[Note: The role of the Money Handler as well as those of the Money Manager and Money Leader are defined in my post on financial roles and responsibilities. In short the Money Handler does the necessary daily grunt work to keep your personal finance business running.]
The Money Handler is a key ingredient to making your personal finance and money management business successful. As such it is important to ensure he or she is equipped with the best tools and resources with which to accomplish the job.
One tool you should equip your Money Handler with is a good credit card to handle as much of your daily living expenses as possible. This technique alone will go a long way to enabling the outsourcing of your personal finance tasks.
The benefits of transitioning to credit card enabled personal finance are many:
- Never be late paying a bill - Many of your monthly service providers will accept credit card payments and offer convenient automatic bill payment. If the power company is charging your credit card directly, you can be sure they won’t be late paying the bill. Another benefit will be that you no longer write checks for your bills and your need for postage stamps will decrease dramatically.
- Never balance your checking account again - As your credit card use increases, your check book use will decrease. With few check transactions and a handful of electronic transfers, it becomes pretty easy to review your accounts online and determine whether anything is amiss.
- Purchasing power is always at your finger tips - Pretty much every place you go you can use a credit card to pay your way. Occasionally I find myself in need of cash, but that’s only because the baby sitter doesn’t have a merchant account and my kids want cold hard cash for their allowance.
- Build credit worthiness quickly - I don’t have specific data charting changes to my credit score by employing a credit card in this manner. But in my experience, it doesn’t take long for the bank to begin raising your credit limit dramatically. I’ve used two different cards over the course of the last four years and watched my credit limits jump from $7,000 on one and $12,000 on the other to over $25K on each card in less than a year. That $50,000 credit line has another side benefit. It’s a huge cushion that I can access in an emergency eliminating my concern for a 3-6 month stash of cash “just in case.”
My wife and I perform almost all of our Money Handler “spending tasks” with a joint credit card. In fact we use it so much that we usually write less than five checks per month, hardly ever carry cash and earn in excess of $500 in cash back rewards each year. That’s more than I collected in interest on my money market account last year.
Before we go any further discussing this Money Handler tool, I have to share one extremely important caveat that is critical to success. You need to pay off the balance in full each and every month. When you use a credit card in this manner, you will be moving several thousands of dollars through the card during each each billing cycle. As an example, my family averages between $3500-$4000 in monthly credit card purchases. The large volume of transactions coupled with the typical high interest rates that many cards have (you should choose low interest credit cards) can quickly snowball on you if you don’t pay the balance in full.
I don’t want anyone asking for an article about money management debt counseling.
If you are committed to paying off the balance each month, you can successfully employ this money management tactic. I haven’t carried over a balance on my cards since I started using this technique four years ago and its use has simplified my life significantly.
There are myriad credit cards available with a wide variety of perks, bonuses, rewards, interest rates and features. When you select a card, make sure you take time to review several credit card offers before making a selection and look for cards with these features:
- Electronic bill payment features - You want to be able to pay your credit card electronically from your bank account and you want to be able to PUSH money to merchants. Most monthly bills can be paid with your credit card by having the merchant run the transaction and PULL money from the card. However, there will be some companies that either don’t offer this service or charge a fee for it. You can circumvent the hassle and fees by PUSHING money from the credit card side. This is done through your card’s website by identifying the merchant and then telling the card when and how much to pay.
- A low interest rate - This is nice to have but not critical feature. You are going to pay off the balance monthly so the interest rate shouldn’t affect you. However, in case of an emergency where you use the card for a major purchase that you’ll have to pay off over time, a low interest rate would be very helpful.
- No annual fee - With your credit card powered money management system, you’ll be generating plenty of merchant fees for the bank to collect. You shouldn’t pay the bank for the privilege to use the card. Either ask to have the fee waived, or select a different card.
- Rewards program - Find one that works for your. Some are flexible letting you switch back and forth between airline miles, points and cash back. I’m pretty simple….Cash is King.
- Responsive customer service - Bottom-line, you need a company that appreciates your business. Not all of them do.
- A credit limit greater than your anticipated monthly expenses - The whole point of this technique is to put all your monthly expenses on the card. Your credit history will be a key determinant, but I think most of us should be able to get by with a $5,000 - $10,000 limit to start with.
After you’ve selected your card there’s not much left to do other than to start using it. Use it at the gas station, use it at the grocery store and use it anywhere else you can think of. Also be sure to contact each of your monthly bill providers to arrange for automatic bill payment via your new credit card. This alone will be a huge step towards outsourcing your Money Handler tasks.
Your new credit card powered money management approach will feel a bit strange at first. I remember in my early twenties my father lecturing me about the numerous pitfalls of credit usage. So the tactic I’m advocating here was way outside of my comfort zone when I started using it in 2004. However, after a couple cautious months under your belt where you’ve paid off the balance each time, you’ll find your comfort zone and you’ll begin to reap the benefits and simplicity I outlined above.
As for me, I use a Chase Freedom Rewards MasterCard and a Bank of America World Points MasterCard. I use two cards because of two simple reasons: customer service and the ability to PUSH money with the card. The BOA card was my only credit card until a phone conversation concerning my billing date when one of their customer service representatives said to me…”Mr. Wilcox, you’re not that good of a customer.”
The only reason I keep the BOA card is because I haven’t found another one that allows me to PUSH money. Chase has been great, now if only they would allow me to PUSH money…
Good luck. Let me know what card you choose and the features you like the best.
-Jeff
Learn about money management strategies and personal finance.
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1 My Recovery « // May 20, 2009 at 7:51 am
[...] 2002 we made the transition from checks and cash finances to full up credit card use. We use a single credit card for everything (save for a couple bills that haven’t caught up with the Internet age). We almost never [...]
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