Years ago, with my freshman year of college approaching, my mom took me to our local bank branch to get me my first credit card.
My mom handed me the paperwork and dropped a piece of parental advice I'd heard plenty of times before.
"If you won't have it when the bill comes, don't charge it."
It was a simple rule for responsible spending, "it" being the item you were thinking about buying. Of course there were a few caveats, "unless you're on vacation" being the main one, but otherwise she followed it like scripture.
The basis for her rule was that it's much easier to lose track of spending on things like snacks, beer, and cab rides -- things you wouldn't still have come bill paying time -- when you are simply swiping and not forking over any cash, or having to go to the ATM to get more.
It also made verifying charges at the end of the month as simple as looking around your room -- Shoes? Yup. Textbooks? Yup. It was far easier than trying to remember how many venti iced coffees you drank last month.
Most importantly, it kept your credit card balance low, and easy to pay off at the end of each month. After all, debt can be a dangerous thing.
In spite of my (now in retrospect decidedly worse) teenage judgement, this was a credo I took to heart, and now as an adult I'm glad I did. Following my mom's rule absolutely saved me from some "oh s***" moments when my credit card bill came and helped me build up a solid credit history in my late teens and early 20s.
The strength of her rule wasn't compromised all that much by retail's shift to online shopping, almost all of the stuff I'd buy online still fell into the "have it when the bill comes category."
But financial coming-of-age stories aren't any different from classics like "The Breakfast Club" -- whether you're Emilio Estevez or Anthony Michael Hall, eventually you start to question the older generation's way of doing things.
I was chatting with my mom recently and I brought up her rule to spend by. She said it would be a "revolutionary idea" for most people my age.
At least for me, my mom is spot on. Truth is, now I charge most of my purchases. Like 95%. Sorry mom.
Don't get me wrong, the intent behind my mom's approach to financial responsibility still resonates with me. I still spend well within my means, pay off my balance, and don't let access to credit sway me into impulse purchases. This isn't a "Varsity Blues"-esque departure from her mentality, I've simply decided to use my own system to follow her ethos of spending responsibly.
The main problem I ran into with mom's cash approach was that while I knew exactly how much I was spending, it was tough to look back at what I spent it on with any granularity unless I held onto all my receipts. Sure, online banking would tell me when and where I made ATM withdrawals, but not where that cash was actually spent, which only goes so far for budgeting purposes.
Here's what the output from an average checking account statement might look like:
Meanwhile, your standard credit card is itemized on a per-transaction basis, making tracking your spending dramatically easier.
If you have a little Excel know-how, seeing how much you spent eating out in September is a breeze.
Creating something like this is as simple as downloading your statement, categorizing your purchases (column F) and using a chart or pivot table to arrange the data.
In this sample, I came in just under budget for the month. Looks like I spent a bit more on groceries than I planned, but didn't wind up going out to eat as much as a result. Those two offset nicely, but I still spent a bit more out at the bar than I would've liked, looks like I'll be more mindful of that this month.
The budgeting element is fantastic, but one of the most visible benefits of using my credit card for the majority of my spending activity is that I'm earnings rewards on purchases I'd be making anyways (utility payments, groceries, eating out).
My Bank of America Travel Rewards card is far from the highest yielding perks program but there isn't an annual fee and the redemptions are pretty flexible, so it works for me. Averaged-out across all my transactions, I wind up earning roughly 1.6% back on my purchases, which I can apply to travel expenses on my credit card bill. Being able to wipe $100 off my bill a few times a year is a pretty sweet perk for paying for the same things, just more conveniently.
For some, momma still knows best
Other factors played their role in moving away from my mom's hard-and-fast rule -- cash doesn't fly with Uber drivers... I've tried. The inconvenience of having to go to the ATM before going out didn't help, and I was happy to carry less cash around when I started living in a city.
There's no one-size-fits-all for budgeting and responsible spending, the key is to find a solution that gives you insight into your habits without being so onerous it drives you crazy.
"If you won't have it when the bill comes, don't charge it" was a spending tool that served me well, and my new way of doing things requires a decent amount of discipline and a heavy reliance on online banking.
While I've moved on I'd recommend my mom's approach for anyone that is wary of data security or doesn't share my intense love of Excel.