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One of the most common mistakes that I see in the points and miles hobby is chasing welcome offers and not thinking through a long-term strategy. While earning lucrative welcome offers and diversifying point programs is important, I would argue that it’s also essential to find cards that allow you to earn points with your daily spending.
Focusing too heavily on welcome offers
When you’re first starting out, you’re often focused on applying for premium cards that often have a high annual fee but lucrative welcome offers and travel benefits. These cards can be extremely valuable but are often optimized for a lifestyle that isn’t reflective of our day-to-day lives and spending patterns.
That’s why it’s important to also consider where you actually spend money and what cards you should get in addition to these premium cards. Having a holistic and realistic perspective allows you to structure your card portfolio for maximum value.
How many cards is too many?
I need to give the disclaimer that I currently have 15 active credit cards. Some of you might say, “That’s a lot of cards!” However, compared to some of the other folks in the credit card and personal finance space, I’m on the lower end. I’ve heard that some in the space have 50+ active cards. Now that’s a lot of credit! I personally don’t think you need that many cards, and I think having that many active accounts puts you at risk of additional scrutiny from the issuers, not to mention the extra headache of managing and monitoring all those accounts.
Look beyond the welcome offer
My philosophy has always been to pursue cards that you may want to use beyond the initial welcome offer. This allows you to build credit since you’re keeping the card over a longer period of time. It also means that you’re developing a relationship with the issuer. It may not be as sexy or aggressive as hunting every large welcome offer, but it’s a better long-term strategy, especially if you plan on doing this for the foreseeable future.
My breakdown of spending and bonus categories
If I look at the breakdown of my wallet and cards, you can see that I’ve listed out all of my active accounts on the left, and at the top, I’ve put all of the places where I tend to spend money in my everyday life. I then went through the process of checking each card’s benefit and rewards structure. You’ll notice that I am using the adjusted earning rate. That’s the earning rate multiplied by the redemption rate.
For example, if I look at my Ink Business Cash cards, you’ll notice that I listed 7.5%/7.5X as the adjusted earning rate for phone service, internet, streaming services, and office supplies. While the listed earning rate for the card in those categories is 5X or 5%, I know that I can transfer those points to my Sapphire Reserve, which has an increased redemption rate of 1.5 cents per point on the Chase Travel Portal. This is generally the minimum rate that I will use when redeeming Chase Ultimate Rewards points, so I use it as my base value. I tend to be a bit more conservative in my estimates, so keep that in mind. You might value your redemption rates higher than what I have listed in my calculations.
Why it’s important to track your card’s bonus categories
Mapping out the earning rates on all your cards against your common spending categories is important when trying to maximize points or cashback. It allows you to see which cards give you the most value for different types of spending. It can also help you in some of your decision-making. For example, if one of my utility companies charged me a 3% processing fee to use my credit card to pay the bill, I initially may be discouraged from using my card. But knowing that I get about 5% cashback on it with my US Bank Cash+ card, I’m likely going to come out ahead, even if I’m charged the extra fee.
Tool for tracking your bonus categories
In case you want to go through this exercise as well, please see our credit card tracker spreadsheet. This is the same Google Sheet that I’ve used in the past for tracking all of my accounts. I’ve just added a new tab at the bottom called “Spending.” The tracker has a basic calculator on top as well to help you estimate the adjusted earning rate for your flexible point currency cards. I’ve included my general spending categories, but I encourage you to look at your own budget and see where you spend most of your money. Since I use an app called You Need a Budget (YNAB) to track my finances, it helps me understand where I tend to spend money.
Tips and considerations for maximining your everyday spending
I wanted to share some additional tips and considerations when going through this exercise.
1. Review your card benefits frequently:
I recommend reviewing your cards quarterly to make sure that you’re capturing any changes or new promotions on your cards. As many of you know, card offers and benefits can change at any time. It’s worth looking up your current cards on a regular basis to check to see if there might be a new bonus category that could alter your card strategy.
2. Do the math before applying for a new card:
One of the biggest benefits of tracking this information is that it gives you a clear picture of your current earning rates. For example, since we’ve shifted a lot more of our grocery and fuel spending over to Costco this past year, I’ve considered getting the Citi Costco Anywhere Visa card because it earns 4% cashback on fuel and 2% on Costco purchases. However, if I look at my spending analysis, my Freedom Unlimited has an adjusted earning rate of 2.25% on all purchases, and my Ink Business Cash has an adjusted rate of 3% for fuel purchases.
If I look at YNAB, I can see that I spent $1,183.57 on fuel last year, which means that I would be earning about $12 more with the Costco Anywhere card over my current set-up assuming that I only use my Ink Business Cash. And if we factor in that I usually get a bonus one quarter with the Chase Freedom card, I’m looking at an adjusted average rate of 4.13%, which is higher than the Costco Anywhere card.
3. Consider the opportunity cost of getting a new card:
Even if I were getting $12 more per year using the Costco Anywhere card, I am hesitant to apply since it could affect my ability to get a more valuable card in the future. For those of you looking to build Chase cards, you know that there are a lot of rules that can hinder your ability to get cards from the issuer. One is the 5/24 rule, which means that you can’t have five or more approved credit cards in the last 24 months. This includes accounts that you may have opened and closed within those 24 months. I prefer to keep my 5/24 score low so that I have more options if another card catches my eye in the future.
4. Don’t be afraid to mix points and cashback:
I’ve come across some folks, even those experienced in points and miles, who look down on earning cashback instead of points, but I think cashback cards can be a great way to augment your setup.
For example, while I love my Chase setup, Chase does have some spending categories that do not offer a bonus, and an example is groceries. If you spend a significant amount on groceries, it’s worthwhile to consider a card that can earn you a bonus on groceries like the American Express Blue Cash Everyday and Blue Cash Preferred. In fact, the Blue Cash Preferred was one of my top underrated cards for 2020 since it earns 6% on US supermarkets and streaming services, and 3% on US gas stations and transit services like taxis, rideshare, parking, tolls, trains, and buses. You also get several benefits associated with American Express like their lucrative offers and Shoprunner membership.
While you may still prefer earning points, it’s hard to argue against the 6% cashback unless you get the American Express Gold card which has a 4X earning rate on groceries. However, for those who may not be invested in American Express Membership Rewards points or unable to take full advantage of the benefits on the card, the Blue Cash Preferred may be a more valuable choice.
5. Consider rotating bonus cards in your setup:
Since I started this site and channel in 2017, I’ve done a post/video every quarter on the new rotating bonus categories for several cashback cards like the Chase Freedom and US Bank Cash+. These cards typically allow you to earn 5% on different categories and are a great way to earn either cashback or points.
Leveraging the flexible categories on the US Bank Cash+
The US Bank Cash+ card, in particular, has been an extremely versatile card. Unlike other rotating bonus category cards, this card allows me to pick two 5% rotating categories every quarter. The two that I typically use are gym memberships and utilities. Those are reoccurring expenses, so it’s easy for me to earn over $100 every year by using this card without even thinking about it.
Set up reminders so you don’t forget
While rotating bonus cards are a bit more work to manage, they are a great way to earn an extra bonus. I recommend using reminder tools, labeling your cards, or even placing them in a specific order in your wallet to help you remember which card to use.
6. Think creatively with your bonus categories:
There are often creative ways to maximize your current bonus categories for other types of spending. For example, if you want to visit Disneyland here in Los Angeles, you might consider buying your tickets at the grocery store in order to maximize that bonus. Another example is buying stamps or shipping items at office supply stores if you have a card that earns a bonus in that category. You can even purchase gift cards, though I don’t recommend abusing it since it can raise red flags with the issuers.
7. Avoid the temptation to spend solely to earn points and cashback:
All of us in the points and miles space advocate using your credit cards responsibly. There can be a tendency to spend more in order to maximize a bonus category, especially when it comes to rotating bonus cards. I’ve fallen into this trap in the past. I recommend resisting this urge unless you have a lot of disposable income. You’re always better off spending less and saving more than trying to overextend yourself just to earn extra points.
Exception: Meeting minimum spending for a card with a high welcome offer
The only exception to this rule is when you’re trying to meet a minimum spend. However, even then, I recommend using services like Plastiq whenever possible to clear the minimum spend hurdle with large payments.
In case you’re not familiar with Plastiq, it’s a service that functions like your bank’s bill pay system but charges your credit card instead for a small percentage, usually 2.5%. That may seem like a lot, but since the welcome offer is so valuable, it might be worth the fees to get the bonus. That way, you’re not trying to overspend on other items. I think it’s less stressful to get your minimum spend out of the way than scrambling to spend enough within the timeframe.
Services like Plastiq do have restrictions that are constantly evolving, so you’ll want to do some research before using them. Many have used the service to pay things like rent, mortgage, or tax payments.
What do you all think about tracking your everyday spending categories and your credit card earning rates? Do you have any other suggestions, especially for those just starting out?
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