Everyone has different methods of managing their finances. Some people swear by the cash envelope system, while others put everything on credit cards with the aim of paying them off in full each month.
Yet, perhaps the most underrated way to stay on budget is to use a debit card that links directly to your savings account. This way you can readily keep tabs on your daily spending as your purchases come right out of your bank account.
According to Nasdaq, banking institutions in the United States issue over 165 million debit cards each year. So, you likely already have a debit card and this may become your best friend when it comes to controlling your spending.
Here are 5 reasons why debit cards can help you stick to your budget.
1. You can easily track your spending
Perhaps one of the biggest advantages of using plastic versus cash is that you can easily track your spending without having to carry around wads of dollar bills.
Every time you swipe your debit card, your transaction is tracked. When you go to view your bank account online or your monthly bank statement, you can see just how much money you spent, and where. While you may not be able to easily discern exactly what you bought (that’s when you can look at your receipt), keeping tabs on your bank account debit transactions provides a good starting point to figure out where you are potentially spending too much money.
2. You don’t have to worry about going into debt
Unlike credit cards, debit cards only allow you to spend the money you already have in your bank account. If you try to spend more money than what you have, you may be charged a steep overage fee, depending on how your account is setup. While overdraft fees can be costly, these fees are typically not as expensive as the amount that credit cards charge in interest (which in 2018 was nearly 17 percent!)
Credit cards impose a “credit limit” on consumers. This is the limit on how much you can borrow on your credit card. Your credit limit is determined based on a number of factors, including your credit score and credit history. And, oftentimes credit card users spend more money than they can afford to pay off each month. When this happens, you’ll get charged interest. Interest is the money credit card companies charge you for carrying over a balance from month to month. With the average credit card interest rate of 16.71 percent, it can be easy to get stuck in the cycle of debt.
With debit cards, your “debit limit” is the amount of money you have in your bank account. If you don’t have the money available, well, you won’t be able to spend it. This may not sound like much fun, but it will certainly help you avoid the same type of spending sprees that often occur with credit cards.
3. You don’t have to carry a wad of cash around
On the other end of the spectrum, cash budgets are preferred by many people who don’t feel like they can keep a handle on credit card spending.
Yet cash comes with its own set of problems. For example, the cash envelope system is a popular way of budgeting, but it requires you to have a significant amount of cash on you at all times. Here’s how this type of budget works: you stash cash in individual envelopes for each area of spending, such as groceries, gas, fun money and clothing. You only put as much cash into each envelope as you have budgeted for that particular category each month. Once you are out of money, you’re out.
Indeed walking around with envelopes of cash to pay for things is enough to make anyone sweat, as you may worry about losing your money or having your purse or wallet stolen. Once your cash is gone, it’s gone.
4. You can count on ease and convenience
Counting your actual dollars and cents takes a fair amount of time when you’re standing at the register in a store. Debit cards, on the other hand, are convenient and transactions are quick to process when you’re making a purchase.
5. You can sync your debit card with budgeting apps
Finally, if you prefer to use budgeting apps to keep track of your finances, your debit card may be the perfect solution for you.
It’s impossible to sync a cash-only budget to an app. You need to have a budgeting app linked to a credit or a debit card in order for it to automatically update. While debit cards can’t list out every single individual purchase you make, they can connect to budgeting apps that can help you distinguish where your money is going.
Digital apps take the grunt work out of budgeting. Instead of having to track every individual expense, you can let an app do the work for you, saving you a ton of time and effort.
Should you use a debit card for budgeting?
Depending on your spending habits and preferences, a debit card may be a great way to help you stick to your budget.
You may be surprised at how much money you can save by simply tracking your spending using the debit card you most likely already have in your wallet. It certainly doesn’t hurt to give it a try, right?
This page is for informational purposes only. Chime does not provide financial, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for financial, legal or accounting advice. You should consult your own financial, legal and accounting advisors before engaging in any transaction.