Friday, January 29, 2010

Review Your Credit Card Summary Statement

Tip #227 - Review Your Year-End Credit Card Summary Statements. When you came up with a budget a few weeks ago for the upcoming year, you may have relied on your memory, your bank or credit card statements, or best guess to assist you in allocating money to each category that you will be spending money in this year. Now that we are a month into the new year, it might be prudent to look over your categories and see if the amounts you allocated to each are realistic.

At the beginning of the year most credit card companies send out a statement that shows all of the activity on your account for the previous year. It not only shows what stores you have used your card in, but it also breaks down the transactions into categories. For example, restaurants will fall under the “Dining” category and tire stores and gas stations fall under the “Automobile” category. Of course, their categories aren’t perfect because it doesn’t put the motor oil you bought at Wal-Mart under the automotive category. But in general it gives you a good idea of what you spent throughout the year and in which categories.

If you received your credit card summary statement in the mail recently then take out the budget that you wrote up for this year and compare the two. This will be a good check on how accurate your budget is. If you estimated that you will spend $500 per month at the grocery store in the coming year, but your credit card statement reveals that in the past you’ve spent $700 per month, you need to change your budget or change your grocery buying habits.

Of course this exercise will only work if most of your purchases were done by credit card. If you mostly pay by cash or debit card, this will not work. I am not necessarily advocating that you use your credit card for this purpose because I know they are dangerous in some people’s hands. But the reality is that a large majority of people still use their credit cards for most everything, and if you are one of them, then you might as well take advantage of the year-end statement they provide for you. Reviewing your statement summary might be a good wake-up call on how much money you are wasting in certain areas of your life. And it can help you set a realistic budget in the coming year.

In Real Life (IRL) – I have gotten year-end credit card summary statements in the past, and I must admit that I have often glanced at them and then simply tossed them aside. This year, my husband handed me our credit card purchase summary, and I realized what a useful too it could be in comparing it to the budget that I drew up. Things like our utilities payment, school tuition, and mortgage were always easy for me to figure out. But when I budgeted our gasoline expenditure and automotive repairs, I was simply going by my best estimate on how much we drove each year, the price of gas, and my best recollection of all of the repairs we have made. These categories are ones we never pay cash for, so I knew the credit card statement would be accurate in how much we spent.

As I went through the statement, I realized I had allocated too much to certain categories or not enough elsewhere. I was especially shocked in how much we spent in tolls, and I was pleasantly surprised in how little we spent on eating out this year. I was able to adjust the amounts I budgeted in some categories. Overall, the total amount I estimated in our budget was pretty close to what we were spending, even if the categories were a bit off. Doing this exercise did give me peace of mind that my estimations on what we were spending weren’t totally out in left field. For those of you who use credit cards, have you ever studied your year-end summary? You might like to try it. It’s very revealing! For other ways to save money, check out Frugal Fridays.

2 comments:

Megan said...

Discover Card has a spend analyzer tool on their website. I use it constantly. You can analyze your spending for any time frame that you choose and it shows it on a pie graph. You can click on each category and it will show you each itemized purchase. It is amazing! It was definitely an eye opener for me :)

Michele said...

Megan, thanks for the comment. Wow, I didn't realize that. And I have a Discover Card. We have gotten away from it, however, since our Credit Union card gives us a better cash back rate. But I might go back and look at my old statements. Thanks!