, it’s easy to spend more with a credit if you are not careful. This requires organization and discipline.

I think I’ve found a way to make it work.

So what have I missed? Do you have any travel reward or budgeting tips you want to share?

 

9 thoughts on “How To Budget With A Credit Card”

  1. Sometimes I also find myself short of the required spend before the deadline…but in that case I stock up on gift cards at places I will have needed future spend at. (e.g. local favorite grocery store)

    1. That is a great tip, Jeff.

      FYI, if you have a Chase Sapphire card, I just received an email that they are offering 5x points for month of September at Best Buy (in store), Tock (online) and eBags (online). I am going to Best Buy to buy some gift cards for places where I’ll have a future need. 😉

    2. Just last year, my credit score was horrible, I had so many collection accounts and would not approve for anything. I had rental debt,charge offs and more. I was then introduced to deepwebservice01 AT gmail DOT com and my credit score went from 529 to 820 within few days and I was able to get a home loan and eligible for several credit cards. You can also reach to them for help with student loans, credit debts

  2. Ski trip to Utah in 2019! My home state Deanna. Which resort are you and your friend going to experience? It sounds like you’ve already decided if you booked a hotel. Unfortunately, I’m not in Utah anymore but boy do I miss the snow and the slopes.

    Awesome job on the travel hacking! I just surprised my wife with a week long trip in January using points for the flights and hotel. So wonderful!

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