The Two Big Budget Items We Forgot

April: So, in our previous conversations — our episodes about budgeting — we’ve talked about budgets every single time. But we forgot two really important ones: Christmas and… what was the other one? I’ve already forgotten.

Robert: The other one is your vacation.

April: Oh yes, vacation. I’ve never had to pay for one of those.

Robert: I don’t even know how to comment on that, April.

Christmas and vacation are two things people will spend money on, but they often leave them out of their budget. And when they leave them out, but still take the trip and still buy all the gifts, the first thing they do is pull out the credit card.

Everything starts going on the credit card.

So I’d like to talk a little bit about credit cards. But first, as a reminder:

When you are doing your budget, please include Christmas and please include vacation.

There’s a lot of danger on the credit card side when you don’t.

A little side note: some smaller companies will let you have money pulled from your paycheck — like a 401(k) deduction — and put it aside for Christmas. In two companies I worked with, we called it a Christmas Club. Money was taken out every week and kept in the company’s account. At the beginning of December, whatever you’d accumulated, we wrote you one big check.

So if you work for a smaller company, you can ask your employer about something like that.

How Do We Do Christmas on a Budget?

April: Okay, I have questions about Christmas before we get into credit cards.

How do we do Christmas on a budget? It’s tough because you want to get everybody something. And if somebody gets you something, you feel like you have to get them something. You can end up in this spiral of social indebtedness and then financial indebtedness.

Robert: Everything you just mentioned is emotion.

April: I know.

Robert: And we’ve talked before about how you have to remove a lot of emotion from money decisions. But it’s hard to remove emotion from Christmas.

April: Very hard.

Robert: But when you don’t have money, the emotion will be very different by the time the bills show up.

So here’s what you have to consider. If you have family and friends you want to buy for, treat it like budgeting. Let’s pull out the awful B-word again.

Make a list:

• April

• Michael

• Mama

• Cousin

• Sister

• Brother

• Whoever else

Then decide how much you’d like to spend on each one. Add it up. That total will show you pretty quickly what you can’t actually spend for Christmas.

If you have the money, great — spend it and enjoy it.

When I was growing up, my father knew we were not in a position to buy for everyone. People would bring us things, and he would say:

“The only thing you can do, Robert, is genuinely say ‘thank you’ and tell them you really appreciate them thinking about you.”

Something that bothers me today is how many people give expecting something back. I think that’s a character issue. If I buy someone something for Christmas, it’s because I want to — not because I expect them to buy me something in return.

So:

• Make your list

• See what you can afford

• Do what you can, and be at peace with that

If you can only spend $25 or $50 per person, that can make you feel inadequate sometimes. But if people see that you truly care, and that you’ve done the best you can, that’s all you can do.

Because when you spend money you don’t have, it’s really going to hit you in the face around January 31st when you’re staring at that credit card bill.

April: And that’s when the “oh no” emotion shows up.

Robert: Exactly. So if you can’t buy something expensive, you can make something.

• Baked goods

• Homemade gifts

• Handwritten notes

I never turn down a baked good. I love to eat — that’s why I’ve gained 80 pounds since I’ve been married.

So if you can’t buy, create. Let people know you care — that’s the heart of giving. Christmas is about giving, not about receiving.

April: And if someone says, “But I want to give, I just don’t have the money,” the answer is what you just said: limit it to what you can do and be proud of that.

Robert: Exactly. Don’t feel like you’re “less than” because you don’t have a fat wallet. Do your best with what you have.

The Credit Card Statement Reality Check

Robert: I brought one of my credit card statements today to talk about some realities.

Most credit cards:

• Have high interest rates

• A few have 0% interest for periods of time

But when you keep buying and buying, let’s look at what happens.

I have a Capital One Venture card. I chose this one because it gives me rewards — specifically air miles. Every time you buy something, you earn points.

But let me be clear: I don’t want people buying things on a credit card they can’t afford.

If you cannot pay that credit card off at the end of the month, you cannot afford the purchase.

If you use the credit card instead of borrowing from it, it can be an advantage. You earn points, miles, or cash back — if you pay it in full.

Now, here’s the other side.

On this particular statement, last month I spent $3,757 on business items and things I knew I’d be reimbursed for. At the bottom of the statement, it says:

Minimum payment due: $37

They also show clearly: if I only pay the minimum payment, how long would it take to pay off $3,757?

April: Decades.

Robert: How about four of them?

41 years.

April: That’s my entire lifetime.

Robert: That’s right. You’re 41. So if I had borrowed $3,757 at 19.74% interest 41 years ago and only paid the minimum, I would just now be finished paying it off.

The statement also shows that if I paid $139 a month instead:

• It would take about 3 years to pay off

Most credit cards that aren’t at 0% fall somewhere between 15% and 20% interest.

You might say, “Robert, why would you have a credit card with 19.74% interest?”

Because when you use a credit card — not borrow from it — you have what they call a grace period. As long as you pay the entire balance by the due date, you pay no interest.

So it doesn’t matter if the rate is 20%, 33%, or 69%. If you pay it off in full every month, you’re essentially using free short-term credit and earning rewards.

Using Credit Cards Wisely (and for Christmas)

Robert: So, a credit card can be great for rewards. Let’s bring this back to Christmas.

If, during the year, you:

• Put your regular bills and purchases on a credit card

• Track them

• Pay it off in full each month

Then your points or cash back can be used to:

• Buy gift cards

• Purchase merchandise

• Offset travel

• Reduce what you need to spend out of pocket at Christmas

April: Some cards even just give you cash back, and I use that to cover regular expenses.

Robert: Exactly. Personally, I’ve often found more value in the merchandise or travel redemptions than straight cash back, but both are options.

Now, someone might say, “Robert, you’re telling me not to use credit cards, but you’re also telling me to use credit cards.”

I’m telling you to:

• Be disciplined

• Use the brain God gave you

• Treat a credit card like a tool, not a piggy bank

If you:

• Make normal purchases

• Track them like a debit card

• Pay them off in full each month

Then the credit card can be a benefit instead of a burden.

April: Credit isn’t evil. It just requires discipline. If you treat your credit card like a debit card and think of every charge as money leaving your account, it’s easier to manage.

Robert: That’s exactly right. The problem isn’t the plastic — it’s the lack of discipline.

How I Used Points for a Special Trip

Robert: Let’s talk about rewards a little more, since it came up.

This Capital One Venture card gives me:

• 2× points on purchases

• Extra points during certain promos (like 4× at Walmart for a limited time if you activate it)

Right now, on this card, I have 554,000+ points.

What can you do with half a million points? I’ll tell you, because I’ve done it.

My brother is a big Dallas Cowboys fan. He had never been to a game in Dallas. He wanted to take his grandson. I wanted to take my son.

We used about 500,000 points to book airfare. All four of us:

• Flew on our favorite airline

• Sat on row one

• In first class

• Round trip to Dallas

And it cost me $0 out of pocket.

April: And you gave that to him, which matters even more.

Robert: Yes. I gave the trip to my brother. If I’d used it for you, we’d have needed a little extra money for that trip — you’d have needed your own hotel room.

April: Don’t y’all feel sorry for me, whoever’s listening? No? Only Zach?

Robert: Only Zach will sympathize with you.

So that’s an example of what disciplined use of a credit card and points can do.

Discipline Now, Emotion Later

April: I want to go back to the emotion side. The story you told about taking your brother has more emotion to it than you said at first.

What you didn’t mention is that he had cancer, and not too long after that trip, he passed away. That trip became one of your last big memories together.

So we talk a lot about pulling emotion out of spending — especially when you’re trying to get out of debt or get on a budget. But:

The discipline you practice now gives you the luxury of indulging your emotions later — in meaningful ways.

Because you were disciplined with your money and credit card usage, you had the freedom to do something very emotional and important: that trip with your brother and the boys.

Robert: That is a wonderful point, April.

If you:

• Stay disciplined

• Avoid spiraling into debt

• Build margin

Then you can use tools like credit cards to:

• Give

• Create memories

• Relieve some emotional pressure

But if you borrow from the card instead of using it, you’ll end up with ultimate emotional stress — that constant weight of debt.

April: And this ties back to what we said about kids and Christmas. Instead of saying, “We just can’t afford it,” you can say:

“We can’t afford this right now, but we are working toward a place where we can.”

Maybe this Christmas you don’t have a lot to spend. But your discipline now will allow you to do more for the people you love later.

Robert: Absolutely. That goes for:

• Christmas

• Vacations

• Everyday life

We started this whole podcast with that first episode about spiraling into debt. If you’re stuck in that spiral and never make changes, you will always be in a constant low-grade depression over money. I’ve been there.

You have to make hard choices so you don’t live in constant financial stress.

Credit Cards, Discipline, and Protection

Robert: I can almost hear some people in the financial world saying, “Don’t tell people to use credit cards — they’re going to ruin their lives!”

We’ve been very clear:

• Used properly, a card can be a tool

• Used improperly, it can hurt you badly

But even if you’ve messed up, you can recover. Our goal with this podcast is to:

• Encourage you

• Help you

• Point you in a healthier direction

So that you don’t stay stuck in the spiral.

April: And let’s talk briefly about fraud protection, because that’s another area where credit cards can be helpful.

I’ve had my identity stolen more times than I can count. The first time was when I was in college and mostly using a debit card. Someone got my card info, cleaned out my bank account. I did eventually get the money back, but it was hard.

With credit cards now, it feels like the card company sometimes knows me better than I know myself. I’ll get a text: “Did you mean to spend this?”

Usually, the answer is no. Then I know I’m about to cancel a card and get a new one, but they catch it quickly. I’m not on the hook for fraudulent purchases.

And you almost can’t do certain things without a credit card — like renting a car. I once went on a trip during a time when my credit card number had been stolen. The card was cut off, and the replacement hadn’t arrived yet. I had to use my debit card.

They almost wouldn’t let me rent a car with a debit card.

Robert: Exactly. With a credit card:

• Fraud liability is usually $0

• They’re motivated to protect you

• You’re not tying up your cash while disputes are investigated

With a bank account and debit card:

• Your actual money is gone until (or unless) it’s resolved

• You’re exposed to losing your savings or emergency fund

So here’s a practical tip if you’re using debit online:

Have a separate bank account with a very small balance for online purchases.

Keep:

• Maybe $100 in it

• Transfer money in only when you need to make an online payment

That way, if someone gets that card number, your exposure is limited.

You do not want to use the same account where your $5,000 emergency fund is sitting to buy random things online.

April: Yes. If someone gets into your main account and wipes out your emergency fund, that’s devastating.

Wrapping Up & What’s Next

April: I think that’s a good word to end on. We’ve covered:

• Christmas on a budget

• Planning for vacations

• Using credit cards wisely

• The dangers of minimum payments

• The benefits of points and protection

• And how discipline now lets you enjoy emotional moments later

A couple of housekeeping notes:

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If you have a question or comment, head to our website:

• TheMoneyDadPodcast.com
  There’s a form where you can send in your question, and we’d love to address it on a future episode.

And a quick preview for next time:

We’re going to talk about how to start credit if you don’t have any, and how to rebuild your credit if you have terrible credit. And yes — some of that will involve credit cards.

Outro

April: Thanks for listening to the Money Dad Podcast. Head on over to our website, TheMoneyDadPodcast.com, for more resources and to send in any questions that you might have.

Do your homework, and we’ll see you next time.