How Credit Cards Can Make Your Household Budget Work Better

My wife and I budget a little differently than most families. We use a credit card for most of our purchases instead of cash or checks, and use that to monitor our family's monthly spending.

According to a recent Gallup poll, fewer than one-third of Americans follow a detailed written budget every month. Out of those who do, not all of them strictly follow their budgets. This may be a stark indication as to why American families are in financial trouble, with shrinking savings and increasing debt.

So why do we have such a hard time sticking to a budget? Perhaps we feel our spending is often too hard to track. If that's the case, we might need to simplify things.

Budgeting the Traditional Way With Cash and Envelopes

Many financial experts, like Dave Ramsey, recommend that families use a written monthly budget and account for every dollar they spend. Ramsey even goes so far as to suggest that families use a cash envelope system, in which there's an envelope for every category in your budgets, such as housing, entertainment, gas, or groceries. For example, if you and your family budget $100 each month for eating out, you would place $100 cash in an envelope. You spend the cash until it's gone. When an envelope is empty, your family has to stop eating out.
My wife and I found that the envelope system worked -- as long as I remembered to bring her the receipts after making a purchase. But I can't even remember to use a coupon I have in my pocket at the cash register most days, let alone track receipts. So the envelope method of budgeting just didn't work for us. That's why we switched to budgeting with America's favorite financial invention -- the credit card.

The Many Advantages of Budgeting With Credit Cards

You might not realize all the perks that come with credit card budgeting. Using a credit card for all our purchases gives us a real-time accounting of our spending. We can see exactly what we're spending and where it's going. And many credit cards will categorize your purchases on your monthly statement.

Cash, on the other hand, is a nightmare to track. It's far too easy to lose track of your cash. There's a reason people say cash burns a hole in your pocket. It's so very easy to fritter away. There's little documentation to accompany our carefree cash spending. When you use cash, you have to keep receipts and reconcile them with your written budget. But by using a credit card, you have a paper trail of your spending all in one place, either online or in your monthly statement.

Another advantage of using a credit card for budgeting is that it gives you an opportunity to accumulate reward points for your everyday purchases that you wouldn't otherwise earn. My wife and I pay our rent, utilities, cellphone, cable, and other monthly bills with our rewards credit card. We then earn an enormous amount of reward points through these purchases every month -- all while budgeting.

Consider Budgeting With a Charge Card

If you're nervous about budgeting with a credit card, consider using a charge card instead. Many people don't understand the subtle difference between the two. A credit card allows you to roll purchases over from month to month and only make a minimum payment. A charge card, on the other hand, requires you to pay off your total balance every month. Using a charge card allows you to build credit, earn reward points, and budget while not going further into debt.

As with any budgeting system, it takes effort, discipline, and consistency to make it work for you and your family. Budgeting with a credit card isn't for everyone. I understand that. My wife watches our credit card statement like a hawk every month to ensure that we're only spending the amount we've allocated. 

Another hang-up we sometimes run into is when a business doesn't accept credit cards. Believe it or not, there are still a few businesses out there that deal only in cash. For example, my wife loves to shop at our local farmers' market. This is always an interesting expense that we struggle to reconcile in our budget, but that's normal. There will be hiccups.

We budget with our American Express card every month. Some merchants still don't accept it, which makes budgeting a challenge. It's not always smooth sailing, but we do our best to make budgeting with a credit card work for our family.

No matter which system you're using, budgeting is hard work. But using a credit card for budgeting the vast majority of your purchases every month can be a great way to keep your family's finances on track.

So how do you budget? Have you ever thought about using a credit card for your family's monthly expenses? Or are you like so many Americans who are still struggling to write and follow a written budget every month?