Credit cards can be a valuable tool to help optimize your personal finances. Credit cards can also be an heavy weight on personal finances if not used properly. This post is not about how to use them, rather it’s a 25+ plus journey on how I have used this tool to drive personal value.
There are 2 key areas in which I have used credit cards as a financial tool in my arsenal which include:
- Playing the arbitrage game between purchases and paying for those purposes in which you can earn extra interest on that cash
- Optimizing credit card rewards to drive incremental personal value
For the purposes of this post, I will be focused on #2 and specifically the different phases in my journey as well as my 2023 optimization plan.
This post is broken into the following sections. If you don’t want to read the entire post, feel free to jump to the section that is of most interest. The sections I will be highlighting include:
Section 1 – Speaking out of both sides on my mouth
Section 2 – Credit card usage broken into 4 distinct time phases
Section 3 – 2023 credit card strategy
Section 4 – Cashback and the S&P 500
Speaking out of both sides of my mouth
There are two contradictory points of view that I will address in this section. Like most things in life, every decision has both a pro and con. In my personal life, like in business, understanding the impacts of decisions can give a person a better understanding of the impact of those decisions. The following is a reflection in which I am fully aware have benefits for some and negatives for others.
Financial Stocks vs Personal Gain
When we get into Section 2 below you will see that when it comes to credit card usage I am only loyal to my objectives and not to a financial institute. I usually tell people that when it comes to bank stocks and my personal gain, I speak out of both sides of my mouth. From a bank stock perspective, my strategy is bad. As a shareholder, I frown upon my personal strategy. Inertia is a good thing as it ensures that profits are scooped up by the banks and distributed back to shareholders. However, on a personal level, this is all about maximum benefit to the individual.
Cash vs Credit as a Small Business Owner
I fully appreciate that accepting credit cards is a big cost for SMB’s. The unfortunate part is that SMB’s get the short-change on this one. Large organizations can negotiate some preferable rates whereas SMB’s tend to get stuck. I appreciate that as a consumer I am driving this by trying to optimize for Cashback or points. I only include this as I am sensitive to this dynamic as well as the supply chain that is involved in credit card processing.
Any solution that would drive down costs for SMB’s to accept credit cards is a good thing for the business owner and likely a bad thing for my personal strategy. I would actually be okay with that.
However as I speak about Neo Financial below and my usage there which is predominately local in nature. They are the one credit card in Canada that puts the local market and the SMB’s who make it up first.
Credit card usage broken into 4 distinct time phases
1995 – 2004 (RBC Esso)
My go to card during this 9-year period was the Esso credit card provided by Royal Bank of Canada. At the time I was building businesses and hitting the road a lot to meet with clients, vendors, prospects, etc. through my own company as well as with Bell Canada. I optimized for fuel during this phase as it was one of my largest costs at the time. Eventually RBC terminated the Esso card and my lifestyle changed where I would be spending more time in an Airplane as opposed to a vehicle.
2005 – 2013 (AMEX Aeroplan and Starwood)
After selling KS2 Solutions to Yellow Pages Group and moving to Toronto in 2006 it was clear that I would be spending a lot of time in airplanes and hotels. Optimization for Aeroplane and SPG points became critical as I was literally on the road every week. These were pretty fruitful years but one thing I noticed during this time was that point deflation was happening which meant that points earned in one year were worth less in subsequent years. All this to say, the points paid off well, helped fund lots of personal vacations. This was also the phase in which I did pay annual fees for cards as AMEX cards are more premium. Was the point differential worth the annual credit card fees, I would say yes.
2014 – 2020 (BMO – Cashback)
Around 2014 I moved my strategy to be more related to earning Cashback. I simply had too many points and it would have taken me a long time to redeem them which meant that the value of those points would be eroding. Not saying that cash doesn’t erodes (ie – inflation) but my thinking was that earned cash that is invested can actually produce a net longer term value that earning points which have no chance of ever appreciation in value via investments. BMO was my card of choice as it offered a decent 1.5% Cashback on everything until they changed the card dynamics.
2021 – Present (Rogers & Neo)
Leaning into to optimization of cash, I made a point to eliminate all cards that have an annual fee. Except my AMEX card which is still my default travel card. This is also the phase of accelerated Cashback optimization where a multi-card strategy is critical to earn as much as possible. My primary card is the Roger’s Mastercard which gives me a default earn of 1.5% on all purchases and I optimize alternate cards when I can earn more than 1.5% on them within certain categories. It’s a little bit of work but when I factor in the time to do this, relative to the overall return, the net hourly rate is mid triple digits. In other words, I spend very little time managing against this strategy.
Here is a view of how the distribution of spend looks like in 2022.
2023 credit card strategy
Here is my rough strategy heading into 2023 when it comes to optimization for of Cashback spend on credit cards. NOTE: below are links in which I would be receive incentives from the organizations.
Of all banking apps, Neo is probably the only banking app that I check regularly and by that I mean logging in a couple of times a week, predominately to see what new local businesses are featured. In 2022 Neo was used for local bakeries, some online merchants, food delivery and local pharmacy purchases.
As I look back in 2022, Neo was my best performing card (percentage wise) in terms of Cashback. For example my best month in 2022 I earned 11.4% on purchases and my lowest month of the year was still a healthy 3.4%.
The other thing I like about Neo is the speed in which you get Cashback. Cashback on a purchase made today would likely be available to cash out either tomorrow or the day after and then you can immediately transfer the funds to their Money account (high-interest savings account) or their Investment account. This may not seem that important but other financial institutes try and hold as much as money as possible for as long as possible in order to earn more money from your money. Neo is very user friendly in terms of what you earn and how fast you can use those earnings.
If you interested in getting a Neo card follow this link. This will get you an immediate $25 when you open a credit card + $10 when you open a money account.
Bank of Montreal
For select categories and with limited spend I optimize against the BMO World Elite Mastercard. This card has an annual fee unless you have a minimum dollar amount in their chequeing account. So even though they waive the annual fee, the cost of the minimum balance (when you think of investing that money) actually means there is an annual fee, just in a different form. So good to not have an annual fee but not good to having BMO sweep my funds from my chequeing account to use for their purposes.
Anyway, BMO is used for 3 categories; Groceries (pays 5%), Gasoline (pays 3%) and Select Bill Payments (pays 2%). I do have a tracker on the monthly spend as once you hit their monthly limits, the earn drops to 1% on those categories. So as I approach the monthly cap, then I switch usage to other cards.
Tip for Albertan’s in terms of gasoline purchase. The most effective combination I have found is to consolidate purchases with Shell by linking your AirMiles (in Alberta, earn rates are very decent) + AMA (gives you 3 cents off per litre) + BMO at 3% Cashback. I don’t fill a lot of gas but for the little I do this is the best combination. For high volumes there are likely better options.
Use the Amazon MBNA card for Amazon purchases. Pays 2.5% on Amazon purchase.
This is an interesting card. For US purchases, there is no foreign transaction fees. Some of their reward partners are decent. Apple earns 3%, Microsoft is 4%. Indigo can earn up to 10%. So it’s a back-up card but depending on the purchase can be a nice boost.
Used as a back-up for Pharmacy’s, 2% back, and used mostly for national Pharma chains since Neo is pretty much local pharmacy.
The final destination for all purchases in which I can’t get more than 1.5%. Roger’s pays 1.5% on all purchases so it’s the backstop to ensure a minimum earn rate of 1.5% is guaranteed.
I have other credit cards that I keep on hand as needed. RBC for certain deals that could be accelerated through Avion Rewards or Ampli app. AMEX – my main travel card and has select Cashback offers that can be really good. Costco card for restaurants (3% – although if you eat out a lot I suggest Neo for local or AMEX for chains) and Costco gas (3%) and Costco online (2%).
Some Non-Credit Card Cashback Programs (most stackable with your credit card except anything that is driven by an affiliate link, Brim for example where you can’t stack):
This is the product that I spent 4-years building with RBC Ventures. Link your CC and earn Cashback. I have most of my cards linked in this app. A must use application if you use DoorDash. Not a member? Click here to get $5 with Ampli.
Another great Cashback app but limited in terms of credit cards. My Roger’s card will link to Ampli but won’t with Drop. Some accelerated deals can be had but you will need to link a BMO or RBC card as I find those 2 banks seems to be the most reliable and require minimal re-linking. Not a member? Click here to get 10000 points with Drop.
For online orders a must start destination. Have to compare it to Drop and Brim financial as the online deal earn rates can vary. Not a member? Click here to get $30 from Rakuten.
No card linking, receipt scanning. Can add up. Takes time to cash out. Another way to optimize Cashback on purchases.
Cashback and the S&P 500
Since I started optimizing for Cashback back in 2009 I have a tracker of Cashback earned and a hypothetical view of what would happen if you used all earned Cashback from the year and purchases an S&P 500 index fund.
This simple example would highlight what would happen if you purchased stock on the last trading day of the year.
In this hypothetical example the cumulative return as of Dec 21, 2022 would be 38%.