What credit card statements can teach you

Tips for building a budget based your spending habits

For many people, the most important part of a credit card statement is the line that reads “balance due.” However, your statement contains a lot of useful information you can use to build a budget and even rein in unnecessary spending.

Obviously, the first thing to do when you receive your statement is to review all recent charges to make sure their accurate. This review provides the perfect opportunity to take stock of where your money is going. Specifically:

•  — What are your most common types of expenditures and how are they tracking?
• — Are there any recurring charges?

Regarding types of expenditures, most online statements will provide you with a snapshot or summary of your spending on a monthly and annual basis. Charges are typically broken out into categories that include healthcare, merchandise (includes groceries), restaurants, entertainment (movie tickets), vehicle services/gas stations), organizations, and services (Netflix, gyms, etc.).

You can quickly see what percentage of your overall bill is going to different categories and can compare your spending on a month-to-month basis. If you notice your restaurant spend is trending up, take a deeper look at your current statements for clues about what’s behind the uptick. It maybe that you covered a large group tab and got paid back or maybe the damage of hitting up the new local coffee spot is a more than you realized. If that’s the case, you can set some new ground rules and change your spending habit (i.e. Mocha Mondays and Latte Fridays and that’s it).

In some cases, the issue at hand is bigger than just a cup of coffee. For example, it’s possible your review my reveal you paid $5000 in car repairs and service last year. That equates to $416 a month. If you still owe money on your car, calculate your monthly loan and service total, with consideration to your loan pay-off date. What you learn may point you to considering making a trade in, leasing a car, or for really meaningful savings, looking into local ride share or public transit options.

As noted, you also want to closely scrutinize any recurring charges. These can cover anything from a software subscription, gym memberships, and printer ink refills to streaming subscriptions, online publications, and meal kits. Consider how much you’re spending on each monthly and annually and ask yourself if the spend is worth it. If you’re not sure if you’re ready to let go of something, it may be helpful to think about what that money could go towards instead. Maybe you put it towards a different monthly expense that enriches your life or maybe you just bank it for a big expenditure like a trip, a couch, or a car.   

Finally, if you’re not paying your balance in full each month, take a moment to calculate what those delayed payments are costing you in interest and/or fees (hint: it’s probably more than you think).

If you’re unhappy with what you’re paying out, then take it upon yourself to find ways to reduce those charges. Possible options include:

• — Switching out your credit card for a debit card so you’re only spending money you already have and not accruing interest or fees
• — Transferring your current balance to a lower-interest or no-fee credit card

If you’re behind on payments due to unforeseen circumstances like job loss, medical bills, etc., reach out to your credit card company to ask about assistance programs. You may be surprised how helpful your card company can be.

DISCLAIMER: This article is meant for educational purposes only and is not intended to be construed as financial, tax, investment or legal advice.