I experienced a few ups and downs this past year, including purchasing my first house and replacing my car when it was unexpectedly totaled. As you might expect after such events, my budget went a bit haywire.
So, I was going to challenge myself to take back control of my finances by reviewing my credit and debit cards at year’s end to see where my money was really going. And for fun, I was going to let you guys in on the process. In my mind, everything was fine. I just needed to create a new budget, make adjustments and write up a fun, informative article.
Then, I did my review. Turns out I was wrong about everything being alright. Let’s take it from the top.
How I reviewed my cards (and why you should too)
How to best do this can vary depending on your preferences. I’m a paper-and-pen type of person, so I pulled out the pens, printer and highlighters and got to work.
I followed Alex Gailey’s process of using card statements to audit my finances, taking care to check my credit report and manage my subscriptions. I reviewed each transaction from the last six months and followed where my money was going, labeling every necessary expense and fun splurge.
After about an hour of categorizing, calculating, a lot of eye-opening bills and general panic, I came to a solid conclusion. The good news was my credit report was nice and clean and all my necessities were paid off regularly. But the bad news: I had no savings left to my name.
First, an explanation of ideal budgeting
Generally, it is advised to stick to the 50/30/20 rule for a budget:
- 50 percent of your budget should go toward necessities
- 30 percent toward wants
- 20 percent toward savings
With this method, your needs are top priority, and it gives you room to save without sacrificing fun money. On a steady income with predictable bills, it’s pretty easy to maintain, especially with options for account alerts and the availability of automatic payments. However, the issue with this is that this ignores a very present and persistent fourth category: unexpected expenses.
In a perfect world, unexpected expenses would simply be covered by savings. However, you never know how often these expenses can come up. So, if there are two unexpected expenses just in a month, your savings might not have enough time to replenish. That is what happened to me.
What’s going on?
Though I was managing the occasional surprise house expense through my savings, that went out the window when my car was totaled. That one event added $300 to my monthly expenses for the next few years, not including the maintenance that it would need soon after, adding a $1,000 expense that I did not see coming. And while I wish I could say this was the last unexpected expense, there would be a new one every few weeks on top of the general rising costs in the U.S.
Every month, I ride a thin line of basically hitting zero in my bank account. Yes, every necessity (mortgage, utilities, credit card payments, etc.) will be paid for. However, there’s very little left after everything is said and done, and my savings are pretty much on life support.
The awkward work conversation
I had no money. I also have no extra time. It’s not the most uplifting thing to say, but it’s the reality. And while I do have a side hustle that brings in some extra income, it’s not enough to make everything okay.
It’s uncomfortable and a bit embarrassing. But as I learned when explaining this to my co-workers, it’s not rare.
“I bought my house in March 2022 in a tough sellers’ market where no one was offering seller concessions or paying for repairs. I still had an inspection done so I knew the house needed some work, but I wasn’t quite prepared for a new HVAC system, electrical box and major plumbing repairs, among other issues, in my first few months after buying,” noted Sarah Gage, Senior Editor of the Credit Cards team.
Sarah Gage, Senior Editor, Credit Cards
“After my husband and I were married about two years ago, we have come to terms with the realities of cost of living, like any couple would. Both of us went from making normal regular payments on our credit cards with zero debt, to thousands of dollars in debt.
Mind you, we moved into an apartment and did not buy a new house until 2 years later.
We actually didn’t buy a house until earlier this year, in February,” Daniella Ramierez would later tell me when I told her about this article.
Daniella Ramierez, Associate editor, Credit cards
Having these conversations was not only eye-opening but also a relief. I didn’t feel judged like I thought, instead realizing that it was a part of experiencing big changes. So, now it was time to face the hardship.
Bouncing back
When I first finished my review, I felt my only viable option was selling my house and “cutting my losses” for not correctly figuring out the American dream.
Stepping back from the cliff edge, I realized that wasn’t a fair assessment of what was happening. I didn’t go out of my way to be in debt. I took care of my responsibilities as best I could, but life brought more than I was expected or prepared for. That doesn’t mean I failed. Nor does that mean that there’s nothing I can do. In fact, I have a few things on my list that can ease the burden:
- Redeeming my rewards: I am notorious for using a card and completely ignoring the cash back that I earn. It can feel complicated trying to redeem the points for travel or shopping. However, redeeming rewards for statement credits can be a helpful way to combat expenses without adding any spending guilt.
- Cutting back on the “treats”: I tend to treat myself once a week. Unfortunately, when I treat myself, I go big. Typically, with a standard 50/30/20 budget, I’d be below my means. But that’s not the reality right now, so I’ll need to adjust accordingly.
- Assigning my cards to specific purchases: I want to rearrange my payments so I can have a dedicated card for automatic payments and subscriptions and then a general catch-all card. This will not only help me maximize rewards but also help me track my spending. With my recurring payments outlined on my statements, I know where to make those changes.
- Using the credits on my card: I never used the free credits on my card because when I first opened the accounts, the cards didn’t have them. When the issuers added them, I always got nervous that I would miss a term or condition and accidentally add an extra expense. Now that I’m more experienced in using a credit card and paying attention to the fine print, I’m comfortable taking advantage of these kinds of card perks.
- Looking for refinancing opportunities: These last few years were not the kindest when it comes to interest rates. With rates finally creeping down, I’m hoping to find opportunities to lower the bills on my larger expenses.
- Setting a new financial goal: For years, buying a house was my goal. Now that it’s achieved, I don’t know what I’m saving for beyond a general emergency. By creating a new goal, I hope to give my finances a greater purpose beyond surviving.
For all intents and purposes, I’m still making ends meet. The mortgage is still paid, the car is far from being towed, there’s food in the fridge, and the lights are still on. I still have a bit of wiggle room to save some money here and there. There are also things I can do to change my situation, even if only a little bit.
For now, I’ll do my best with what I have. And hopefully, this article has inspired you to do the same.
Read the full article here
