I read an article recently by Lucky over at One Mile at a Time that was addressing someone’s credit card strategy and his tips to better refine that strategy. As a side note, I find Lucky and his writing to be some of, if not the best in the business. The article was based around a question from someone about their current credit card strategy — “here are the cards I have, this is how I spend, what am I doing wrong?” This strategy focused around American Express cards, which I haven’t broken into yet, but I always seem to pick up a little thing here or there. The one thing that I found particularly interesting was this short sentence:
“You should be earning a return of at least two cents on every dollar you spend.”
- Lucky, One Mile at a Time
This got me thinking — do I get 2 cents return on every dollar I spend? Simply, probably not. There are two ways to measure this:
- What kind of bonus am I getting on every dollar spent. For example, on travel and dining I receive 3 Chase Ultimate Rewards Points per dollar when I use my Chase Sapphire Reserve
- How am I redeeming the points that I earn. So even when I am only earning 1 point with my Chase Sapphire Reserve, am I redeeming those points at the highest possible value.
As I am still in the early phase of my credit history, I admittedly could add more cards to my portfolio, which would definitely increase my spend efficiency. But I wanted to take a look at where I’m at right now — am I spending with the right cards? Once I have those points, am I using them correctly?
What is my current return on the dollar?
As I’ve previously mentioned, my early credit card strategy had an adverse affect on my current credit efficiency. I’ve said this before, but I would have started with a Chase Freedom product, and then my Chase Sapphire products would only build on that. The Chase trifecta is easily the most efficient way to max out on points. Unfortunately, I started with the Sapphire products to secure the large sign-up bonuses, and am only now getting on board with the Freedom products. The problem is partly from my lack of knowledge when I started, and also the Chase 5/24 rule.
From a spending perspective, I’d say that 60-70% of my current spend is on travel and dining. Being on the road so often, I am usually dining out (unfortunately) and putting spend on things like Ubers and parking — both of which are considered travel in Chase’s eyes. With that spend I use my Chase Sapphire Reserve and receive 3 points for every dollar spent — which is the largest year-round bonus on those categories.
The other 30-40% of my spend is pretty diverse month to month. Some months I am home more so I’d put more spend on gas and grocery, then some months I am buying more “miscellaneous” products (clothes, electronics, etc.). Up until this point, all of my spend has been on my Reserve, meaning I am only getting 1 point per dollar on that 30-40% of “miscellaneous” spend. I will talk more about this in a bit, but there is quite an easy to fix to this that I should be taking advantage of soon.
How to get the most out of my points
Receiving bonus on your spend is just one step in ensuring that you are maximizing your return credit card spend. The area that I think a lot of people lose value is in how they redeem those well earned points. Let’s say you spend $1,000 — whether you earn 1,000 points or 3,000 points from those transactions, a lot of the value comes from where you decide to redeem the points. And ultimately, this is where I think I really get a boosted return per dollar spent.
As of right now I am sticking to the Chase family of credit cards. I got hooked by the Chase Sapphire Reserve 100,000 point sign-up bonus, and have just kept building my portfolio ever since. As I am now working on building my stash, I am more focused on saving rather than using. But the most value I’ve considered when using points comes from transferring points to one of the 11 Chase Transfer partners. Depending on the transfer and redemption, I’ve seen values anywhere from 6-10 cents per point — an incredible value! So ultimately, the value I get on my points will only be realized once I redeem my points — so more to come. But in the meantime, how do I increase the points I earn on a daily basis?
My plan to increase spend efficiency
This term spend efficiency is something I’ve made up here. I am thinking about this in terms of the value I receive per point I receive, but more specifically, am I spending on credit cards in the way that is going to get me the most amount of points. In that regards, I have some work to do.
I talked above about how a majority of my spend is on travel and dining, in which I receive 3 points back per dollar spent. The other purchases, though, I can definitely be earning at a higher rate. The next two cards I am going to get (one is already on the way) are the two Chase Freedom products. While the Chase Freedom has the highest potential return on a dollar spent, at 5 points, the Freedom Unlimited ensures that at the least I am getting 1.5 points on every dollar spent. So once I get both of these cards I am definitely earning Chase points at the highest rate possible. When we talk about spending efficiency, this is the most efficient way to spend by far.
In reality, every person finds their own “true value” in their points. I know a close friend who wanted to earn a certain amount of points to be redeemed on for a specific flight. I don’t think it was anywhere close to the best value in terms of cents per point, but I think if you asked him it was what he valued most. He got a free trip to his home country, a place he hadn’t been in years. Ultimately that is what this is all about.
For the sake of argument, I think everyone finds their own value in the points they earn. Whether it is travel, cash, or even online shopping, you have to personally decide where your points bring you the most value. I found this point by Lucky to be a wonderful benchmark going forward though. Whether I am spending or redeeming, I will always now ensure that 2 cents a point is the absolute lowest I will take my points.