I put almost all my day-to-day purchases on a credit card. I do this to easily track my costs, particularly my discretionary expenses. The account dashboard and reporting features help with visibility into my non-essential spending each year.
With so many perks and rewards attached to credit card purchases, you can easily find a card that rewards you for your most frequent purchases. For instance, my American Express (AmEx) Blue card gives me 5% cash back on groceries and gas stations charges, and 1% back on everything else. You can imagine how much cash back my family of four earned in grocery purchases during the lockdown!
On an average year I accumulate nearly $3,000 in rewards on my AmEx. The rewards can be applied to my monthly balance, airline tickets, or paid to me in cash. I usually take the cash. Here is why.
  • The rewards can be considered a “discount” on your day-to-day purchases since the rewards are not taxed as income when redeemed. So, it is truly “free” money.
  • When I receive the cash from the rewards each January I deposit them into one of my retirement accounts. These IRA or SEP contributions count as a tax deduction.
The longer I do this, the more I save. Think about it…over 10 years, $3,000/year earning 8% annually will accumulate $50,000. And over 10 years the “value” of the tax deduction, assuming a 35% tax rate, would be $10,500.
The ‘total” value of this scenario over 10 years could be over $60,000. This is a solid deal for simply changing your payment habit for day-to-day expenses.
This is a great way to maximize a dollar (or thousands of dollars)! Start thinking of these perks as a discount on purchases, or tax-free cash. You can receive a tax write off to help accumulate savings for your financial future.
Call me at 216.570.5060, or send me an email if interested in learning more.