Before we get to today's story, a quick recap on all the things we covered this week. On Monday we talked about Lay's and the potato conundrum, next we discussed vaccination and incentives. On Wednesday we tried to work out the real costs associated with a private jet boom, then we took a lot at the monetary policy review and finally we discussed the AWS outage.
Also, on the Markets edition this week, we have an absolute banger for you. It's about MapmyIndia and their massive ambition to take on the Goliath i.e. Google Maps. Link here.
And with that introduction out of the way, let's get to today's story, shall we?
Budgeting was fairly easy when I was growing up. I used to get my monthly pocket money — which I often earned by doing some chores or running errands — in cash and I’d stash it away in my bedside drawer. Since I didn’t have to worry about paying the bills, I could save it and then spend it all on whatever caught my eye.
But soon, the real world came knocking. Suddenly I found myself with multiple debit cards. But, things were still on track with my budget. Even when I swiped the plastic debit cards, I could see the money leave my account. And so I knew how much was leftover in my account always.
Then came credit cards. And boy did that throw a spanner in the works. Now, I could swipe my card and my bank account balance wouldn’t budge. I could then swipe my debit card or use instant payments like UPI too. I could spend money that was in my account. I could spend money that wasn’t in my account. What magic! Unfortunately, my old tricks of budgeting didn’t quite work as well anymore.
So, I decided to do something controversial…use only one credit card for my expenses. You read it right. I did say credit and not debit. It’s not something that most people will advocate, but as we’ve said earlier, you need to find a budgeting hack that works for you. It isn’t a one-size-fits-all solution. And since so many of you asked us to cover this bit, we thought we'd take a personal example to outline how you can use your credit card effectively.
When I was using multiple payment options, tracking daily expenses in a spreadsheet became a chore. I quite hated it. Now, by using only my credit card, I don’t have to track every little daily expense. It takes away the stress and at the end of the month, I get a single figure to focus on — the total amount due. It’s a simple topdown view that tells me how much I’m spending.
And, by scanning the statement, I also know exactly what I’ve spent my money on. It’s much easier for me this way. Also, while it’s about time banks categorise the spending, there are apps out there that can help you do it. Assuming you give them access to your emails (which can feel intrusive)
Pro tip: Since you may not be able to use a credit card everywhere, take out a specific amount in cash, at the beginning of every month. And keep it in your wallet. Works like a charm
Then there are the benefits like reward points and cashbacks. Oftentimes, you get better deals with a credit card than on a debit card. Especially when you’re booking large value items like flight tickets. And since you’re spending it all on one card, again it’s easy to track and redeem points.
A bonus is that in case of a fraudulent charge, money doesn’t disappear from my bank account immediately. It’s also a tad bit easier to deal with the credit card department and get charges reversed or blocked.
3. Credit score
Finally, my credit score will thank me. Using cash or swiping my debit card isn’t really telling my bank if I’m good enough for a loan. That’s where my credit card comes in. So when I need a big loan to buy a house in the future, I’ll hopefully have a pretty solid credit history.
Now there are a few things to keep in mind here. Firstly, I need to make my payments on time and stick to paying the total due. Not the minimum amount that banks often nudge us to pay. Secondly, I need to ensure that I’m not maxing out my card each month. Let’s say if I have a credit limit of Rs 1 lakh, it’s probably a good idea to limit spending to less than 50% of that limit each month. Because if you’re spending the full lakh every month, the expenses can quickly spiral out of control. In some cases, credit agencies may even penalize you if you’re constantly maxing out your credit card. So you need to probably cut out a few frivolous expenses to keep a check on this bit.
And while there is a very real risk of overspending when you’re using a credit card, remember the budgeting techniques we talked about last weekend. It can come in extremely handy and help you keep a check on your spending.
Also, you can keep writing to us at email@example.com with your questions.