Managing Your Finances Part II

Management Tip #2: Use Your Credit Cards (Specifically!) For Almost Everything

As I mentioned a couple of times in the previous post on the topic, I use my credit cards for most purchases. Only on rare "brain-fart" moments will I use my debit card for anything other than getting money from an ATM (note to self: call bank and cancel debit-card functionality of my ATM card). I think the principle here will be best conveyed by just giving you my own example.

I have 4 main credit cards: American Express (charge card), Discover Card, GM Mastercard, and Shell Mastercard.

• Shell Mastercard: All gas purchases. I get 5% back on Shell gas purchases, 1% on everything else. It is not hard for me to buy my gas at a Shell station, as there are 4 within 1 mile of my home and others scattered throughout town, including one in particular that always seems to have the lowest prices, period. They are also prevalent almost everywhere that I travel. With the 5% discount, I save about 10 cents a gallon at the current roughly $2/gal prices. This is always enough to make Shell gas the cheapest. This is my only use for the Shell card most of the time, although on occasion I will use it for a big purchase (e.g. computer parts) since its billing cycle is staggered from the rest of my cards, so I can pay it with a different paycheck. My Shell Card charges usually total $200 or so a month, although if I take several trips it can get up to $400.
• GM Mastercard: General large purchases. Big trips for office supplies, computer parts, and most things that I order online. I used to use it for my hotel stays (which were quite frequent until recently). Previously I would rack up $1500 a month on this card, although now it's in the $100-$200 a month range.
• Discover Card: Purchases at Sam's Club, exclusively (until very recently, Discover was the only card that Sam's Club took). This usually comes to about $200 a month, although occasionally I will make a big purchase (bed, TV, computer, etc.) there. Some months, the Discover Card will go completely unused.
• American Express: This is the standard American Express Gold Card with Rewards. I.e., it is not a "credit card", it is a charge card, meaning that it must be paid in full every month (although AmEx keeps trying to get me to sign up for its "pay over time" feature). This is where most day-to-day purchases go. Restaurants, grocery stores, movie tickets, video games, small amounts of office or computer stuff, etc. This has been coming to over $1000 a month for quite a while now, although I should see that dwindle now that the holiday season is over and I'm not travelling as much. (About half of what I charge here is a reimbursible and/or deductible business expense.) This card gives rewards in the form of points, which can be redeemed for luxury goods or gift certificates (preview of a tip that I will write later: the gift certificates are a MUCH better deal on ANY rewards program that I've seen; you have to be a sucker to save up to buy a camera or watch directly with rewards points). Yes, the AmEx Gold has an annual fee of $100 or so (not sure exactly what it is), but I always get several hundred dollars worth of gift certificates yearly from the rewards. Plus, there are some other perks that I will cover in another post (I plan to go in detail into each of my credit cards later).

So you can see how this nicely segregates certain types of purchases (notably, gas and day-to-day items) and makes it easy to keep track of spending. I can look back through my checkbook ledger and see at a glance how much I paid for gas each month, because gas is always on the same credit card. I can login to my AmEx account to keep track of how much I'm spending and whether I need to cut back during the month. Putting the bulk of my more-or-less discretionary spending on my AmEx card keeps me from ever running up a big pile of debt, since it must be paid off in full each month. Also, by limiting certain types of spending to certain cards, I have to think twice about many purchases. Often I will sit there and agonize over purchases. I rarely buy anything that's not an immediate need or a very good deal (this item might be Tip #3).

Also (to relate this to the main topic of this blog) charging and paying off my credit cards every month can help my credit score, since the lenders are more likely to initiate credit reviews and raise my credit limit when I consistently use that credit.