I’m a strong believer in disciplined personal finance. Part of that discipline is having the self control to avoid superfluous spending on credit cards and paying them off every month.
I believe everyone can develop this discipline. If you need a carrot stick for motivation, this post (and $1000 a year) is for you.
Let’s start with what’s in my wallet:
Here’s a breakdown of each card and why I carry it. I’m going to put them order of awesomeness, which is different than the picture above.
- Fidelity Retirement Rewards – This card gives me 2% rewards on everything I spend. For those who are math-challenged that’s twice as good as what you get from most rewards cards. This is the catch-all card, which we found particularly great for things like daycare. Though this card is supposed to make it easy to put the rewards into your retirement plan, Fidelity couldn’t figure it out for me. Instead, I use the rewards for statement credit. You need to get around 25,000 in rewards points ($12,500 spending) to redeem at the 2% level, but the $250 statement credit is very nice.
- American Express Blue Preferred – This gives me 6% cash at grocery stores (not Wal-Mart or Target). It used to not give rewards for my local military commissary, but they’ve finally fixed that problem. Though it has an annual fee, the 6% rewards on groceries more than cover it.
- Chase Ink Business – This gives 3% cash back at restaurants, office supply stores, and home improvement stores (Home Depot, Lowe’s, Ace, etc.) I don’t know if you actually need to have a business to take advantage of this. I’ll leave that as an exercise for the reader. Even though we try to keep our restaurant expenses down, the extra 1% over the Fidelity Retirement Rewards card is nice.
- USAA Rewards Plus American Express – This gives 5% back on gas and at military bases. With gas at around $3/gal, that 5% makes it effectively $2.85/gal. If you drive a lot, it adds up quickly. My wife recently learned about the military base rewards, which was news to me. The strange thing is that many places on military bases won’t take American Express.
Now for the sad part… you probably need a USAA account to get this. Unfortunately USAA accounts are typically limited to members of the military and their families. If you are limited by this, keep reading, I’ve got something for you later in the article.
- Amazon Visa – This isn’t pictured above. Why? Because I don’t keep it in my wallet. I signed up for it just to get the 3% rewards at Amazon. I added it to my Amazon account and then hid it away. Unlike American Express, don’t leave home WITH it. With the other cards, there’s no value to it.
- Chase Freedom – This card gives 5% cash back on categories that rotate every quarter. Sometimes it’s restaurants and beats out my Chase Ink card for value. A couple of quarters ago it was gas, which is almost useless given my USAA card above. Because this card is very hit or miss, it is low on totem pole. I don’t like having to think about how it saves me money this quarter. I also don’t like having to “activate” the rewards, even if it is as easy as a click on the web. Big demerits for relying on breakage, Chase.
Here are cards that deserve mention. I would carry some of them myself, if it weren’t for a specific situation to me that prevents it or limits the value.
- Citi Double Cash (MasterCard) – This card gives you 1% when you spend and 1% again when you pay in full. Because the assumption is that we pay in full, this gives the equivalent rewards as the Fidelity Retirement Rewards card above. The difference is that this is MasterCard and is useful a few more places that American Express is not. If you had neither, I would suggest this over the Fidelity card that I use. Since I already have the Fidelity card, it isn’t worth it to me to make the move.
- PenFed Platinum Cash Rewards – If you aren’t eligible for the 5% USAA card, you can get a PenFed membership (it’s relatively cheap and easy, just do a search with your favorite search engine) and get nearly 5% cash back on gas with this.
- BJ Perks Elite – We tried to get this card, but got rejected despite our nearly a perfect credit score. Their explanation? Our debt-to-income ratio was too high for their liking. Because the BJ Warehouse membership was in my wife’s name, she had to be the one to apply. I wonder if she low-balled our income perhaps leaving off what our three investment properties bring in? It is a mistake that I often make, because the income balances off our expenses. A credit check would bring up the debt and our reported income would seem low if we don’t include that income.
- US Bank Cash Plus – This card allows you get 5% on categories that you choose. They used to have utilities, which made it the only card would give 5% on such things. It looks like they have some useful things such as electronic stores (5% Best Buy, Apple, etc.), gym memberships, and cell phone. This card may save some people $50-100 a year with some of those categories.
Unfortunately, I have to pass because you can only apply in a branch and they don’t have any in New England from what I can tell. True story… while on vacation I tried to apply in a branch, but they couldn’t send the card to a state that they didn’t have a branch in. So as my British friends might say, I will politely invite them to “get stuffed.”
- PenFed Premium Travel Rewards – This gives you 5% on airlines. What I like best is that it isn’t limited to any particular airline. My wife books the majority of our travel (it’s usually for her work). I think she might have this credit card, but I’m not 100% sure. If not, we should get it on our list. We used to not travel much, but we are traveling a little more of late.
- Discover – I’m thinking about this one. Like the Chase Freedom above with rotating categories, it might prove useful some quarters. I’m still stuck in the 80’s thinking of when my mother got one of these cards and couldn’t use it anywhere. I think it is mostly taken everywhere now, so it may be one of the next credit cards on my list to get.
- Sam’s Card – Sam’s Club has the cheapest gas around for us, but it is still 20 minutes away from our house. When we are going by there anyway, we fill-up, but it isn’t worth the trip otherwise. The downside is that Sam’s doesn’t take the USAA gas card mentioned above since it’s American Express. If you lived close to a Sam’s Club and used it to fill up often enough, it would be worth it to get this 5% card.
You’ll notice that I don’t have a lot of travel cards here. Some people do very well with them. We don’t travel enough to save up tons of rewards points on every airline. We could choose one airline to pile up points in, but what if another airline is offering a better deal? I’d rather have the George Washington Points (commonly referred to as “cash”) that I can use everywhere.
Also, some people rotate through credit cards to get the sign-up rewards. With some of them, you might be able to make a few hundred dollars per card in just a few months. The returns on those can be upwards of 15%! It’s not terrible plan, but I like to keep a core set of cards and have them on autopay. This way I never have to remember to write a check or put a stamp on a bill… and I never get charged a fee.
So How Do I Save More than $1000?
I don’t subscribe to a system of meticulous budgeting, so I’m going to give you estimates based on our spending for a year. And yes, I realize I could sign into 6 accounts and get year-end statements for more exact numbers. There’s two things stopping me from doing that 1) Laziness and 2) Really not wanting to look at our spending on that Fidelity Rewards card (ouch!).
Day Care – $12,500 – Fidelity Rewards (2%) – $250
Groceries – $4500 – American Express Blue Preferred (6%) – $270
Restaurants – $3600 – Chase Ink (3%) – $108
Gas – $2000 – USAA (5%) – $100
Amazon – $1200 – Amazon (3%) – $36
Office and Home Improvement * – $300 – Chase Ink (3%) – $9
Miscellaneous (not in a category above)** – $15,000 – Fidelity Rewards (2%) – $300
The grand (estimated) total is… $1073!
* I often buy Home Depot Gift Cards at a 10-12% discount on CardCash.com using my Fidelity Rewards (2%) card. The combination is a far better deal than Chase Ink’s 3% cash back. The only reason I spend $300 in the first place is when I forget to bring my Home Depot cards or shop at Staples where I don’t have a gift cards.
** This may be a very low estimate. We manage three rental properties. Buying new appliances, kitchen updates, HVAC units add up quickly. If we were to get the BJ’s card and the travel card some of this spending would move from this category to one making 5% increasing our total rewards a bit… maybe enough to hit $1100.
Maximize Your Points
This may seem obvious, but I try to get the highest percentage reward cards for a category. The magic number for many categories is 5%. Sometimes you get a 6% and sometimes you have to settle for 3%.. I never think about cards that offer less than 3% because I’ve got my Fidelity that earns 2% on everything to fall back on.
I’ve had most of these cards for years and years now. Spending with them is second nature to me. My wife likes to put a sticker with a reminder of the category on her cards. As I mentioned above, all of these are on autopay, so I just need to make sure I have the money in the bank, and the rest is automated. Not everyone’s spending is the same, but I think that nearly everyone could easily make at least $500 a year with no additional work, simply with rewards on credit cards.