Why I Never Look at My Credit Card Balances: Effective Budgeting 101
Here’s an interesting, clickbait-y truth for you:
I set all five of my credit cards to autopay and never look at the balances.
I don’t really look at my checking account balance, either. I know there will be enough money there to pay off all five of them, every time.
How?
Is it because I’m rolling in cash? Nope.
It’s because I’ve mastered my cash flow with two simple tools: My Wealth Planner and the Copilot app.
While majority of my content can be summarized by the phrase, “WE AREN’T THINKING ABOUT THIS ENOUGH! Don’t accept conventional wisdom as gospel truth!”, today’s post is the opposite. The headline is: Don’t overthink it.
I get a surprising amount of questions about how budgeting by monthly spend works when you’re using credit cards to do all your spending. It goes something like this:
“I want to budget for the month of July, but my credit card statement closes on July 14. Should I be budgeting from the 14th to the 14th instead? What do I do?” Panic ensues.
The simple truth about how credit cards impact your budget:
They shouldn’t. Seriously!
If when your credit card statement comes due is impacting your ability to budget, you don’t have a budget problem – you have a cash flow problem.
What does this mean in practice?
Every time you swipe your credit card, imagine it’s a debit card.
That means you can imagine the money is physically leaving your checking account the moment you make that credit card transaction.
It doesn’t matter when you actually pay the credit card bill, or where you are in your monthly credit card cycle. The credit card is merely a spending tool that functions on a delayed timeline.
And how do you keep track of all that imagined money leaving your checking account, when in reality, it’s still sitting there? Easy: Having an actual plan.
So imagine the credit card is eliminated from the equation for a moment:
If you make $4,000 per month and you’ve budgeted to spend $3,000, that means – by the end of that month – you’d have brought more money in than you spent. By definition, this means that – regardless of where you are in your credit card statement or when it comes due – there should be enough money in your bank account to cover the bill, simply because more came in than went out.
When the credit card bill for those 30 days comes due a month later, the money should still be sitting there, ready to pay the bill – because you were working from a set budget and treating the money as if it were leaving the checking account as soon as the purchase was made.
A good budget enables you to spend according to plan without ever looking at your checking account
…though I wouldn’t recommend ignoring your checking account, theoretically, you could.
Using our example budget mentioned above…
You might know that, every other Friday, $2,000 hits your checking account. You might also know that on the first of the month, you pay $1,000 to your landlord. The $1,000 should still be sitting there from last month, if you spent according to plan.
This is why we sometimes refer to making purchases with “old” money – you want the money that you earned last month to be paying for the things you’re buying this month, instead of the money you earn this month (or worse, next month) paying for this month’s purchases (that’s effectively what it feels like when you’re paycheck-to-paycheck).
You’d record your anticipated income for the month – $4,000 – and monitor your spending as you go. Once you hit $3,000 spent, you know you’re done. Anything over that $3,000 will dip into the $1,000 you’ve earmarked for saving or investing, and that’s no bueno.
Without ever looking at your checking account or credit card bill, you become intimately familiar with where you are, spending-wise, in the month.
The reason why not budgeting doesn’t work for 99% of people
Let’s think for a second about how spending throughout the month would look without any sort of plan or parameters:
How would you know how much you can spend? How would you know if you can afford something or not?
Well, you’d probably look at your checking account.
“Hm, all right – I’ve got $5,000 sitting here. I can afford this $300 thing.”
…but what if you’ve got rent due in 5 days? And the credit card bill comes due in 14? And your car payment and car insurance next week? Shit, you’ve got a lot less free-wheeling spending money than you thought.
When you’re looking at the present balance of your checking account in a vacuum as a gauge for how much you can spend, it’s nearly impossible to make accurate decisions – because you aren’t taking into account the upcoming expenses that the money may already be earmarked for.
For example, if you’ve got $5,000 in checking, your animal brain goes, “Great, I can spend $5,000.”
In reality, $1,000 may be earmarked for rent, $3,000 may be going toward the credit card bill, and $500 could be going toward your car payment and insurance – all within the next two weeks.
Those are expenses that aren’t immediately obvious to you if you don’t have a plan.
And you know why? Because humans are inherently bad at intuiting this type of shit. It’s not you. It’s all of us. Without a plan, we’re flying blind.
In that example, a whopping $4,500 of that $5,000 was already claimed – we just didn’t know it yet, because we weren’t looking ahead. We were looking at the present balance of our checking account and thinking, “Dope, $300 is nothing!” In reality, $300 was more than half of the actual available balance when you factored out the $4,500 that was needed for upcoming bills.
And that’s the trap of thinking you don’t need a budget.
We act like budgeting imposes stress and effort on our lives, but in reality, not having a plan is often far more stressful
And as the Budget Like a Millionaire Masterclass teaches, you don’t have to be super granular in your budgeting for it to be effective – you really only need to know a few things:
How much you can anticipate to earn each month
How much you have to spend (roof over your head, food in your belly, etc.)
How much you want to spend (discretionary spending; put differently – how much are you comfortable spending?)
How much you can invest
It shouldn’t be too difficult to answer those four questions, and the goal is to maximize the “invest” facet while still enjoying your life.
From there, you treat each month like a fresh start. On the first of every month, the clock resets – you turn into a magic pumpkin, click your ruby red slippers three times, and begin again (I’m mixing a lot of Disney princess metaphors here, since the impact of budgeting is so magical).
You record the income as it comes in, as well as how you’re tracking toward each spending parameter.
Even if all the spending is happening on credit cards, it shouldn’t matter – as long as you’re building buffer into the plan itself, there should always be enough money in your checking account to pay the credit card bill.
In fact, I’m going to go out on a limb and say: If you’re afraid to set your credit cards to autopay because you don’t think there’d be enough money in your checking account to pay them, you’re overspending. Plain and simple. That’s the tough love some of us need sometimes.
Setting a credit card to autopay should be a natural extension of actually executing your plan.
That’s why I feel like people who don’t budget aren’t overspending from a lack of discipline – they’re overspending from not having an accurate perception of how much they can actually spend.
How I manage my budget each month with five credit cards
My plan is laid out in my Wealth Planner. I know exactly how much I’ve allotted to each category, and have a rough idea of how much money will be coming in – which means I know how much margin I can expect.
Here it is:
All of these categories exactly match my categories in my Copilot app (if you try it out, the code KATIE2 doubles your free trial length).
The Copilot app is hooked up to all of my credit cards and checking account, so every single transaction gets automatically captured and recorded in the app. I wrote a full review of the Copilot app here, because I know y’all wanna hear the #truth.
Throughout the month, I look at my Copilot app every single day.
Why? Because adhering to the plan I’ve set out for myself is important to me.
I know how much I have to and want to spend, because I know how much I have to invest to hit my goal of retiring before age 35 with $1.5M.
The Wealth Planner provides the blueprint or roadmap, and Copilot is like the turn-by-turn navigation – making sure that, each day, I’m not doing any stupid shit that’ll totally derail me.
Here’s a screenshot of my Copilot app from a few months ago (my budgets have adjusted slightly, so it may not match one-to-one):
RIP to my old cheap rent.
At the end of the month, I record my outcomes from Copilot in the Wealth Planner for the month.
Over time, this paints an incredibly detailed, realistic picture of my spending behavior. Look:
It enables me to never bother looking at my checking account or credit card statements.
The intimate relationship I have with my spending makes managing money entirely stress-free, which is the grand irony of actually doing the damn thing.
Most of the time, the anxiety we feel around money comes from the overwhelming uncertainty and black hole-y approach so many of us use with our spending behavior, checking accounts, and credit cards. We just close our eyes and hope for the best, and that feeling sucks.
Sure, I may have to deny myself something I want because I can blatantly see that I’m $35 over-budget in the Copilot app, but it helps me to experience the pleasure denial in the moment and avoid the pain later – versus spending like it’s my last day on earth and discovering the following month when the credit card comes due that, Oh shit, I don’t have enough to pay this.
If you need help setting up a really solid, accurate budget and want someone to hold your hand through it, the Masterclass is worth your time.
And if you just needed a kick in the ass to actually set up your Wealth Planner and stick to your plan with an automated assistant like Copilot, that’s what I’m here for.
Resources mentioned in this post
The Budget Like a Millionaire Masterclass ($127 one-time cost; it includes a free Wealth Planner)
The Wealth Planner ($25-$30)
Copilot ($5.99/mo. with an annual subscription; the code KATIE2 doubles your free trial length)
