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We’ve been using our credit card for one month and we haven’t destroyed our budget or gone into massive debt. I call that a win.
Last month we decided to switch from using cash for most purchases to using our credit card. Sorry Dave Ramsey. The thought process behind our decision is to start earning travel rewards so we can travel for much cheaper.
I’ve read so many articles about vacations in Hawaii or Disney for crazy cheap, and we want to see what all the fuss is about. We also want to see if we’re self disciplined enough to actually pull it off without diving back into debt.
And when I say crazy cheap, I’m talking less than $300 total for hotel and flights! If your eyes are wide with shock, welcome to the club, that’s exactly how I felt when I first heard of travel hacking. Read the linked articles on Hawaii and Disney to get the details.
The Mental Shift: From Cash to Credit Cards
Success in personal finance is highly related to your attitude and how you think about money. Over the last five years, we’ve trained our brains that credit cards are bad and cash is the best way to pay for things.
I still believe that paying with cash is an incredible way to save money and avoid going over budget. However, now that we’ve developed self discipline to stay on budget, we want to take advantage of that discipline.
There’s a theory that you’re likely to spend more when you use a credit or debit card, compared to cash. I’ve already noticed that it feels easier and freer to spend money using a credit card. It feels like free money. I don’t see any repercussions for spending since no money is actually leaving my hand.
It makes me nervous pretty much every time we shop, like I’m cheating somehow.
With cash, when we ran out of money, we obviously hit our limit. But with a credit card, it’s not so simple. I still have the power to spend beyond my max pretty easily. It makes me thankful we’ve developed good self control over the last 4 years otherwise I could see our budget spinning out of control pretty easily.
What We Learned After One Month of Using a Credit Card
Any new experiment creates great opportunities to learn and grow. I want to share a couple things I’ve learned when using a credit card.
1. Self Discipline is a Must Have for Travel Hacking
I said this in my first post on travel hacking, but it bears repeating. Travel hacking is not a good idea if you already have credit card debt. If you haven’t paid off your debt and are not disciplined to pay your credit card in full every month, please don’t try travel hacking. You will probably get into more debt and dig a deeper hole.
I’m mostly terrified to use credit cards for everyday purchases. That’s because it’s so easy to slip up, it only takes a moment of wavering from the budget. It’s taken us four years to get out of budget, and the last thing I want is to jump back into that pit of snakes.
We’ve practiced a lot of self discipline and created a consistent habit of following our budget. Without those years, we wouldn’t stand a chance relying on a credit card.
Of course we would rack up a bunch of rewards points, but we’d also go into major debt. It might not take you four years to develop self control in your spending, but just be careful. The rewards aren’t worth going into debt.
2. Our Previous System of Tracking Expenses Needs to Change
For the last four years I’ve gotten into a nice rhythm of budgeting. Our process was pretty simple and didn’t demand a lot of time calculating numbers or payments. Our monthly routine had three basic steps:
1. Withdraw Cash for Basic Expenses: At the start of the month, we always took out enough cash to cover all spending that wasn’t bills. For example, our food, gas, household stuff like toilet paper, dog supplies, and personal allowances relied on Dave Ramsey’s cash envelope system. In total, it was roughly $600 every month.
2. Pay Bills and Track Spending When We Got Paid: Once our paychecks were deposited, I started paying bills immediately. I looked forward to “budget day” with enthusiasm and couldn’t wait to open our spreadsheet and go to town! If you’re thinking, “he’s kind of dorky” you’re absolutely right.
With our handy, dandy budget spreadsheet, it doesn’t take long to track our spending. I simply scroll down the spreadsheet and see which bills need to paid. Then I enter the amount of the bill and make the payment. Easy cheesy! It only takes a couple hours every two weeks.
3. End of the Month Wrap Up: Once I’ve tallied up all of our income, I can see what we have left to put towards our goals. I know this doesn’t follow the philosophy of “pay yourself first”, but we’ve built in a pretty large buffer that always gives us money leftover at the end of the month. Right now, anything extra goes directly into our savings to hit some big goals we’re tracking.
That’s basically it! A few years into budgeting and I’ve figured out a pretty efficient system. However, using a credit card meant keeping the cash in the bank and completely changing my beautiful system. 🙁
3. System Update: Credit Cards Require Extra Steps in Budgeting
Gone are the days I can spend a couple quick hours every two weeks to maintain our budget. For us, it’s not as simple as using our credit card and then pay it off at the end of the month. That’s too loose of a system.
We wanted a system to help us track every purchase AND whether we paid it off or not. To help us do this, we created a simple spreadsheet to enter all credit card expenses. It’s handy since it’s in Google Sheets and I can open it from my phone.
Every time we buy something, one of us immediately opens the app and enters the purchase. If we don’t do it right away, there’s a much higher chance we forget about it and end up with a balance at the end of the month.
The tricky thing is our credit card purchases don’t post to our account for a few days after the purchase. This annoys the crap out of me! If we have the money in our account, I just want to apply the payment and move on, BUT NOOO! Instead I have to be patient and wait. Like I said, I don’t like it and it annoys me. 🙂
Now instead of basically tracking spending 3-4 times a month, I’m sitting in front of our spreadsheet meticulously combing through the budget and credit card statement 2-3 times a week. I’m sure there’s a better way, I just haven’t found it yet. As time goes on, I’ll probably adjust and adapt the system to make it more efficient.
It just reinforces that sticking to a budget and tracking your spending takes work. It’s not hard work, but you need to be consistent and intentional.
How Much Did We Spend in December?
Most of the travel rewards credit cards we’ve considered offer a big rewards bonus if you spend $3,000 or so in the first 3 months after opening it. I’ve seen ranges between 40-60K rewards points. The good news is we’ll hit that no problem.
In December, we charged $2,736.81 to our credit card. This is pretty good considering our total monthly expenses hover around $3,100. That’s a solid 88% of our monthly expenses. If we continue at that rate, I feel like our reward points will add up fairly quickly, especially with the initial bonus!
Our Travel Hacking Goals
As of now, we don’t travel very often because, well it’s expensive. However, we have two big trips planned in the next 12-15 months.
It’s been our dream to vacation to Ireland to celebrate our 5 year anniversary. That is coming up in 2019, and the good news is we’re incredibly close to reaching our savings goal to completely pay for the trip. So, even if we don’t figure out this travel hacking business, our trip will be fully funded.
The next trip came up as a result of joining the personal finance blogging community. I really want to go to FinCon in 2018. If you don’t know what FinCon is, it’s a huge personal finance conference to help bloggers like me learn how to make my blog better.
My blog started as a fun hobby and became a passion to help people get out of debt and radically change their finances. I want my blog to transform lives.
I am a pretty new blogger, and have learned a lot in a year. But I know there’s a lot I don’t know, and I want to learn it. A few days at the best personal finance conference in the country will go a long way to helping me improve my blog and ability to impact more people. Ask anyone who’s been there and the story is the same. The conference is transformative.
Travel Hacking Goals for January and February
After only one month, we don’t feel fully confident to pull the trigger on a specific rewards card yet. I know I want one more month of practice with our system just to be safe. At the end of January we’ll reassess our readiness and reflect on how well our current system is working.
Secondly, we plan on doing more research to find the most optimal card for going to Ireland and Orlando. Some rewards programs are very specific to certain airlines, international travel, and destinations. We want to be efficient and choose cards that align with our travel destinations. Wish us luck!
Let Me Know in the Comments!
Is travel hacking a realistic option for your family? What tips do you have for a beginner?
Click the link to get the Budget Spreadsheet and Debt Log that we used to pay off $73K of student loan debt, FOR FREE just for signing up.
Good luck with the travel hacking! I use my credit card for almost everything because I find it’s easier to track, and of course for the rewards. If I use cash I’m terrible for noting down what I buy but with plastic I can go back and check.
I’d love to get into travel hacking more this year too. Right now I just collect Air Miles but there are so many better options out there.
Thanks! We’re just the opposite, it’s so much easier for us to track our cash spending. Funny how that works. I do like being able to go back and check though.
I’m really excited to find the right card for us to get started. It sure is a steep learning curve! Thanks for reading!
Protip: You can still have a balance at the end of the month and not have to pay interest. They only charge you interest if you don’t pay the PREVIOUS month’s balance in full.
So there’s really no need to constantly update a spreadsheet manually or pay off purchases immediately after they post to the transaction record.
For example our Visa billing cycle just ended on JAN16 and it includes all purchases made between DEC16 and JAN 16, which totaled $3,441.73. Payment is due on FEB 13. As long as we pay the full $3,441.73 by FEB 13 no interest will be charged. Your mileage may vary for the specific dates, but all credit cards are going to be structured this way.
You have to be able to think about your cash flow with a 30-day delay, but this gives you the added advantage of parking your cash in a savings account for the additional time. CapitalOne360 pays 1% APY on savings accounts now. It’s not a lot but it’s not nothing either.
So now you’re earning cash back or miles or whatever your rewards flavor is, plus earning a bit of interest on your monthly spend volume.
Congrats on graduating from cash. Used properly, credit cards make your day-to-day expenses actually cost less.
Wow! That was jam packed with super useful information! I’m a super newb with credit cards so that is really useful. Thank you!
We’ve also been looking to move our savings account to an online bank for better interest rates. Thanks for the recommendation!
Glad to help if I can. Also note that you should be able to adjust your payment settings with your credit card to select “Automatically Pay Full Balance”, and they’ll just take care of it every month for you. Just make sure the cash is in the account on the due date…you should be able to set it to transfer directly out of that high yield savings account.
CapitalOne is pretty great….if you use them for checking too they have an automatic savings feature, so your cash can go straight to the savings account immediately after pay day.
And they have a decent rewards credit card too. That Visa I mentioned is the CapOne Quicksilver card which pays 1.5% cash back on all purchases, so we got $51 of last month’s spending rebated to us. I kinda prefer cash back to miles or points because I know exactly what the benefit is. The miles or points or whatever they offer are probably going to shake out to around 1-3% of your spend on average anyway.
You’re on the right track and approaching this the right way. Good luck.