How To Stay Strategic With Your Credit Card Spending

The allure of a credit card is a mixture of its promise of financial freedom and of special bonuses, or the opportunity to participate in rewards programmes.

But unless you’re spending far below what you should be, that financial freedom can be a trap. After all, spending more could mean owing more. The bonuses on the other hand, can be a goldmine. If you align your bonuses with your current lifestyle goals and spending, you can be racking up frequent flyer points and getting constant cashback without changing a thing. 

So to help you maximise your bonuses, here are our top tips for staying strategic with your credit card spending.

Create a budget

Record your money’s movements

The first step in creating a budget is to record the spending you do in a month or – even better – three months. Thankfully most of the work will be done for you if you use your card a lot, because your monthly statement will list your purchases for each store, but try to break these down into each item – it comes in handy later. 

Once you’ve got the big stuff listed, don’t forget about cash purchases either. Petrol, groceries, sunday lunches and everything in between should make the list and the more the better. And to write all this down you can use Excel, a budgeting app, or a good old piece of paper – just don’t forget that you’ll be using this method to keep track of your purchases far into the future too.

Organise & categorise your spending

The next step is to organise all these errant errands and everyday expenses into groups. Food, bills, and fuel are the big ones. After that comes clothing, events, gifts, maintenance, savings, and little treats. These groups should cover all the usual expenses that crop up each month and have an allowance for unexpected things like lost or broken items. Once you’re done you should have the totals for each category and a good idea of what your month looks like.

Determine your monthly income

If you’re paid weekly, fortnightly, or monthly this will be an easy calculation. If you’re working freelance or on commission, you should take at least two months worth of income and average it out. With your monthly income and your budget in hand, you can figure out whether you’re spending more than you’re earning, whether you want to be spending less on one thing and more on another, and whether having a credit card is a good idea for you– will you be tempted to spend more than you’re earning? 

Save first, spend after

Saving whatever you haven’t spent each month is the most common way to save, but it’s not very strategic. By paying to your savings first you have instantly put a cap on your spending and you’re forced to be thrifty or at least considerate with your spending. Some banks will even help you do this, having special interest rates for making consistent deposits to a savings account. After that, just make sure your credit card bill doesn’t go over what you’ve got left in your spending account and you can enjoy the bonuses risk-free. 

What you use your savings for is up to you, but generally you want a cushion of emergency savings. A couple thousand dollars that will help you feel safe, and will make it easier to deal with unexpected repairs or debts. 

Make a debt reduction plan

Though debt is often avoidable, there are exceptions, and knowing how to deal with debt when you’re faced with it can save on stress. The most common debt plan is called snowballing. You collect your debts into a list, then order by smallest to largest. Since the first payment is always the most painful, seeing one small debt disappear immediately can be heartening and reinforce the behaviour. After that, work your way through the list – and remember to make your debt payments before you start your monthly spending. 

Keep in line with your budget

Once you have a budget in place, you should update it every time you buy something. Even small things like the odd milk run can add up, so be consistent. If you notice Numbers that aren’t lining up with your budget, you’ll either have to hold off on unnecessary spending for a couple days or reevaluate your budget. 

Make credit card rewards a bonus for budgeting, not a goal

Spending more might look like you’ll get more points and bonuses from your card, but then you’re at risk of creating debt. By following your budget you’ll be maximising your rewards without running that risk, and that means those rewards are all bonuses. 

By thinking of your rewards as a treat on top of your budget, you can use your loyalty points for the fun stuff you might’ve cut out of your spending budget. Whether that’s a new hairdryer, a box of chocolates or an end-of-year trip to Noumea is up to you.

Tell your friends and family about your budget

If you’re not spending your money on your family, you’re probably spending it with your friends, so if they all know what you need to cut down on and why, they’ll be able to help. Or at least they’ll understand your goals better. Instead of brunch at a cafe, they might suggest coffee at the park.

Your children might not understand the fine mechanics of budgeting, but if they know you’re trying to spend less they may ask for less. At the very least, you’ll get some support and accountability for sticking to your budget.

A budget is a living thing, it should grow and change along with your lifestyle. For some, changing it every month may be too often, and for others it may be just right. As your income and expenses change, so should your budget. But so long as you’re paying attention to it, you’ll avoid debt and enjoy your rewards.