Having a Budget
Before my husband and I got engaged, I was so against having a budget because I hated the idea of being constrained by a certain limit. I never spent more than I had, so why did I need a budget to tell me how to spend on what? Well, after spending the last 3 years or so keeping a budget, I get it. Having a budget doesn’t mean ALWAYS spending under a certain amount on various categories, but rather having a guideline to compare to- at least this is how we use ours. It helps keep us in line and makes sure we are on track for savings AND spending goals.
Tracking Spending
More importantly than simply having a budget is tracking spending. Realistically, you could probably just skip the whole budget thing and simply track your spending. By tracking your spend you will notice trends- where you spend the most, where you spend the least- and seeing these things will make you want to tweak your spending habits alone. For example, you probably think nothing of buying coffee from Dunkin’ Donuts or Starbucks every day before work, but you may be surprised to learn that by buying a $4 coffee before every work day, you can find yourself spend almost $90 a month, or $1,080 a year. When you notice that trend, you may think twice before making that pit stop.
Putting Money towards a Savings Goal Each Month
Every month we put a set amount towards savings. Generally, we are working towards a specific savings goal. Sometimes this savings goal is finance-driven, such as setting aside money for taxes, and sometimes it is a fun-driven goal, such as saving for a vacation. Having a savings goal gives you an incentive to WANT to put money away rather than spending it all immediately. Whether it’s something for fun or something to help you better your financial position, having and achieving a goal makes you happy.
Maxing out IRA Contributions
Separate from our regular savings goals each month, we also max out our IRA (individual retirement account) contributions each year, in addition to making contributions to our employer-sponsored plans. Essentially this is setting aside money for a long-term goal, while the savings mentioned above is working towards short-term goals. If you are under 50, the maximum you can contribute to your IRA (Roth or Traditional) in 2018 is $5,500 and if you are 50 and over, it is $6,500; however, depending on your income level, these tax deductions/pre-tax contributions can be phased out. Although retirement feels far away, it is never too early (or too late!) to contribute to your retirement plan.
Utilizing Credit Cards for the Rewards Points
We have a combination of 3 credit cards that we use to maximize the points we receive for spending. For most purchases, we use our American Express Blue Cash Preferred which offers 6% cash back on grocery stores, 3% cash back at department stores and gas stations and 1% on everything else. This is our “everyday” card. We also have the Chase Freedom which offer 5% cash back on alternating categories throughout the year on top of 1% cash back on everything else. The 5% categories rotate each quarter. For example, one quarter you may get 5% cash back on drugstores and grocery stores, while another quarter you may get 5% cash back on restaurants and Amazon purchases. We use this card specifically for the 5% cash back categories. Lastly, we have the Chase Sapphire Reserve Card which offers 3% cash back on all travel and food, in addition to 1.5 times the value of your points when you book travel through Chase Ultimate Rewards (i.e., 50,000 points is equivalent to $500, but when redeemed for travel through Chase Ultimate Rewards it equals $750). If we are going to spend the money anyway, why not get rewarded for it?
Pay Our Credit Cards in Full
Every month we make sure to pay our credit cards off in full; therefore, we maximize our points without paying anything extra for charging our spending on a credit card (outside of annual fees for the cards). Credit card interest rates are among the highest for all forms of debt, so by paying off our credit card bills in full (and always on time), we make sure to avoid being charged any interest.
