This is a guest post by Mr Credit Card from www.askmrcreditcard.com. Mr Credit Card. Mr Credit Card reviews credit cards and really understands reward programs and perks. Today, he is going to share with us some tips on how to save and earn rewards with your credit card. If you are looking for a new credit card, you can check out his best credit card deals section.
There are two school of thoughts as far as credit cards go. One school of thought says they are evil and should be avoided at all expense. The other school of thought says that you should use them for all the rewards that they provide (and make sure you pay your bills fully every month). I happen to belong to the second camp and so does Lulugal, who loves her credit card rewards. I think the thing that really gets folks to overspend on their credit card is really down to two things:
1. Lack of “detailed” budgeting – not just budgeting, but detailed budgeting as I’ll explain below.
2. Lack of emergency funds – If you do not have an emergency fund, then you will be in all sorts of trouble if you have any unexpected expenses.
In this post, I would like to talk about what “unexpected expensess” should you budget for and once you have done that, I’ll just run through some quick tips to get a card that pays you rewards.
Budgeting for unexpected expenses – Many folks who have finally got down to the nitty gritty of budgeting do not factor in a budget for unexpected expenses. What can it be. Here are a few common items.
Car Repairs – For those of you with a car, you know that occasionally, breakdowns do happen. And when it does happen, it normally cost a couple of hundred bucks to fix. No $30 repairs these days. A tire change, a dead battery or some other engine problem (especially when your warranty date is way past due) can really blow a hole in the budget.
House Repairs – Had pipe that leaked? Or a basement filled with water after a heavy rain. I have. Had a crack in a basement wall that resulted in a leak. And it eventually cost me over $6,000 to get it fixed properly (so far for Dave Ramsey’s $1,000 emergency fund!). But a basement leak problem is nothing compared to a friend of mine who had to replace his roof (ooh! don’t even talk about the bill).
Emergency medical expenses – This can easily blow a budget. You never know what is going to happen. Co-pays, emergency dental surgery or hospital stays can put a serious dent in your expenditure. In fact, medical bills are one of the biggest reasons for folks filing for bankruptcy and many folks get into credit card debt because of this.
Eating Out Expenses – Some folks simply put a number on their budget for eating out. But like a grocery budget, simply putting numbers on them is not enough. You actually have to break it down. One method that Mrs Credit Card and myself use is to plan where we want to go and have a good idea of the menu (or rather dishes) that we want to order. For our kids, we always get them to share dishes because the portions (more often than not) are huge.
Entertainment Expense – Last minute invites out for drinks are another way you could blow your budget. Once again, best way is to plan how much you want to spend and more importantly, where you want to go! And leave some room in the budget for those late nights.
Vacation – This is how I prefer to do it. Set aside a sum for your vacation. Then figure out a place to go where you can stick to your budget. The other way is to pick a place and activity, then work around your budget. Either way, vacations can easily blow your budget. It is so easy to charge stuff to your credit card when you are abroad. After all, it is so easy to justify. You are away from home.
Gifts and Presents – Planning gift is especially difficult because you never really know how many parties you will be invited to or how many parties will your kids be invited to. But using the previous years experience is a pretty good guess. So make sure you actually plan for it.
Kids summer camps – Yep, summer is just over. Those of you with kids will understand this issue. You need to send them away for half a day because they get on your nerves. But it cost money to do so. Budgeting for this is so important because it cost a couple of hundred bucks just to send your kid for a one week camp!
Unexpected credit card rate increases – This one is relatively new for me. But seeing so many of my readers having their 0% balance transfer credit card rates increased because of late payments, or seeing what they thought was their low interest credit cards rate jacked up to 29% made me think that those who carry a credit card balance really have to plan for these contingencies. If your interest rate doubles, that means your credit card minimum payment doubles. If you carry a balance on your credit card, pay it down as soon as possible and plan for possible rate increases.
Pamper yourself expenses – Someone on a strict diet should always plan for a Sunday Meal where anything goes. This is because psychologically, it is tough to be strict on things like diet, money without going berserk! Same thing with your budget. I think you need room for things where you can pamper yourself. It could be one starbucks a week, or a new accessory once in a while, or a dinner treat?
If you really have your budget sorted out, then you are much more likely to be disciplined in using your credit card, paying in full and not using it for impulse purchases. Lulugal has always recommended using credit cards for their rewards and I totally agree with that. The key to choosing a card that will earn you the most points or rebates is to look at your budget. And break it down.
You should break down your spending according to items like:
For most folks, the best type of card to get are actually cash back credit cards that actually give you cash rebates for every dollar that you spend on the card. Most pay 1% for every dollar that you spend. But the better ones will pay anywhere from 3% to 5% on certain types of spending, like gasoline, travel, supermarket etc. The trick is to know how much you spend on different things and actually research lots of cards and figure out which one will save you the most money. Also, as a best practice, you should set up autopay with your bank account.
To sum up, having a comfortable emergency fund and “proper” budgeting are keys to a sound financial foundation. If you work at these two things, you should make use of tools like credit cards to save yourself more money.
If you like what you read here please head over to Mr. Credit Card and check out the blog.
I also have an interview there so you can check that out as well.
Good tips! Drinks out with friends usually get me in blowing my budget. I think mostly because instead of directly asking I always give drinks a ballpark figure “Imports cant be more than $5, right?”. I went out with friends last night to a happy hour where drinks were supposed to be half price and somehow spent $56 on 4 drinks…. apparently what I ordered wasn’t in the special, should have asked to make for sure!
Ouch Ashley!!! That bill must have been a shocker to you. I think I might have fainted that time. Now why are you the one paying for all those drinks? Were you buying drinks for everyone? I don’t drink but I think a good rule of thumb is to alternate alcoholic drinks with non-alcoholic drinks when you go out. That should save you some money as the sodas juices will fill you up and you drink less (expensive) alcohol.
I purchased 2 drinks for myself and 2 shots (one for myself the other for a friend). And I must say that the $14 martinis did not taste any better than the $5 martinis I’ve had at other places. Good idea with the alternating drinks between alcoholic and non alcoholic! I’ll have to try that next time I go out. There is no way anyone would be able to tell the difference between a cranberry juice and a vodka and cranberry juice!
Good advice from Mr Credit Card. I also fall into the 2nd camp and agree that credit cards are useful and can save you money. I do try and benefit from any rewards program. However, I think that the key advantage of a credit card is if you use your credit well and pay in full, you are getting the advantage of extended credit without the penalty of paying interest.
In terms of budgeting, I find it useful to break my expenses into “essential” eg mortgage payment and “non essential” expenses eg. entertainment. It helps me determine how much of my budget is being chewed up by non essential expenses and whether i am happy with it!
Thanks for pointing that out to us. I think the important thing here is to note that you make your budget work for you. I do not separate into essential and non-essential because that is not an issue for me, whereas you do.
Each person is different and each budget is different too.
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Your article on this blog is fantastic.
Well done! I’m a big fan of your blog and be sure to keep up the great work.
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Sincerely,
Alan H.
Great tips, special thanks for best credit card deals section, great 3% and 5% cash back cards. People feel shy and hesitate to take help from their closed relatives and their debts. So, there is a great need that people should manage their budgets.
Wow… this is one comprehensive list.
Good to get an overall view and see how one financial slip on one area can really have a knock-on effect on my whole budgeting!
Good advice..Personally I feel ,we sometime hesitate saying no to people just because it may cause discomfort to us followed by resentment. But we must learn to trust our inner voice and never end must never end being people pleaser.What matters is our hard earned money and before spending we must think twice.
People misuse credit cards and that is why they try to avoid them. They can be immensely helpful when used carefully, however, people get them these days for all the wrong reasons.
I am looking for a recommendation for a credit card for an American living overseas, earning a salary in dollars which is deposited into an American bank account. The card would be primarily used abroad (Israel), with occasional online purchases from U.S. companies. I assume the main issues we need to look at are: 1) whether there is a foreign purchase transaction fee, and 2) how good is the exchange rate. Any advice? Thanks so much.