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Debt Management

How to create a budget, stick to it and save using apps and card rewards

Summary

If you want to create a budget, start by breaking down your expenses into four major categories. Then use apps and online tools to stick to your budget and save. Here’s how.

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Most people need a household budget. Otherwise, you’ll never know if you’re spending too much or earning too little in a given a month. So, what’s holding you back?

Most people resist because they think creating a household budget is overly complicated. The truth? It doesn’t have to be.

You can break your monthly expenses into just four major categories, simplifying the act of creating a budget. And following that budget? You have more tools than ever to help keep on track.

Today, you can rely on credit cards, rewards points, shopping portals, budgeting apps and online coupons to not only create a budget but to save enough money, and earn enough bonus dollars, to make sure you’re meeting your savings goals and staying under your spending limits.

With today’s tech and tools, there really is no excuse to skip on the budget.

See related:  7 things you never budget for (but need to)

Break your budget into the ‘big four’ categories

Calculating your monthly revenue is the easy part of creating a household budget. You simply calculate what you earn each month, include everything from your monthly salary to freelance and rental income. If you receive money from a legal settlement, you can include that, too.

More challenging is determining your monthly expenses. That’s where the “big four” expense categories come in.

1. Housing

  • This will include your monthly rent if you’re renting or your mortgage payment if you own a home.
  • It will also include your monthly utility bills.
  • If you own the house where you live, this category should also include property taxes – dividing the amount you pay annually by 12 – and home insurance.

2. Transportation

  • If you have a car, you’ll have to factor in your monthly car payment plus the money you pay each month for auto insurance and to fill up your car’s tank.
  • If you don’t own a car, create a budget category for your monthly transportation costs, factoring in the money you pay each month to take public transportation or taxis/ride-sharing services.

3. Food

This can be a tricky expense to figure. What you spend on groceries and eating out will vary each month.

  • Try to estimate what you spend at the grocery store and at restaurants or for takeout each week.
  • Use that figure to estimate what you spend during an average month.
  • Once you have that figure, try to stick to it each month.

4. Debt

  • If you are paying off student loans, that monthly payment will be a big part of this debt category.
  • If you have credit card debt, you’ll have to include an amount for how much you need to pay on your cards each month.

Calculate miscellaneous expenses

These big-four categories cover much of your expenses. But they don’t cover them all.

You’ll have to account for miscellaneous expenses, too.

  • These may include everything from your cellphone bill and gym membership to the cable bill.
  • You should also include how much you spend each month on entertainment and how much you spend on insurance and medical costs.

Fortunately, new budgeting tools can help you control these four big categories of expenses, along with the miscellaneous purchases you make each month.

“Budgeting has changed dramatically… Today, you have apps that not only track transactions but look at them on a monthly basis and visualize the data for you.”

Use budgeting apps

Grant Gallagher, financial education manager at Basking Ridge, New Jersey-based Affinity Federal Credit Union, said that those who are budget-averse can turn to apps to help create them quickly.

There are plenty of apps available today that can help consumers create a budget. When consumers tie their bank accounts and credit cards into these programs, the apps also track consumers’ spending, showing them in real time how close they are to reaching their spending limits in different categories.

Gallagher recommends apps such as Mint, You Need a Budget and PocketGuard. Each of these apps will keep track of your spending to help you stay on track during the month.

“Budgeting has changed dramatically,” Gallagher said. “People used to save receipts in a shoebox or plug in their transactions in a spreadsheet. Today, you have apps that not only track transactions but look at them on a monthly basis and visualize the data for you. People who are fans of sticking their heads in the sand don’t have an excuse anymore to not budget.”

See related:  7 tips for using budget apps safely

Leverage credit card rewards to stretch your budget

Kyle Kroeger, the Minneapolis-area founder of the personal finance site Millionaire Mob, said that he uses his credit cards strategically to earn the most rewards points or cash-back bonuses possible.

Kroeger recommend that you do this, too. When you rack up cash-back bonuses you can save money on everything from dining out and groceries to car maintenance and home furnishings. It all comes down to how you use your cards.

Kroeger uses holiday spending as an example. He used his Chase Freedom card for his holiday spending in 2018, earning a 5 percent cash back bonus (on up to $1,500 in combined purchases) at all department stores during the fourth quarter of the year following activation of the category bonus.

“I tell people to take advantage of those rewards points,” Gallagher said. “If you can get 2 percent back on everything you buy, and you are going to buy those items anyway, why not throw it on the card? That cash back is a bonus that you can use to reduce your expenses.”

See related:  Chase Freedom rotating categories: Earn 5 percent cash back

Use cash back to pay down debt

Rewards points can also help you pay down your credit card debt. When you earn cash back, for instance, use that cash to pay down what you owe on your credit cards.

  • If you budget $500 a month for paying off debt and you earn a cash-back bonus of $100, you can apply that bonus to your debt.
  • You’d then only have to come up with $400 on your own to meet your goal for that month.

Many consumers, however, fail to take advantage of their rewards programs.

Mike Kinane, head of U.S. Bankcard at TD Bank, said that TD Bank’s 2017 Consumer Spending Index showed that 18 percent of consumers have let their credit card rewards expire.

“The average consumer racks up nearly $150 in rewards annually,” Kinane said. “Failing to take advantage of them means passing up free money.”

“The average consumer racks up nearly $150 in rewards annually. Failing to take advantage of them means passing up free money.”

Take advantage of credit cards as a planning tool

There’s another benefit to using credit cards for most of your purchases: Each credit card statement will list what you spent money on. This can help you more easily track your expenses each month.

It’s important to pay off your credit card balance each month, so that you won’t have to pay interest. But those consumers who do use their cards wisely, will find it easier to not only track their purchases but to earn rewards points that they can then use to shave their monthly expenses.

Add online shopping portals to your budgeting strategy

Online shopping portals such as Ebates and Swagbucks can also help reduce your monthly expenses. Again, this is helpful if you plan on buying those items anyway.

Finding deals at Groupon and Living Social can help you save on restaurants, groceries, hotel stays and entertainment, all of which can help you meet your monthly budget goals.

Jaquetta Ragland, the Winston Salem, North Carolina-based owner of YoungandFinance.com, agrees that shopping portals, coupons and rewards points can save you plenty of money. But be careful. It doesn’t make sense to buy items cheaply through a shopping portal if you wouldn’t have bought those items otherwise, Ragland said.

“Coupons can save families and individuals a lot of money, but not if you’re going to buy items you know you’ll never use,” Ragland said. “It isn’t wise to use credit cards on items you don’t need just to earn points. My motto is, ‘Work the system. Don’t let the system work you.’”

What’s up next?

In Debt Management

Will my credit score rise after 12 months with no late payments?

There is no scoring bonus for making a one-year milestone of on-time payments. However, if all other factors that go into creating a credit score are positive, you should expect your score to reflect this.

Published: January 17, 2019

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Credit Card Rate Report Updated: December 4th, 2019
Business
15.09%
Airline
16.88%
Cash Back
17.38%
Reward
17.04%
Student
18.58%

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