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7 tips for using your yearly credit card summary as a budgeting tool

By Emma Johnson

7 tips for using your yearly credit card statement as a budgeting tool

Financial advisers are more likely to instruct you to cut up your credit cards than celebrate them. But increasingly, users and experts alike tout the annual year-end statements provided for free by card issuers as one of the most useful personal finance tools available.

"There is a lot of negative press about credit cards, but the year-end statements are a powerful tool that allows you to see how you are spending," says Richard Coppa, a financial planner based in Roseland, N.J. "Those statements reveal if you're disciplined, or if you spend money like a drunken sailor and abuse them."

These statements emerged about five years ago as paper documents mailed with the February or March monthly statement. They typically include a yearlong list of purchases, as well as pie and line charts summarizing popular purchase categories: groceries, restaurants, clothing, travel, entertainment, gas, transportation, etc. In the past few years, these statements have gone online and interactive. Now many issuers allow users to create reports using their own dates or customized categories.

Paul Hartwick, spokesman with Chase Card Services, says these increasingly popular and user-friendly summaries are a reflection on an increased interest in all things money, as well as issuers' realization that engaged customers are loyal customers. "People are getting more interested in personal finance in this current economic environment, and they enjoy the ability to get a transparent look at their spending," Hartwick says.

7 tips on getting the most of your credit card summary
  1. Read it. People often avoid facing their finances. Being honest with yourself is the first step to improving your money habits.
  2. Use one card. To get the most accurate snapshot of your spending practices, use a single credit card for as many purchases as possible. This is increasingly easy to do as many utilities and even some landlords allow you to pay your rent with plastic. If you don't, won't or can't pay the entire balance at the end of every month, then use your debit card, checks or cash.
  3. Look at the summary regularly. Once a year is fine, but consider finding a card that allows you to watch your spending quarterly.
  4. Pit your spending against your goals and values. Are clothes really the No. 1 most important thing in your life? No? Then why do you spend most of your money on apparel? Take a hard look at where you're spending the most money and figure out how much you would save if you cut back.
  5. Set a goal. If you want to save a certain amount of money each month, pinpoint a category of spending you aim to shrink to meet that goal.
  6. Once you identify a habit you wish to break, look at the detailed list of charges in that category. Don't ignore the small purchases. They add up! If you plan to cut down restaurant expenditures, pay attention to the $3 coffees and $1 yogurts.
  7. Compare apples to apples. Save old summaries and compare them year-over-year (or quarter-over-quarter). This allows you to chart progress accurately, and hold yourself accountable should you slip up.

"A good customer is someone who is educated and feels like they have control over their accounts," Hartwick added. "The information from summaries provides them with the ability to really understand how they're using their card. That can only benefit us and the customer."

All this allows users to get a raw -- often painful -- look at their spending habits. It also affords them an easy tool with which they can find ways to curb frivolous purchases and boost saving and investing, Coppa says. Many individuals and small business owners also report these summaries are particularly helpful in itemizing deductions at tax time.

Jacob Gibson, 28, who recently quit his job as a Wall Street trader to be a technology consultant, has found the American Express interactive summary software useful in reaching financial goals. 

He and his wife Beverly Picardo, 26, married in early 2009, and a year later used the tool to get a grip on their spending and find ways to save toward the goal of relocating to San Francisco.

"As a single man in New York, I never did any real budgeting, but once I got married, it became a lot different," Gibson says, adding that their findings gave him "a little bit of sticker shock."

The couple learned they were spending more than 50 percent of their combined income on restaurants and bars. Their weakness? "We're big fans of a good cocktail," Gibson says. "Just a couple can easily double your restaurant bill."

Taxi cabs factored heavily on their bottom line, too. "You used to pay for cabs with cash, but now that you can pay with a credit card, you can track how much you spend," he says.

After facing the frivolousness of their ways, the couple started grocery shopping weekly, cooking at home often and going out less. "If going out requires us to spend $50 on a cab ride, we just stay home and rent a movie," Gibson says.

In late May, the couple achieved its goal of moving to California.

Coppa says many of his clients are reluctant to look at their summary and face their spending habits -- and themselves. But all of that can turn around once they get a hold on their habits.

"Some people are in denial about their spending. Others want a quick fix to their financial problems -- just like a lot of people want quick weight loss, but don't want to write down their calorie intake," he says. "But if you look at your expenses regularly, it can empower you to take over your finances. Then it will be second nature to look at your statement every quarter, and you will get a rise when you recognize that you're making progress."

See related: An interactive look at the new-look monthly statements, How (and when) to pay with credit cards at tax time, 8 tips for squeezing a budget even tighter, You first budget in 3 easy steps

Published: June 18, 2010


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