Do you want to know how to get free money every single month? Stay tuned.
From Philadelphia, the home of the Liberty Bell, Financial Freedom Radio starts now. Here’s your host, Raymond Jewell.
Hey there everybody. As you can tell, this is not Raymond Jewell. This is Producer Steve. Ray is feeling better. He was ready to do the show this week, but I asked him if I could have one more week because I had one more thing I wanted to cover in regards to last week’s topic when we were talking about budgeting. As you know, I brought up the software that I use which is called You Need a Budget. You can get a copy of it with a 34-day free trial. If you go to FinancialFreedomRadio.com/YNAB. They’ll hook you up with a 34-day free trial. I have lived my life by this software for the last 15 years. I know it sounds like a plug, but it kind of is. The software is a very important part of my life. My kids have used it, I’ve used it, and I think it’s a very beneficial thing for people to be able to get their financial world under control so they know where their money’s going, so they understand how they’re spending their money and then by understanding how you can spend your money or how you’re spending your money. You can make better-educated decisions on places to put it. There’s a thing that I talk about called unconscious eating where you basically go to the pantry and grab something to eat. You didn’t really think about it. You’re not really hungry, you just eat. Same thing with spending money. If you don’t realize where you’re spending money and you don’t put a conscious effort into how to spend that money, you’re going to spend more than you make. You’ll wonder why you have more month than money at the end of the month.
The purpose of this whole 2-part series has been to teach people what I call a tactical approach to financial freedom. That is getting control of your spending habits. You can’t, obviously, start doing the bigger macro stuff that Dr. Jewell teaches until you get to the point where you know where your money’s going and you know how you’re spending it. Then you can decide maybe I don’t want to eat out this week and I want to take that money and use it for something that will serve me better long-term. That’s the purpose of last week’s episode. This week’s episode, I want to talk to you about something very near and dear to my heart. It can be a double-edged sword. It’s a great thing if you know how to use it and it’s a horrible thing if you don’t know how to use it. So the purpose of this video is to talk about credit cards.
Credit cards are the greatest creation ever to exist. It’s a very bold statement, but I say it in the context of if you use it properly. What do I mean by that? Without boring everyone, some people may not know what credit cards are, but the short version of this is credit cards are your ability to use someone else’s money to buy something for yourself right now. As long as you think of it that way, a credit card is okay. It’s when you start thinking that this is free money and I can spend it and not worry about paying it back. You can get yourself in trouble. As long as you treat the credit card respectfully and understand that when you use the money that someone else is letting you use, that is no longer your money. That is someone else’s money and you have to give it back to them. If you give it back to them the same month that they give it to you, they don’t charge you any interest. If you give it back later, then they’re going to charge you interest. Why do I say they’re the greatest thing in the world? Because of a lot of credit cards, a lot of companies want you to use their credit cards. You are never going to be able to get a home unless you pay cash. You’re never going to be able to purchase a car unless you pay cash without a good credit score. You’re never going to have a good credit score if you don’t use credit cards and you don’t use them properly. If you never use them, you’ll have no credit score. If you use them improperly, you’ll have a bad credit score. It’s crucial to learn how to use them, learn how to use them properly, and take advantage of the benefits that come from using a credit card. What do I mean by that?
A lot of credit cards today give away free money. Some do it in the form of travel vouchers, some do it in the form of points. Whatever the case may be, I personally have a discover card that gives me 1% back on everything I spend that month. So if I spend $1000, I get $10 in free money. If I spend $1000 next month, I get $10 in free money next month. I have an Amazon card that gives me 5% cashback on anything I buy from Amazon. If I spend $100 on Amazon, I get $5 back in credit and I know I’m going to buy it again. It may not be physical money, but it’s in purchasing power. It’s in the ability to spend less. Instead of budgeting $100 next month, I only have to budget $95 because $5 I got back from buying last month. This is the real power of using a credit card and that is taking advantage of cashback opportunities.
I don’t know when you’re watching this video or listening to this podcast. I didn’t give the plug because I’m a producer and this week as the host, I have to look down at my buttons. If you go to YouTube.com/FinancialFreedomradio, click the little subscribe button and ring the bell. It will help our channel tremendously. Also, like the video, comment on the video, share it with your friends. We really are trying to get the word out about this podcast to other people. Last week’s episode and this week’s episode are very visual. So you’ll want to watch on YouTube if you’re listening to a Podcast. You’re going to want to see the visuals for this because I’m going to demonstrate how this works.
So, whenever you’re watching these credit cards could be different. This month it could be Discover, next month Discover could be out of business. The best advice I can give you is just Google best credit cards. If you’re just starting out, you may have to start with a prepaid credit card where you send in 100 or 200 or whatever. Basically, you’re not using someone else’s money, but you’re giving someone else your money to hold so that you can go spend it and start building up your credit score. The better your credit score, the more likely they’re going to let you spend their money and other companies are going to want you to spend their money. I’ll give you an example.
My son had an average credit score because he was just getting started. When he started doing the things that I’m teaching last week and this week, his credit score is now through the roof. He’s got credit card offers coming in every single week. Now the goal is not to take them, but the fact that you’re being offered means that you have a good credit score. Which means he can now go buy a house whenever he wants to, he can buy a car whenever he wants to. The trick is using credit cards properly and using the software that I use makes that super simple. So what I want to do without de-laboring this point is I want to do a quick demo of how to use credit cards properly, using the software that I use.
Okay, so here is YNAB. So this is my camera and my actual monitor where I’m running YNAB is up above it. So if I’m looking up, I’m looking at the screen you’re looking at. So what you’re seeing here is the demo that we started with last week. As you can see, I have a checking account. If you remember, last week, we deposited 500 into it. We spent $75 in groceries. We spent $35 in food and all of that is reflected on our budget. So how do you handle credit cards? Well, very simple. You add a new account and I’m going to make it unlinked and call it a credit card. We’ll call it a credit card. Your current balance is zero because we’re just getting started. So as you can see right here, now I have two accounts. I have a checking account, I have a credit card account. So how does this work?
The way YNAB works is if I go look at my budget by creating that credit card, I now created another budget category called credit card. This category right here represents how much money I’m going to pay on my credit card when the statement comes due. So the trick with YNAB is to understand two principles. You record when money enters your life and that’s what I did right here. I got paid so money came into my life. When money comes into my life, I go through the four rules. I give every dollar a job and so on and so forth. You also record when money leaves your life. Money can also leave your life when you spend it on a credit card. The way YNAB handles it is let’s say I go back to Walmart and buy some shoes. Let’s see, do I have a category called clothes? Yes, so I’m gonna buy and I’m cheap so I’m only gonna buy a $20 pair of shoes. So if you’ll notice, I put this on the credit card. I spent money from the credit card. I did not spend money from my checking account. I spent money from my credit card. So the credit card is now showing a -$20 which means I owe the credit card $20. You notice that my checking account did not change, $390. Let’s flip over and take a look at what happened on the budget. So on the budget, I have no money to be budgeted, but if I come down here, I see there is a $20 deficit in clothing which means I spent $20 that I did not budget. So what do I do? I have to fill this hole with money. Now I can fill it from my rent, I can fill it from fun money if I want or I can fill it from this stuff I forgot to budget for. So this is extra money.
When you’re first getting started, you may not know everything you need to budget. So you budget what you do know and then you put the rest into a bucket that you can figure out later. So I know that I’m going to be spending $20 a month on clothing or maybe I just decided this time it was a one-off purchase. In any case, I have to spend, I have to fill this hole. I cannot have negative numbers in my budget because it’s going to cause me problems down the road. So what I do is I click on this and I cover this overspending from what category? I’m going to cover it from this category . So what’s going to happen is this. $120, this used to be $140, now it’s $120. It moved $20 up to clothing. Now we have a zero, but look at this. If I come up here, YNAB has taken and put $20 into my credit card budget. So the $20 that I moved from here to here covered the whole, but it’s not my money. It’s someone else’s money. You have to think in terms of when money leaves your life, when I bought those shoes, the shoes are mine, the money that I borrowed from them I’m going to pay them back, but it’s not my money. If you look in the checking account and you see I’ve got $390. I can spend $390. That is where people make a mistake. When you start budgeting through software like this, you no longer pay attention to your balances over here, you only pay attention to your budget.
So I’ve got $20 sitting towards my credit card, everything else looks good. Now the end of the month rolls around, I’ve gone into the credit card and I’ve said I want to automatically pay this when the bill is due. The goal is to pay off the credit card every single month with money. If you do it this way, the money is already set aside. So since I don’t have it automatic, I’m going to assume it’s automatic, and here’s what would happen. So I’m gonna go into today’s date. I’m paying the credit card bill and I owe them $20. If you notice, I now have a new payee which is two from my credit card. So I’m gonna click that and what’s that gonna do? Technically, this is not my money. I don’t have to put a category in. This is simply moving money from one account to another. The money’s already gone even though physically it’s still in my account. It’s their money sitting in my account. So I don’t need to categorize when I’m moving between accounts. So I’m going to take out from my credit checking account $20. Now watch over here when I do this. If I click save, my credit card balance has now gone to zero. My checking is now down $20 and if I look at the budget, my credit card payment has been made. So as long as you remember that when you spend money on a credit card, that is no longer your money. As long as you come into the budget and fill that hole. Now, let’s say hypothetically, we’ll do another quick one. Let’s say I go back because I want you to see this. That was in a category, that was already negative. Let’s say I go out to the movies and I’m going to put the ticket on the credit card. The goal is what you want to do is you want to put as many things on your credit card as possible. If you use this strategy, I’m going to be very clear with my language here, I am not telling you to go out and run your credit card up tot he max. What I’m telling you is, if your budget and if you use common sense… For example, my family, we put every bill we can on the credit card, our electric bill, our cable bill, our homeowner’s insurance, everything we can pay on the credit card, we do. It gets us the most cashback.
So let me show you how that’s going to work. So I’m going to go in here and I’m on the credit card. I’m going to put it in a movie theater. This is coming out just for fun. I’m gonna say 20 to keep the math simple. Now, because I have $50 in that category, let’s watch what happens. I’m going to hit save. My credit card has now gone into the whole $20 again, but look. $20 has automatically moved up to the credit card and my fun money has decreased by $20. So YNAB has already taken care of this for me. It knows that money is not mine, that money belongs to the credit card company. So I’m gonna make you not be able to spend anymore and I’m gonna put it up here. So now, back to the original premise of the episode. What happens and how do you get free money? Well, because I have spent $40 and only $40, I’m going to get cashback. Let’s say hypothetically it’s 5%. 5% of $40 isn’t a lot. So let’s say for argument’s sake, it’s more than $40. Let’s say it’s $100 and I’ve got 5% cashback. So I’m gonna get $5 back. Here’s what’s going to happen. If I had this linked to my credit card account, which you can link and that’s beyond the scope of what we’re talking about here, but just to show you philosophically I’m going to go in and I’m going to put in today’s date and I’m going to put cash back because they’ve given me cashback. Guess what that goes into. Income, to be budgeted. It’s going to go into this account of $5. Here’s what’s going to happen. They put it down here for some reason. Okay, my credit card balance is $15 because they’ve given me $5, but let’s look at the budget. The budget is showing $20 and zero to be budgeted. Now, why is it showing zero to be budgeted? Because that’s how this credit card works.
So let’s delete that for a second. The way that would work would be this, I would now owe $15 to the credit card company, but I have $20 in credit card payment because that’s how YNAB works. So what I would do would be I’d make my $15 payment because that’s all I owe and I want to make another payment to the credit card of $15. That pays off my credit card, but now I still have $5 in the credit card to be budgeted category because they gave me that money. So now what I can do with this is I can click on this money and say where do you want to move it to? Well, let’s put it back into stuff I forgot to budget for. So it comes out of this category and it goes down here. So we’ve upped it by $5. So that’s one scenario. With the Discover Card, for our case, what they do is they actually deposit the money into my checking account. So what would happen there would be I would do this. I would put in and I would put cashback from Discover and I would have to give this a category. So I would say this is inflow to be budgeted and I would say it’s a $5 inflow. Now because it’s not in my credit card, my checking account went up $5 and if I come here, I have $5 to be budgeted. So because Discover put the money into my checking account, I have the ability to move it to wherever I want to. So I can click that and I can move $5 to stuff I forgot to budget for which will take it up to $130 dollars and my number is here back to zero. So depending on the credit card, if it goes into your credit card, you may have to take it out of your credit card payment that you had budgeted that you no longer need to pay. If it goes into your checking account, in either case, it’s still free money that they’ve given you for behaving responsibly with the credit card.
So the more that you can spend on the credit card using very smart, and I want to be very clear on this, very smart processes, the more free money you can get. So anyway, I hope that makes sense. Like I said, this is not a lesson on bad use of credit cards. Don’t get me wrong. I don’t want people thinking Steve told me to go out and run up my credit card. No, what Steve told you to do was use your credit card responsibly to maximize the free money that they want to give you. If you’re not paying off your credit card in full by the end of the month, you’re doing it wrong and it’s going to bite you, but as long as you’re paying it off in full by properly budgeting and spending within your budget and recording everything, you’re going to do great.
Anyway, that’s it for this week. Dr. Ray will be back with us next week. I asked him to be able to do this extended set because I wanted to talk about credit cards. They’re very powerful, it’s free money that you can use for whatever you want to use it for. I just think it’s a very powerful weapon in the arsenal, a powerful arrow in your quiver to quote Nancy Pelosi, to help you achieve financial freedom. Anyway, that’s it. Thank you for putting up with me for the past couple of weeks. It’ll be great to get back on the other side of the camera next week and let Ray do his thing and we’ll talk to you next week. Don’t forget FinancialFreedomRadio.com or Youtube.com/FinancialFreedomRadio. Subscribe to our channel, ring the bell, give us a like on the video, and leave a comment, share this with your friends. This is powerful stuff. This is useful stuff. This is stuff that people need to know to try and become more financially independent, more financially free. If you want to get a free trial of YNAB, just head over to FinancialFreedomRadio.com/ynab and give it a try. It doesn’t cost you anything for 34 days. They do 34 days because they want you to get the entire month, the entire cycle through, and get used to it before you decide whether or not it makes sense for you. Anyway, that’s it. I hope you have a great week and Ray will talk to you next week. Take care. God bless.
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