Creating a Cycle of Saving with Credit Card Reward Points - The Perks of Being Financially Responsible
In my opinion one of the best perks of being able to responsibly manage your credit cards are all the points that you can earn through sign-up bonuses and normal everyday spending. Instead of paying cash for items you need and getting nothing in return, putting that spend on a credit card can most likely earn you at least 1% back and many times more in point value. Contrary to what many people think about credit cards, this actually creates a cycle of saving because you can then use the points you earned through your normal spending, instead of cash, to purchase that flight or hotel night you always wanted and keep your earned income in the bank. The most important aspect of using credit cards is you have to be able to pay off your credit card balance in full every month. When you do this, you pay no interest on your credit card spend, and you get to reap the rewards of all the points that you earned... it's free money!
The way I thought about credit cards before I got into this "hobby" was that you use credit cards as an instant loan to buy whatever you may not necessarily be able to afford at the time and just pay for it slowly over time. You get what you want now while only having to pay back a fraction of the cost every month, sounds great right? Nope!! All the while you're doing this the credit card interest starts to rack up month after month making you poorer and the banks richer. This is the main reason people get into credit card trouble and the start of being in the debt hole that's so difficult to get out of. As long as you don't use credit cards in this way, credit card rewards are a hobby you should be involved in so YOU can be richer. If not, you're leaving free money on the table.
Credit card rewards are comparable to earning interest, but instead of saving your money to earn interest, your everyday spending is earning you interest - credit card reward points. Then with the points you earned, you are then able to save your money on that flight or hotel night and use your reward points instead. The cash you earn from your job or business doesn't have to be used. This potentially saves thousands of dollars a year. Instead of lowering your net worth by spending your income (W2 money) on a flight or hotel night, you can increase your net worth by spending your credit card reward points instead. Your W2 money is left alone and can continue to grow in your investments or wherever you have it saved, thus saving you money and creating a cycle of saving. You're earning on your savings and your spending!
This is the best hobby in the world that many people who are financially able still avoid because of the stigma of credit cards. If you're not into travel, credit card reward points should still be on your radar because you can also turn your points into cash. You will most likely earn around a penny a point compared to redeeming them for a higher value by transferring them to many travel partners, but this is still extra money to contribute to your cycle of saving.
I know this sounds counter-intuitive that spending money actually saves you money, but using credit cards for your everyday spend really does create a cycle of saving. The only caveat being you MUST be able to pay your credit card balance in full every month.
So to summarize:
Spend -> Earn Points -> Save $
1. Spend on your reward earning credit card
2. Earn credit card reward points
3. Save your income (W2 money) by using your credit card points to fund your flights and hotel nights or converting your credit card points to cash
