Financial Freedom: 5 Rules of having a Credit Card

Credits cards are like health and fitness: There are a lot out there, and something that is right for one person may be totally bonkers for another person. Try to not get confused as to whether or not a credit card is for you or if the "envelope system" is a better choice. Go with what works. 

For me, I use credit cards. If you're going to use them, though, there are some rules I stick to no matter what. 

1. Have a budget and know what it is before making a purchase. 

When it comes to creating a budget, there are so many ways out there to do it; it can be so confusing. I, personally, have looked at a lot of different budget systems, and honestly, I do not use any of them. We have a house payment, utilities, garbage - all of that fun stuff. That is budgeted first. These do not really change month-to-month so that is pretty easy.  We have a set checking account where we put that money, and it gets taken out each month. We do not even "see" it, so it is like we do not even have it. Then, like I mentioned in my first entry, Tyler and I have money that goes into our separate accounts. I believe separate accounts for certain things is important; it's a mental thing. You don't see it, you aren't tempted to spend it. What I have: joint checking (bills), joint emergency fund savings, my checking ("free money"), and my own savings (this is for long term so that I do not have to dip into an emergency fund, i.e. car problems, vacations, etc.)

The "free money" is where it gets tricky (for me, at least). What I recently started doing is putting $60 of that money into my savings account. This is not a percentage, it is just what works for me. I think this is the biggest thing. You should save money, but those icky percentages that people throw out there don't always work for people, and that is what originally held me back. I had in my mind that I had to have a certain percentage and it was an all-or-nothing thing. I'm here to tell you, it's not. Do what works for you. The rest of the money that goes into that account, I can do what I want with. Something I recently heard is know where you want that money to go, too, before you do anything with it. This has been something I've never done. I mean, I have an idea, but this is where you need to dig deep, what is important to you? Going to nice dinners, clothes or shoes, video games, whatever it may be. Just decide what is important so when you spend that money, you aren't feeling guilty and you are happy with where it is going. 

2. Never make a purchase without having the money in your account already.

Knowing where you want your money to go is going to help with this step. First, you never know what life is going to throw at you. Whatever you do, do not dip into your emergency fund unless it is actually an emergency. Now, since you know exactly how much you have to spend on what you want, since you have a budget, you should make sure you actually have enough money for your purchase before purchasing it. If you want $100 item but you only get $50 a paycheck - then wait! Also, a benefit of waiting a couple weeks to purchase something you think you want, you may change your mind. 

3.  Always pay them off in time. 

If you are waiting to make a purchase until you actually have the money in your account, this step should be simple. For me, as soon as the purchase goes through on my card, I pay it off. It helps my credit score, too ;). 

Let's say for argument sakes, you couldn't help yourself (sometimes this happens in the beginning of creating a budget because you are used to just spending whatever, whenever). This is where your savings comes into account. I wouldn't suggest dipping into it monthly because you'll never save any money, but you should strive to always pay off your credit card because interest rates on them are the WORST. Only dip into it if you need to. Generally, if this happens to me, I can wait until my next paycheck and just be extra careful with that payday. This, however, is also not suggested because that can add unnecessary stress. It is just easier to only spend what you have. You get the rewards and you don't have to pay the interest. Win, Win. At least for you, not the credit card companies banking on your interest. 

4. Do not have too many. 

You'll hear me say this a lot, but do what works for you. For me, managing three is a good number. I have one specifically for my side business, one where I earn good rewards with our joint account expenses, and the other is where I earn good rewards for things like, gas, restaurants, and Costco. The last two can overlap a little bit with where I take the money from, but if I stick to my rule of paying them off right away, it doesn't get confusing of what comes from where. That's why three is a good number for me; if I had anymore, it would start getting confusing. Plus, I wouldn't want to risk missing an expense on one because I have too many to check each day. 

5. Pick the right ones for you. 

You can do a simple google search to learn about credit cards to determine what is right for you. Do you like to travel a lot? Maybe an airline card is for you. Could you just use extra cash? There are many different cards that give different interest rates based on different categories. I'll go into more details on my thoughts on some different cards and what I have and why in another, more focused post. For now, just make sure you look at different cards. Pick the best for you and your situation! Be smart. 

What if I already have credit card debt?!

If you currently had credit card debt, work on paying this down. Interest rates on credit cards are much higher than student loan debts, and if you are only paying the minimum, it is very likely you'll pay more in the interest you've accrued over time. If it is going to take you a little bit to pay it off, give your credit card company a call and ask them for a lower interest rate. It doesn't hurt to ask, right? I will, again, reference "I Will Teach You to be Rich" as a great resource for lingo on asking for a lower interest rate.