Growing Revenue By Just Being You
As we discussed in the last post to grow wealth over the long term you need to grow Revenue. See Prior article: Here
One of the easiest ways to grow Revenue is making sure you are SUSTAINABLY (key word) maximizing your “Free Money” that is available to you. A cornerstone way to do this is with Cash Back rewards if you can be a good steward of your finances.
The Basics
A cash back rewards credit card or debit card provides you a rebate a month in arrears for any spend you push through the card.
If you are going to be spending the money no matter what (eg not frivolous spending) and you pay your credit or debit card off with no interest – this is free money. I generally prefer credit cards over debit cards so that I can control when I make the payment…. see prior post Here.
While you need to be good stewards of your finances and not over spend on a card – you also should make sure you are maximizing this free money as much as possible.
IRS View – Post Tax Free Money
Credit card rewards are viewed as rebates on your purchases by the IRS in the US (I do not know what your personal intentional tax law may be for your personal jurisdiction if you are outside of the US but I suspect it is the same as the US tends to lead the way in tax rulings).
Since these cash back rebate cards are “post tax” they are even more valuable…. the higher your income bracket, they have even more implied value to you.
Note: If you ever receive a 1099 from a credit card company for a reward you need to count it as income during your tax season – this rarely happens as the credit card companies don’t want this for you either and typically link any new rewards to new purchases to make it qualify for a rebate.
Sustainability
One of my major underlying themes when it comes to personal finance or even my day to day work on finances with my job is to come up with a sustainable process. If there is a lot of manual intervention or one off issues that come up – it is just a matter of time before the process breaks down. I have tried all of the gimmicks with rotating categorties and all the point systems you may read about….. even I lost interest/didn’t have time to keep chasing and suspect most Americans are in the same boat (and what the Credit Card companies are banking on). I would encourage you to also adopt something sustainable.
What Cards I Use
I use three primary cards:
- Fidelity Cash Rewards Visa – 2% back on ALL purchases. Rewards given in cash! Citi Double Cash back card is an alternative that also gives back 2% – they give their rebate as a statement credit so I opted for Fidelity.
- Preferred American Express – 6% back on groceries (up to $6K) and 3% back on all gasoline purchases and select department stores. Rewards given as a statement credit. Has an annual $95 fee but the rewards more than make up for this given my spending level in these two categories – if you spend more than $4,750 a year this is a good decision for you.
- Target Red Card – 5% off everything, 15% off subscriptions, and free shipping for online orders with no minimum. Rewards provided via a discount on your purchase – technically a discount card but I added to this card to my line up after the kids were born and my $100+ stock up Target runs became more normal.
I push EVERYTHING I can through these cards (I have put everything from a car down payment to my daycare bill with my reward card until they got wise to it!).
My set up is pretty simple – if at Target use the Target card, if gas or grocery store I use the Amex, and use the Visa for everything else.
It depends on the month but I consistently average above 3% of my total spend coming back to me. Everyone’s finances are different but for every $1,000 a month of spend (most people with a card spend at least this) that’s $30 a month or $360 a year for doing basically nothing.
Why Travel Cards are Stupid and Cash Reward Cards Are King
One other common item that may come up in your evaluation of reward credit cards are cards with Travel Benefits vs. cash back. These cards do not trump a cash rewards card for the following reasons:
- The net cash reward is actually lower…. do the math and you find out you are netting less than 1.5% cash back equivalent which is lower than the 2% you can get off the Fidelity or Citi card. Do a google search for your specific card and you’ll see references to 1.2c a mile (Delta SkyMiles as an example) and given most cards give you 1 mile per 1 dollar spend you can equate that to 1.2% cash back. 2% is greater than 1.2%… cash rebate wins.
- Yes there can be gimmicks to push that rewards amount up for specific routes or spend categories but those gimmicks are not sustainable just like the rotating categories on the cash reward cards are not sustainable. If you still don’t believe me you can pull out the 10-K SEC filing for your airline – Delta as an example had 345 billion of SkyMiles redeemed for $15 Million in airfare in 2017…. that’s well less than 1c a mile! Those miles are definitely not that valuable!
- Your reward is “locked up” up in miles and you have to spend them on plane tickets which has several issues: 1) Your value will likely never go down to zero as you likely won’t spend all the miles 2) you have to spend the money and have no chase to save it 3) it may be several months or years before you redeem your miles…. you should want your money now! Time value of money!
In Conclusion – Supreme Court View – Cash Payers are Subsidizing Your Rewards – Might As Well Get The Benefit
The Supreme Court recently made a huge ruling that payment methods can’t be discriminated against! This has the net result of anyone paying with cash, or with no or low reward cards subsidizing all of us with higher reward cards. At a bare minimum get a reward card but why not maximize it??
If you want to read more about this – here is the best article I found: Who won and who lost – Supreme Court Ruling
