Budgeting with Prepaid Cards

Prepaid cards have become increasingly popular over the past few years as an alternative to traditional credit cards and debit cards – and for good reason. They’re a great way to help supercharge your personal finance game and help you with your monthly budgeting. We’ll get into all that, as well as the many benefits they offer that can help you take control of your finances.

First, a little bit about what a prepaid card is and what it isn’t.

If you’re familiar with debit cards and credit cards, the best way to think about a prepaid card is sort of a mix of the two. They’re similar to debit cards in that you can access your own funds on your prepaid card – and not credit, like you would with a traditional credit card. Speaking of credit cards, though, prepaid cards share something in common with those as well: prepaid cards are linked to a specific network (in KOHO’s case, the Mastercard network), which means you can use your prepaid card wherever traditional credit cards are accepted.

Since prepaid cards aren’t connected to a bank account like a regular debit card, or to a set credit limit like a credit card, they’re a great tool for controlling your spending. How it works is you load money onto them in advance, limiting spending to the amount available on the card. This feature ensures that you stay within your budget and avoid accumulating debt. Let’s get into how you can use prepaid cards and why they’re so great for budgeting.

Why budgeting with a prepaid card might be better

Prepaid credit cards are great to use in many situations. Here’s a list of ways you can use your prepaid card to get the most out of it.

Everyday purchases: Use a prepaid card for daily expenses like groceries, gas, clothes, school supplies, and dining out. Anywhere you would use funds from your usual bank account you can use a prepaid card to make the purchase.

Online shopping: Shop online securely without exposing your primary debit or credit card information. Prepaid debit cards and credit cards both provide greater flexibility but a prepaid card has the best protection for online account purchases.

Travel: Prepaid travel cards are ideal for international travel, allowing you to avoid unfavourable exchange rates. As a bonus, some KOHO plans come with no foreign exchange fees, which can help you save money while travelling.

Teen allowance: Teach financial responsibility by giving teens an allowance on a prepaid card. This teaches them responsibility and how to manage funds and monitor bank accounts and finances with supervision from their parents.

Emergency fund: Keep a prepaid card with a small balance as a backup for unexpected expenses. This could be useful in the event you break down or get stranded on the side of the road or get delayed while traveling.

Subscription services: Pay for streaming services, subscription boxes, or digital content with a prepaid card. Putting subscription services on a prepaid card can help you manage funds and avoid unremembered draws on your bank account.

Bill payments: Set up automatic bill payments for utilities, rent, or insurance. Prepaid credit cards can help you earn credit points and build a history for making your everyday vital purchases and handling essential bill pay.

Recurring payments: Use prepaid cards for gym memberships, insurance premiums, and other regular expenses. Like above, your prepaid card can make it easier to manage funds and track payments in nearly real-time.

Free trials: Use a prepaid card for free trials to avoid unwanted charges when the trial period ends. You can spend money with added security and save money on avoiding fees and unwanted charges and expenses in the long run.

Charitable donations: Make donations to charitable organizations securely and anonymously. As a bonus, you can make donations directly in the KOHO app and earn extra bonus points and benefits when you use your card.

Student allowance: Load funds onto a prepaid card for college students or children studying abroad to help them spend money wisely and to monitor their spending habits. Think of it as financial training wheels for their growing independence.

Budgeting: Allocate a specific budget for entertainment, dining, or shopping to help control spending. Load funds and budget the available money to monitor use and avoid overdraft fees and other expenses as you pay bills.

Expense tracking: Keep track of specific categories of spending, such as a renovation or home improvement fund. From when you pay bills to redeem rewards to make purchases you can easily track your individual spending habits.

Credit Building: Some prepaid cards offer credit-building features by reporting payment history to credit bureaus. KOHO gives you access to Credit Building, which allows you to build your credit history with no interest, no applications, and guaranteed approval.

Parental control: Parents can use prepaid cards to monitor and control their children's spending without the risk of carrying cash everywhere.

Secondary income: If you have a side gig or freelance work, you can use a prepaid card for business expenses and payments.

Travel expenses: For group travel, use prepaid cards to allocate and manage shared expenses. With KOHO, you can sign up for a joint account with your partner, which is a great way to manage your share expenses.

Cash back: KOHO users earn cash back on purchases just by using their account.

How your money is protected on prepaid cards

Prepaid cards offer specific security features that protect your funds. Unlike credit cards and loans, prepaid cards are not connected to bank accounts. As a result, potential losses are limited only to the funds loaded onto the card. This feature ensures that your money remains safe and secure.

With KOHO, you can choose to only have a virtual card and forego the traditional physical card. This is great for people who might have a habit of losing their wallet or forgetting their card somewhere.

KOHO is also insured by CDIC for up to $100,000, so you can rest easy knowing your money is safe and secure.

Budgeting with prepaid cards and sticking to it

One of the great benefits of prepaid cards is that they can’t be overdrawn. This means that there are no risks of incurring overdraft fees or falling into debt. With a prepaid card, you can have peace of mind knowing that you are staying within your means and avoiding unnecessary financial burdens.

Prepaid cards are excellent tools for controlling spending and sticking to your budget. By loading only the amount you have budgeted for specific categories like entertainment or dining out, you can manage your expenses more effectively. This controlled spending helps you avoid unnecessary splurges and stay on track with your financial goals.

To effectively manage your finances, create a budget and stick to it. Not sure where to start? Here’s a quick primer:

Set clear goals

Determine your financial objectives, such as saving for a vacation, paying off debt, saving for a home, or building an emergency fund. Having clear goals will motivate you to stick to your budget.

Gather financial info:

Collect information about your income, including your salary, wages, and any additional sources of money coming in. Be sure to consider irregular income sources as well.

List your expenses:

Document all of your monthly expenses, both fixed (e.g., rent/mortgage, utilities, insurance) and variable (e.g., groceries, entertainment, dining out).

Categorize your spending:

Organize your expenses into categories to get a clear picture of where your money is going. Categories may include housing, transportation, groceries, entertainment, and savings.

Calculate total income and expenses:

Add up your total monthly income and total monthly expenses. Ensure your income exceeds your expenses. If it doesn't, consider areas where you can cut back.

Identify essential and non-essential spending:

Differentiate between essential expenses (non-discretionary) and non-essential ones (discretionary). This will help you prioritize where you can save. If you need to cut back on spending, take a look at your non-essentials and see where you can save some money or stop spending entirely.

Create a budget spreadsheet or use a budgeting tool:

Use a spreadsheet or a budgeting app to organize your budget. You can also use pen and paper if you prefer. We’ve done the hard work for you and created the ultimate budgeting template. You can download it here.

Allocate funds to categories:

Assign specific amounts to each spending category based on your total income. Be realistic and ensure you account for all expenses.

Consider savings and debt payments:

Don't forget to allocate a portion of your income to savings, investments, or debt repayment, depending on your financial goals.

Review and adjust:

Regularly review your budget and compare your actual spending to your budgeted amounts. Make adjustments as needed to stay on track.

Emergency fund:

Prioritize building an emergency fund in your budget to cover unexpected expenses or emergencies without derailing your financial plan.

Maintain records:

Keep track of your spending and save receipts or statements to ensure you're staying within your budget.

Stick to Your budget:

Discipline is key. Adhere to your budget by avoiding unnecessary purchases and consistently monitoring your financial activities.

How prepaid cards make budgeting easier

Now that you know how to create a budget, it’s important to consider how you’ll manage it. These cards are a valuable budgeting tool that can make your financial future clearer. Prepaid cards make it super easy since, as we mentioned, you have a clear view of all the money you have available to you.

Once you’ve determined how much you spend, you can start each new month by loading only the amount of money you plan to spend over that time. Check your balance regularly throughout the month to make sure you’re still on track but don’t get discouraged if the first few months don’t get exactly as planned. The key is to stay consistent and become better at budgeting over time.

Resources like KOHO also give you access to Credit Building, which helps you build your credit history over time. We have three different ways to do it, so you can find the method that works best for you and give it a shot. Did you know that our average credit-building user improves their credit score by 22 points in the first three months?

Here’s how Credit Building works.

Credit Building: you take out a line of credit with KOHO, repay it on time, and build your credit history. It’s simple, safe, and secure.

Flexible Credit Building: deposit your own money as a line of credit, repay it on time, and build your credit history. It's flexible, customizable, and secure.

Using both: you can choose to use both methods to really supercharge your Credit Building.

Prepaid cards offer a range of benefits, making them a valuable tool for budgeting and managing your finances. They not only promote responsible spending but can also help you build credit and avoid debt. If you're looking to take control of your finances, consider using prepaid cards like KOHO to simplify your budgeting process.

Get credit and finance assistance from KOHO

KOHO offers a ton of perks that can help you on your financial journey with our prepaid Mastercard. Apart from the prepaid Mastercard, you can also get cash back rewards and a goals savings feature. By signing up with KOHO, you can also enjoy the convenience of making online payments, setting up direct deposits, paying bills, and earning rewards.