Finance Challenge 2017 – Week #3

Week #3 is here! Last week I hinted that I would be creating a budget for this week. Unfortunately, I didn’t have sufficient time to test more than one product and in essence more than one strategy at budgeting. I tried to rack my brain for something “quick” that I could use for the challenge. I looked at what I was doing regardless of being on the challenge or not, and the idea of purchasing things really stood out. Think about it, whether this blog benefits you or not, you will still go out and buy things, even if it is just to merely survive another week. How can you save money on the purchases you have to make? Enter credit cards.

According to a recent Market Watch article, debit cards are used twice as often as credit cards here in the USA. What’s great about using a debit card instead of credit card, is that if you don’t have the money, you can’t make the purchase. With a credit card, obviously, you can take on debt and finance a purchase, which might not be necessary.  If you remember from my week #1 post, I mentioned Dave Ramsey and how I don’t always agree with him; credit cards are an issue where we part in thinking. Dave would have everyone buy everything in cash if possible, but a debit card is just as widely accepted. The issue is that credit cards offer a rebate to the purchases you make on them. If you had to buy a new set of boots to get through this winter for $100, you would pay $100 with a debit card. If you made the same purchase with a flat 2% cash back credit card, you would still pay $100, but you would get a whopping $2.00 back, effectively making the purchase $98.00. Imagine for a minute if every purchase you made, even most bills, cost you 2% less, how much could that save you at the end of the year? I can see why debit cards are popular though, because credit cards do have a hellish down side.

Credit cards charge interest that is well beyond the rewards or cashback received. An interest rate of 25% is very common. Make no mistake, if you fail to pay your statement balance each and every time you get your bill, that interest rate charge will wipe out any cost savings and make you regret that purchase, possibly for the rest of your life. The thing to notice though, is that if you do pay your balance off in full each and every month without exception the benefit is two fold. First, you earn rewards or cash back, and second you are getting a short-term interest free loan. The loan component is pretty neat, because it means that the money in your interest earning checking or savings account (like what was mentioned last week) will earn interest, until it leaves your account to pay your bill.

The main argument for debit cards over credit cards is usually the ease of over spending money. I’m not a psychologist, nor do I play one on the internet, but through my anecdotal research it appears that humans will make an unaffordable purchase more frequently with a credit card. But overspending isn’t limited to just credit cards, it is just as easy to spend money with the swipe of a debit card. The difference is knowing what you can and cannot spend each and every time you make a purchase, especially because a credit card will delay the monetary impact until a later date (i.e. your bill at the end of the month) versus a debit card where the impact is within a business day or two. And that ties us back into why having  a budget is so important.

So while I am fiddling with a budget, monitoring what exactly can and cannot be spent, I’m also trying to save money or earn more money. What I decided on for week #3 was to maximize my credit card rewards and cash back. This was made unbelievably easy with an app called, Wallaby.

The Wallaby app has a lot of features, but I only use one. It allows you to pick the credit cards you have and it lists off which card to use when making a purchase. As an example, I have the Discover It card, which rotates through categories earn 5% cashback. During Q1 2017 it earns that bonus cashback rate at “Gas Stations, Ground Transportation, and Wholesale Clubs.” Anything outside of those categories, it only earns 1% cashback. If I go to a supermarket and make a purchase, using the Discover It card may not be the best choice if I want to maximize rewards. I can use the Wallaby app and see which card would be the best to use in this situation.

wallaby-app

My goal is to always you the card that will have the highest cash back percentage. I haven’t run any hard figures yet, but saving an average of 2% per transaction for an entire year should at the very least help keep up with the pace of prices increasing for things I buy (see: inflation).

As a word of caution, the reviews for the Wallaby app have been turning negative lately with a lot of the features being packed into the app not working correctly. I haven’t run into any of those issues, because I only use this one feature. I also haven’t given up any of my personal credit card details as I try to keep that information off of third-party servers as much as possible.

As a final reminder, use credit responsibly or not at all. I don’t accept any responsibility for your credit usage.

Until next week!

 

 

 

 

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