For those who have traded cash for plastic

How to Stick to a Budget and Still Use Credit Cards

by Gary Foreman

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I was hoping you can help me solve a problem I have encountered while trying to live on a budget. I have created a budget with a fixed amount that can be spent on certain items, i.e. entertainment. At times, I go over this amount. I charge everything on my credit card, in order to receive a cash back bonus. My bill arrives the month after I overspend. That affects the cash flow for the next month, not the overspent month. I can't figure out how to balance my budget, because my statements do not run on the calendar month like my budget, but it goes from the 11th to the 11th of every month.

My problem is applying my budget to real life, because I still want to use my charge card to pay for everything. Can you please help me figure out this problem? I have tried over and over to figure it out and I'm stuck.

A budget is meant to be a tool to help you control your finances. And like other tools, finding the best one for the job makes things much easier. You can't use a framing hammer in place of a tack hammer. Budgets work the same way. You need one that's designed to accomplish your goals.

There is no one official budget. Celia will want to find or create one that works for her unique situation. Part of that is deciding exactly what she wants to accomplish.

Budgets are primarily useful in two ways. One is to stop any spending over a preset amount in a specific area. Another way a budget can be helpful is as a tool that will help you find unnecessary spending.

Although Celia doesn't exactly say what she's trying to accomplish, it sounds as if she's hoping that a budget will help her stop spending after she gets to a specific amount.

If that is her goal, she'll find it hard to continue to use credit cards. That's because credit cards are designed to make it easy to spend money. Even money that you don't have.

That doesn't mean that she should give up. The first thing she needs to recognize is that you're spending money when you make the purchase. Not when you get the bill. The only 'purchase' that you make at billing time is the interest and any annual or late fees that are associated with the credit card.

So, instead of depending on her monthly statement, Celia might need to keep a spending record for each category in her budget. When she makes a purchase, add it to the list for the appropriate category. When the total for the category is up to the budgeted amount, it's time to stop spending for the month.

Expert Interview: Why You Need a Spending Plan Instead of a Budget

If she really wants her budget to keep her from spending more than she planned, the simplest solution would be to ditch the credit card and just go to an envelope system. An envelope system has an separate envelope for each category. At the beginning of the month, she'd put the appropriate monthly amount of cash into each envelope. Purchases are made with cash from the envelope. When the money is gone, the spending stops until the next month.

Related: The 'Envelope System' in a Cashless Society

It sounds as if Celia might be using the credit card statement to tell her where she spent her money each month. If that's the case, she might want to change her 'budget month' to begin on the 11th. Or she could ask her credit card company to change her billing cycle. That way her credit card billing and budget periods would coincide.

Another possibility would be for Celia to simply adjust this month's budget allocation for any overspending that occurred last month. If she went $10 over her entertainment budget, she'd simply have that much less for entertainment this month. It would require monthly adjustments. And the temptation would be there to continue to carry over-budget expenses from month to month and never really control spending.

Not sure where to start with making a budget? The affordable Home Budget Spreadsheet from makes budgeting simple.

Celia needs to recognize that a budget is a continually changing thing. She's going to want to adjust the amounts as she learns more about her spending habits and as circumstances change.

One final comment. However Celia proceeds, she'll be much more likely to be successful if she keeps it simple. A budget shouldn't be any more complicated than is absolutely necessary.

Reviewed August 2017

Gary Foreman

Gary Foreman is a former financial planner and purchasing manager who founded The Dollar website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, and Gary shares his philosophy of money here. You can follow Gary on Twitter. Gary is also available for audio, video or print interviews. For more info see his media page.

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