Monthly Archives: February 2014

Why I Don’t Use Credit Cards

A few weeks back, a fellow personal finance blogger wrote that he earned an “easy” $1,000 last year from his credit card rewards. I posted in his comments section that I thought this was great! But I also made a comment that I don’t use credit cards.

Why not?

Well, my response in the comments was that I would prefer to trade the potential credit card rewards for simplicity in my financial life.

How Much in “Rewards” Am I Giving Up?

Let’s do some quick math. My average monthly expenses are roughly $5,000. Out of that, I would be able to charge about $2,250 onto credit cards. This equates to $27,000 per year that I would put on my figurative credit cards.

Let’s say that I could earn 2% cash back. That’s a whooping $540 in rewards for the year.

By not using credit cards, I’m not earning this $540.

Simplicity in My Financial Life

Instead of the $540, I am making my life a tiny bit simpler. Since I live on a budget, I am able to use my checkbook and debit card to pay for all of my expenses. Credit cards don’t even need to come into play at all.

I don’t have to carry around the extra cards, and I don’t have to remember to pay off the cards every month.

What Should You Do?

I don’t think that credit cards are necessary at all, and I recommend that you don’t use one. However, if you want to use them, keep these things in mind:

  1. The rewards really aren’t that great! Don’t let the rewards be the sole reason why you are using cards.
  2. Make sure you pay off your credit cards every month!
  3. You still need to operate on a budget.
  4. Credit cards should not be your “emergency fund” and should not be how you survive between paychecks.

If you like credit card rewards, then make sure that what you’re earning is worth the hassle. In my case, it’s not worth it.

 

My February 2014 Budget

A budget is the cornerstone of personal finance. To be able to pay off debt… or to save… or to have money to have fun with… you need a budget! For years I thought that a budget would be a very restrictive thing. But using a budget has given me control over my finances.

I absolutely recommend that you create, use, and stick to a budget!

Some Notes About My Budgeting System

Here are some quick notes about the budget I show below.

  1. I live on last month’s income. This prevents me from living paycheck-to-paycheck. The income I listed below was actually earned in January, but I didn’t budget it until now, in February.
  2. I run a zero-based budget. This means that I budget every dollar and every cent into some category. No money is left over (budget wise, not checking account wise).
  3. I have several payroll deductions from my primary income. Expenses like medical premium, vision premium, and group life insurance are not included in the table below. Also, my 401(k) savings is automatically deducted from my paycheck and not shown below.
  4. We use two joint checking accounts and one Health Savings Account. One checking account is strictly for savings (retirement, emergency fund, and college). This checking account holds money temporarily until it distributed to other savings account. After deductions, roughly half of my paycheck is directed into this checking account.
  5. A small portion of my primary paycheck goes into the Health Savings Account.
  6. The remaining portion of my primary paycheck goes into the second checking account, which is used for our day-to-day spending and bills. All of our other income also goes into the day-to-day checking account.
  7. The budget below breaks out my household’s day-to-day checking account and Health Savings Account, while keeping the, umm, “savings” checking account out of sight, out of mind.
  8. Lastly and most importantly: Even though this is what I have budgeted for February at the start of the month, I give myself the flexibility to move money from one budget category to another. What is budgeted at the end February is likely to be different.

My Actual Income for February 2014 (Earned in January 2014)

Let’s first take a look at my household income. I live on last month’s income, so this is actual money already earned (well, most of it is earned).

Income Source Description Amount
His Income #1 The breadwinner. Accounts for more than 75% of our household income. $2,284.09
His Income #2 My side hustle(s). Currently, just tutoring (didn’t earn any money in January). Hopefully, more side hustles to come! $0.00
Her Income #1 The wife doesn’t have a full-time job. This is from her wedding planning part-time job. $485.00
Her Income #2 She also watches two kids in the morning and afternoon. $275.00
ESPP Income Actually, in a convoluted way, comes from my primary income. I sell my ESPP stocks for more than $9,000 every 6 months. I “pay” myself $1,500 every month. $1,500.00
Other Income Interest, dividends, “free” company contributions to HSA. $388.82
Total Income Money, money, money…!!! $4,932.91

Again, this is what comes into our Health Saving Account and primary checking account.

My Budgeted Expenses for February 2014

From the income listed above, this is how I have budgeted for my expenses.

Category Description Budgeted Percentage
Charity Really, just our tithes for now. Seems disproportionate to our take-home income but is 10% of our gross. $800.00 16.2%
Child Care Day care (mostly; day care is expensive!), baby/toddler supplies (small portion of budget). $865.46 17.5%
Food Groceries, restaurants. $431.67 8.8%
Gifts Birthdays, Christmas, etc. (Umm, Valentine’s Day… oops, forgot about this!) $0.00 0.0%
Health & Fitness Medicines, prescriptions, office visits, gym memberships. $352.91 7.2%
Housing Mortgage, insurance, pest control, maintenance, repairs. $1,231.86 25.0%
Miscellaneous Ah, the miscellaneous bucket. Includes allowance for the kids and “his and hers” spending cash. $46.50 0.9%
Personal Clothing, hair care, financial planning, life insurance, taxes, organizational dues. $132.46 2.7%
Recreation General entertainment, birthday parties, kid’s activities, vacation. $46.31 0.9%
Savings College, emergency fund, retirement… above and beyond automatic deposits into the dedicated (separate) checking account. $0.00 0.0%
Transportation Insurance, gasoline, license, registration, maintenance, repairs, car replacement. $698.23 14.2%
Utilities Cell phone, electricity, TV, Internet, water, sewer. $327.51 6.6%
Total Expenses  The whole shebang… $4,932.91 100.0%

Some Final Notes

I am debt free (other than my mortgage) and have been for several months. I also have 6 months of expenses in an emergency fund. Currently, I am saving for retirement and for my kid’s college.