By Kevin Gibbons
At The Savvy Life, we’ve talked about how complicated our finances have become in this age of technology. While we’re not advocating a return to fountain pens and double-entry ledgers, we do believe that everyone can use some help simplifying their financial systems.
One of the approaches we have taken ourselves, and recommend to clients and readers is to dedicate your credit card(s) for specific purposes. As an example, consider using just one credit card for all your recurring expenses, such as memberships, subscriptions and the like.
What is the advantage of this approach? It makes it very easy for you to track your spending on these recurring charges. It also makes it much more obvious if you ever become the victim of a fraud. Because you know what vendors are drawing on this account, and they should be the same every month, any unusual charge is much more likely to stand out when you review your statement.
Likewise, if you have a dedicated credit card for other significant categories of expenses, like travel, eating out, or on-line purchases, you can track and control your spending much more easily. You can tell at a glance how much you are spending in a specific area without having to partition the charges. Even if you use an on-line spending tracking tool, having the expenses also separated by credit card just makes it that much easier to see where you are spending, and to review to ensure the charges are legitimate.
Finally, separating your expenses this way can help protect you from identity theft. As mentioned above, if an “out of category” charge shows up on your credit card, you are much more likely to notice. Additionally, if one credit card becomes compromised, you may have an easier chance determining where the breach occurred. (If you only use one credit card for purchasing gas, and fraudulent charges start showing up, you can have a pretty good idea that it was read at a gas station.)
You don’t want to take this to extremes and carry 20 credit cards, each one for one narrow, specific purpose. That can become a challenge in itself to track and pay; not to mention, you run the serious risk of diluting rewards benefits if you have too many credit cards. But, if you have a good number of expenses concentrated in one area, consider having a dedicated credit card to pay for and track those expenses. It can make your life easier by cleanly compartmentalizing your expenses and bill-paying. And anything you can do to make your financial life less complicated gives you greater control while providing more time to do the fun things.
Kevin Gibbons is a Cash Flow Planning Expert, the Vice President of The Savvy Life and co-author of the international bestseller Living The Savvy Life. For the past eight years, Kevin and Savvy Life Founder Melissa Tosetti have worked with over 600 individuals and families to create Spending Plans.
They also work with financial advisors and their clients doing cash flow planning as well as giving Savvy Living presentations via webinar and in-person to audiences across the U.S.
To learn more about how Kevin and Melissa work with clients, visit The Savvy Life’s Programs Page.
If you’d like to learn more about how they work with financial advisors and their clients visit: The Savvy Life Advisor’s Page