For many people a credit card is a great way to manage a financial budget. They allow for unexpected expenses and can help when in a financial bind. After using it, simply repay it in full or in installments at a later time.
Although this seems like a great way to stick to a budget and have the ability to splurge on the side, credit cards can actually be quite dangerous. When you consider the interest rates, annual fees, and late charges, the little life saver can quickly become a very large expense. Having a budget that does not include the plastic lifesaver, is actually a more financially wise way of approaching life.
How do you create a credit card free budget? It takes a little planning and a lot of determination. The basic answer is to be honest about your expenses and plan liberally for the future.
Get started by making a list of all your income and expenses. Include regular expenses as well as annual expenses such as holidays. Review the list to see if your expenses are greater than your income. If they are, there is your first problem. You will need to find a way to cut back on your expenses. If your income is greater than your expense, well done! You already have a good start.
Now it is time to add in the unknown expenses. This is when you think back to all those financial misfortunes you have had. Remember the car repairs last spring or the broken leg two years ago. Those are the types of unexpected expenses that will quickly lead you back to the credit card. Add these unwelcome expenses into you budget because they will eventually happen again.
Check again to see if you income is greater than your expenses. If not, see if there is anyway you can cut back, or think about a part time job to pick up the slack. After you make sure you can cover all of the current expenses, multiply your monthly expense budget by 10% and add that as an expense. This is the just in case expense. I like to refer to it as the just in case I need a vacation to somewhere tropical expense.
Following this budget for at least a year should leave you with a surplus of at least one month’s income. Best part is, you shouldn’t have to pull out the credit card. Unless, of course, you need a rental car on the way to the airport.