So - I think I understand what’s happened, I’m just wanting to make sure I’m correct. I’ll be using simplified numbers
- Checking: £2000
- Savings: £500
- Card 1: £500 (Due on 10th)
In my mind, I’m “fine” (i.e. won’t go into debt this month, not that the spending habits are necessarily good!) because my forecast looks like:
10th: Pay £500 credit card; Checking: £1500 left
Other days: Pay £1000 Rent, £500 Utilities; Checking: £0 left.
Other days: Pay £500 shopping, £250 fun on Card 1; Card 1: £750 debt.
25th: Income £2500; Checking £2500.
None of my accounts went negative because this month’s spending will be covered on the credit card.
However, what I think GoodBudget is saying I should do is that my Checking account needs to have enough to cover the full month’s spending and last month’s Card 1 payment (which is a good thing to be telling me, because spending money on the credit card before I’ve been paid is not a good habit)?
I’m just wanting to check that my diagnosis of why my unallocated is negative is correct?
Yep, you’re exactly right in your analysis! Remember too that you can do multiple Fill instructions if you can’t fill everything right away. If you get paid every two weeks, for example, you might fill the Rent envelope at the end of the month but then hold off on a Utility fill until the check before it’s due.
Goodbudget would like to help everyone get those credit cards down to where you’re paying them off every month, but budgeting is a process and it takes time to get there! (And there may even be advantages to using a card that still has a balance, like cash back or other rewards)
I will caution you that it’s tricky to track expenses on a credit card if it’s also carrying a balance; you can do either a debt transaction OR a regular envelope spend, but not both. If you get to that point just head back over here and we’ll try to help get it sorted
No - at this point I don’t have any balance on a credit card (well, except for 0% store cards which I treat as a debt to pay over the 0% window).
So “Card 1” is always paid off in full each month, it just happens that the statement is 26th - 25th of each month, due date is 20th of the next month and the automatic payment for it goes out on the 10th, so I have between ~15 and 45 days before the spending actually leaves my checking account.
This isn’t ideal, for the above reasons (I’m spending ahead of earning money at the moment) but it’s a 1% cashback so I don’t really want to stop!
My plan over the next 3 months is to get rid of the negative unallocated!
Thanks for the help!
Here’s a life pro tip for anyone trying to improve their credit score in the US (Not saying that’s you, but someone may stumble across this later!)
The balance on a credit card that gets reported to the credit agencies is the closing balance, regardless of what’s transpired during the month. That means if you have a $10,000 limit, spend $9,900, pay it all off when it’s due then do it again the next month, you’ll have a terrible utilization score which hurts your overall credit. That makes it look like you keep your card nearly maxed out all the time, even though you’ve paid it off in between. Instead, pay off all but a few dollars, just a day or two before the statement closes so the reported balance is low. You’ll be shocked at how quickly your score rises.
We put everything we can on our cash back card—several thousand dollars a month—but every Friday I check all my cards and pay them down to <$100. That way they don’t look like they’re not being used, I never accrue any interest, and my credit utilization hovers at around 2-3% of my credit line. AND I get all the cash back! (“Credit card companies hate her for this one weird trick” )
I’m in the UK now but it’s too soon to know if that works here the same way, but here’s hoping!
I was actually told recently (by someone who works for a credit card supplier in the UK) that it used to be if utilisation was too low (below 30%) that they didn’t wouldn’t do credit limit increases for those users! Of course, because people started doing the “keep below 30% for credit score” they’ve now had to update their policies!
Either way, credit score is much less important in the UK than in the US AFAIK Martin Lewis: Why you shouldn’t worry too much about your credit score – it’s not actually a real thing