Credit card budget

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Earl Lemongrab
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Credit card budget

Post by Earl Lemongrab » Mon Oct 02, 2017 10:32 pm

There have been discussions off and on about credit card use. Studies have shown that people in the studies spent more with credit. I maintain that this doesn't and can't prove anything about individuals and their spending habits.

One of the handy things these days with credit cards is that they sometimes give budgeting information. Almost all of my CC use is on my best card, BOA/Preferred Rewards. I got the past 12 month spending report. There are a few other cards listed below for the same period. As I don't know any of you, I don't care if you see it. Here we go.

Bank of America cash-back card.
Based on the last 12 months of spending
Your average spending
$657/mo. per month

Your average monthly spending per category
$196.55 spent in Home & Utilities
$175.23 spent in Transportation
$137.81 spent in Groceries
$4.17 spent in Personal & Family Care
$83.68 spent in Health
$1.83 spent in Restaurants & Dining
$26.08 spent in Shopping & Entertainment
$23.52 spent in Cash, Checks & Misc
$8.33 spent in Finance

I have three other cards.

Wells Fargo, I used for the June insurance payment, home/auto/umbrella, pro-rates to:

Chase Freedom, I have my ATT bill auto-pay (they gave me a $20 gift card to sign up):
Also the quarterly spend grocery/drugstore April-June pro-rated adds:
$22/month Health
$36/month Grocery

My monthly newspaper subscription (yes I still read the dead trees) is auto-pay to Discover:

Chase Amazon
$41, $3.41/month gift card (that discounted deal they had, bought Kmart spent on apparel)
$60, $5/month medical
$60, $5/month shoes
$30, $2.50/month gift (there are other gifts somewhere buried in the other categories)

Let's go to the tape!

Home & Utilities
$196.55 + $80
This was mostly cable bill and trash service, but I also had an AC repair at the house. I have to pay the trash service, that's mandatory. Living without air-conditioning ain't living. The discretionary item here is cable at about $100/month. There are options, but this is the same package I've always had back to when I paid cash. So whether it's the best I can do or not, I would say that being able to pay with CC doesn't matter. Likewise the phone and internet, same as I've had for a long time. Perhaps need to revisit it, but it's not because I don't care due to paying with the card. I just need to think about options. Inertia and all that.

Gas is about $80/month, and I had about $1200 in vehicle repairs. I don't think much is discretionary really, unless I stay home all the time. I drive about 5000 miles a year, about half of that to work. I don't think using CC to pay for gas or repairs causes higher spend. It's not like I'm buying premium gas or spinning hubcaps.

$137.81 + $36
Naturally, this includes some non-food. One of the obvious categories for increased spending. Now, when I'm at the store, I shop hard. However, there are a few things like bananas (5 per week) and bagels (3 per week) that are bought each visit. I decided long ago that those were items I wanted. They don't go on sale often and you can't stock too well on them.

That's opposed to something like canned soup. That goes on sale in fall and winter and they have coupons. I don't like to buy it unless it's at least 3/$5, preferably 4/$5 and a coupon is a must. Same for cereal, I look for bargains. I bought Honey Bunches of Oats at $1.99/box with a $1 coupon on two the other day. Good value. These are things that stock well so I get them while the price is good and put them in the pantry to use as needed.

I always want meat to be a good price. Almost never eat beef anymore at home. Chicken and pork I look to under $2.50/lb. I have lots of good recipes and I'm flexible on what I make. Bone-in rib chops were on sale this week at $1.99/lb, so I have some of those. I drink a lot of diet soda, but I stock up when it's on sale and I have always bought it. No increase in consumption. In fact I drink less these days, because when I'm home I only drink two cans most days, and I started staying home an extra day each week.

Personal & Family Care
The only thing that fits into this category appears to be haircuts at Great Clips. Unless I cut my own hair, not much there. Again, used to pay cash, now use the card. Same place and frequency of cuts. I try to have a coupon. If I can't find one from GC, they will give you $2 for a competitor's coupon. Hey, two bucks is two bucks.

$83.68 + $22 + $5
Mostly drugstore, so some of this is food or other household stuff. Also doctor visits. Actually some here is more grocery, I get bargain cereal, soda, other items as they come up. Some OTC cold medicine, pain relievers and such, almost always get the store brand and get it when it's on sale. Bargains on toothpaste and consumer items on occasion. Lately I have gone on prescription, and there's some copay. Also doctor's office bills while filling deductible. Not much choice there. I had a one-time purchase of a medical device, after lots of review and shopping for the best deal.

Restaurants & Dining
Really going crazy there! Mostly I pay cash when dining. It's just easier.

Shopping & Entertainment
$26.08 + $3.41 + $5 Almost all of this was the $260 I spent on a replacement computer. I shopped hard on that. I'd challenge anyone to say that I overspent on that item. I got a nice refurb Windows 10 with 8GB RAM and SSD.

Something like a whopping $30 went onto the cards for apparel. As the Kmart card was spent on clothes, I put that here too, as well the shoes I bought online. So like an monthly average of about $11/month on clothes. Other than Goodwill, hard to cut that by much. I often do better online than I would in the store, and while you can pay with a debit card or pre-paid card, come on.

Most of my entertainment is actually paid in cash, because I go to hockey games (reimburse my friend for tickets by check) and eat out and stuff. You can use cards at the game, but it's a hassle and I don't like to hold up the line. Cash is quick. If they had a self-swipe/chip reader at the stands, I might use that.

Cash, Checks & Misc
$161.30 + $23.52
This is all insurance. Same coverage home and auto except I dropped C&C some years back. Now I did add umbrella a few years ago, but I don't think that was wild spending due to being able to put it on the card. And I got a $200 CC sign-up bonus.

I opened a checking account at a bank and put the $100 initial deposit on the card. So this wasn't really spent.

Newspaper subscription
$20. Certainly discretionary, but I've had this subscription for 30 years. Again, as it predates being even able to pay with the card, I don't think we can say that the card causes me to spend that.

So I really, truly, mean that I don't think I spend one extra dime due to being able to charge things on the card. Way back, there used to be the occasion at the store when you realize you don't have as much cash as you thought and you have to put some stuff back. But these days, if that happened you'd use your ATM card at the register to handle it. So the credit doesn't even make easier to spend money. Unless you cut that card too and went to bank to get cash at the counter.

People say that you don't notice the extra spending, but I notice everything I spend. Not a cent leaves my pockets, literal or virtual, without me having thought about that penny.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: Credit card budget

Post by Sandtrap » Mon Oct 02, 2017 11:01 pm

I use the credit cards for convenience, online purchases, security, etc.
Expenditures would be the same whether I used them or not, credit or not.

Balances are paid in full when due, as due. I also am very cognizant of every dime made and every dime spent.
Frugality is the norm for DW and I when young and thru retirement. I think it's lifestyle habits, maturity, and responsibility.

This is an interesting query. I think it would be the "boglehead" norm where credit availability would not increase spending.

But perhaps there are many many others that once having credit will overspend with the illusion of easy money and wealth.
I have had many a tenant purchase a new car when they were behind in rent. Is this human nature? :shock:

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Re: Credit card budget

Post by runner3081 » Mon Oct 02, 2017 11:06 pm

Sandtrap wrote:
Mon Oct 02, 2017 11:01 pm
I use the credit cards for convenience, online purchases, security, etc.
Expenditures would be the same whether I used them or not, credit or not.

Balances are paid in full when due, as due. I also am very cognizant of every dime made and every dime spent.
Frugality is the norm for DW and I when young and thru retirement. I think it's lifestyle habits, maturity, and responsibility.
Exactly my thoughts and how we handle things (though not to retirement yet)!

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Re: Credit card budget

Post by spammagnet » Tue Oct 03, 2017 6:46 pm

I suspect your personal observations apply to the majority of cardholders who spend their money mindfully. I also suspect those mindful spenders are a small minority of cardholders.

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Re: Credit card budget

Post by Jags4186 » Tue Oct 03, 2017 7:11 pm

I spend more money in 1 particular situation with a CC. The “oh I need this let me get it off amazon” when if I really had to drag myself to the store to buy it I probably wouldn’t. But that would happen whether I used a credit card, debit card, PayPal connected to checking so not really credit card related. I spend less than $1000 a year on amazon and get more than $1000 in CC rewards so it’s okay.

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Re: Credit card budget

Post by MnD » Tue Oct 03, 2017 7:31 pm

We take 100% of our decided upon savings out first.
That savings has always been a pretty big % of income and enough to meet all of our early retirement and shorter term goals.

That said, for 33 years now we have spent the remainder of our income like drunken sailors and that applied when we used cash, checks, debit cards and now credit cards. We are not frugal and don't budget. Now that we are at higher earnings the spend is embarrassing really, but it would be the exact same if we were peeling $100 bills off a big roll. If we want something and can afford it with our after-savings income we buy it. No guilt, no muss, no fuss.

We are good at making money and saving up front and good at spending money.
Our card rewards amount to several thousand in cash back and airline tickets annually (not counting sign-up bonuses) which is why we switched.
Not big bucks but better than nothing.

The majority of people are broke and stupid with money so it's not surprising most people overspend when given a credit card. Probably same story when that crowd was handed a debit card with an overdraft credit line.

Just because some or most treat credit cards like a 2nd paycheck doesn't equate to statements like "it's a fact you spend more when using credit cards".

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Re: Credit card budget

Post by lthenderson » Tue Oct 03, 2017 7:45 pm

I utilize credit cards for the 2% cash back on all purchases and the fraud protection properties. I think I'm more prone to overspending with cash on hand than credit cards.

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Re: Credit card budget

Post by veindoc » Tue Oct 03, 2017 7:53 pm

Im pretty mindful of my money but I do spend more with a credit card for sure.

If I was in the supermarket and I had $120 cash, I would be keeping a running tally of my expenditures the entire time. But if I had my credit card I would buy what I needed but if I saw something I used at a steep discount for sure I would stock up without a second thought.

I'm not an impulse shopper but if I'm set to buy something and I have my credit card handy I dont necessarily swear the extra stuff if I know I can afford it: pack of gum, cup of coffee, a side salad etc.

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Re: Credit card budget

Post by curmudgeon » Tue Oct 03, 2017 11:23 pm

I'm pretty conscious of our spending, and my first instinct would be to say, "no, credit cards don't affect our spending", but that would actually be wrong. We definitely spend more because we have credit cards. For everyday spending, there is not any real effect. We aren't going to change what we spend in a grocery store or restaurant. Where the big difference would show up is when travelling. CCs make it much easier to travel, and also easier to buy unique art or other local product which might not have been in our travel cash flow plans. Since we LBYM, the extra spending is not a problem, but a positive enhancement to our lives.

I know plenty of people for whom this is not the case, though. They don't have a good picture of their finances, and the CC lets them gloss over unpleasant details which might imply they need to delay their gratification.

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Re: Credit card budget

Post by BTDT » Wed Oct 04, 2017 7:33 am

I use my credit card(s) for almost every transaction over $20, and use it for automatic debit of utilities, SS, etc. I keep $500 cash in my wallet just in case (emergency breakdown, power failure, etc.). I check our credit card accounts two or three times a week and pay them off well before the balance is due. I can't honestly remember the last time I payed interest. My biggest 'sin' is Amazon and there I use PayPal. I also carry one credit card with a very limited balance for dining out as handing my credit card to a waiter who disappears with it for several minutes is really not my cup of tea, and thus far has led to three credit card replacements.

I also use USAA Banking that does the much the same tabulation as the OP's bank, but combines all of your credit cards and investments at various institutions into a web spread sheet, if you wish. It also allows you to create various sub categories, and look back at custom time periods. From a crypto-hygiene standpoint this may be 'hanging-it-out' a little, but I do use complex passwords and change them frequently, along with text notifications of withdrawals, and frozen accounts at the five credit agencies

Bottom line- I do not in anyway feel that a credit card causes me to spend more money than if using cash, and the rewards programs do provide some significant benefits. As a good Boglehead I have saved over time, LBYM, and can now pretty much afford anything I really want (I still don't have a private jet and business class is the most I can push my savings fetish :oops: ).
If past history was all that is needed to play the game of money, the richest people would be librarians.

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Re: Credit card budget

Post by takeshi » Wed Oct 04, 2017 9:37 am

Earl Lemongrab wrote:
Mon Oct 02, 2017 10:32 pm
There have been discussions off and on about credit card use. Studies have shown that people in the studies spent more with credit. I maintain that this doesn't and can't prove anything about individuals and their spending habits.
A lot of people seem to tend to conflate trends and specific data points. A given trend can certainly be valid even if there are outlier data points. Or, at least, people seem to assume that a trend means "all" when that's not necessarily the case.

Many people do tend to spend more with credit cards even though there are those that don't spend more with credit cards. The two aren't mutually exclusive.

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