I’ve decided to start a new series entitled, “Credit Card Enlightenment” revealing a portion of what I spend on a monthly basis from my personal credit card and any enlightenment that is found through the analysis. This monthly series will be a good way to track expenses and keep things from getting out of control as peripheral income grows. In other words, tracking credit card expenses is one way to battle lifestyle inflation.
The use of credit cards is critical in the way I spend. I buy items with confidence knowing that I have 30 days interest free to pay it off. I also like how credit cards provide reward programs and buyer protection in case of product dissatisfaction and fraud. Finally, I do not like carrying much more than $80 in my wallet. Credit cards are easily replaced if my wallet is lost or stolen, whereas cash is usually gone forever.
Besides my mortgage, my credit card is my largest monthly expense. I own three cards: a corporate card for work, a corporate card for my online business, and a personal card. The discretional spending really comes from my personal credit card, hence this card is what I will focus on in this post. I try and put everything other than business expenses on my personal credit card because the credit card tracks all my expenses, provides free financing, and produces rewards points.
PERSONAL CREDIT CARD EXPENSES FOR NOVEMBER, 2011
My goal is to spend $1,500 or less each month on average. $1,500 is the normal monthly operational costs, which excludes big ticket items such as the two week cruise. Did you notice the line item that says, “No idea!”? I don’t recall charging such a large amount on anything since coming back from Europe, so this mystery charge is quite alarming. If one excludes the $690.50, I spent around $1,000 for November which is in the ball park.
As you can tell from the entries, my largest expenses are food and tennis. It’s not a surprise since I love to eat, and I play tennis three times a week on average. My tennis club bill includes all food expenses, guest fees (I have a lot), and anything I buy at the proshop e.g. strings, grip, shoes, hats and so forth. Tennis is part of my lifestyle that I love and can’t do without. There needs to be a balance with the mental (writing, work) and the physical. I’m really not into spending money on clothes or other material items beyond what I need for sports and work.
PAYING IN FULL
Paying one’s credit card bill in full every month is a must. Credit cards charge some of the highest rates around, second only to perhaps payday loans and the black market. My credit card interest rate is a ridiculous 10.25%, which is high given the 10-year yield is only at 2.37% as of June 2015. My primary home mortgage rate is only 3.125%, therefore it’s clear that my credit card interest rate is relatively absurd. The good thing is that the high rate is all the more reason to always pay the bill in full every month!
I seldom ever look at the line-items in my credit card statement, only the total. If the total is under $1,500 or right around there, I’m complacent. If the total is much higher than $1,500, I eyeball the largest figures and figure out whether they are “one-off” or recurring and adjust my budget accordingly. I’ve got to change this habit with this monthly credit card series post.
To help put things in perspective, I save 100% of each bi-weekly paycheck and about 20% of my second bi-weekly paycheck a month to target at least a 60% after tax savings rate for the year. There is also a potential year end bonus I’m eligible for if the world doesn’t come to an end. Based on this math, you can calculate what I make a month at least, and draw your own conclusions about being frugal or excessive as this series goes on. The online income I make is entirely separate, and would correspond with my online business corporate card.
CREDIT CARD ENLIGHTENMENT
The enlightenment in this post is that I’m not as detail oriented with my finances as I thought. After doing some research on what the $690.50 charge is, I confirmed that the charge was for a rental property appraisal as part of my refinance, which is reimbursable. It’s somewhat worrying that I couldn’t recall what this relatively large charge was for. It could mean that I either make too much to notice, or am lazy and don’t really care. I think I’m the latter, and also too trustworthy to believe all charges are legitimate and must be necessary otherwise I wouldn’t charge it!
Furthermore, I realize that I spent ZERO in gas in November thanks to the sexy bus, while common expenses such as internet access and mobile phone usage are charged to my online business corporate card. I also have a partner who alternates with the personal bills, such as groceries, cable, and utilities as well. Hence, if I were to add up my personal credit card bill and hers, I would venture to guess we average $1,500-$2,000/month.
I encourage everyone to keep track of their monthly expenses in such a way that things are as clear as day. We do the same exercise when we want to lose weight, there’s no reason not to do the same thing when we want to control or reduce our spending.
* Shop Around For A Mortgage: LendingTree Mortgage offers some of the lowest refinance rates today because they have a huge network of lenders to pull from. If you’re looking to buy a new home, get a HELOC, or refinance your existing mortgage, consider using LendingTree to get multiple offer comparisons in a matter of minutes. The Fed is signaling interest rate hikes due to inflationary pressures now. When banks compete, you win.
* Manage Your Money In One Place: Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances. You can use Personal Capital to help monitor illegal use of your credit cards and other accounts with their tracking software. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.
Photo: Wooden Mini Gong For Enlightenment, Sam.