Maximize Credit Card Spending Categories or Welcome Bonuses? Military Money Manual Podcast Episode 70

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Military Money Manual Podcast Episode 70 Links

Outline of Episode

  • A listener question about when to prioritize new cards and their welcome bonuses over maximizing, earning, and spending categories on your existing cards
  • How do you know how beneficial a welcome bonus is?
  • 3 levels of a welcome bonus-what is a point worth?
  • When to focus on maximizing spending categories 
  • How to make even better gains than just simply pulling cash out of signup bonuses
    • Example using Chase Sapphire Reserve 
  • Using travel portals to maximize point value

Military Money Manual Podcast Episode 70 Transcript

[00:00:00] Spencer: When you're not worried about annual fees on your credit cards, you can focus on the 20% of the travel hacking that generates 80% or even 90% really of the benefit. In this case, it's focusing on the welcome bonuses. 

[00:00:36] Jamie: Hello podcast listeners. I'm Jamie, and I'm here with Spencer Reese, founder of militarymoneymanual.com, and author of the book, The Military Money Manual.

Thanks for joining us today as we're going to be talking about why you should prioritize new cards and their welcome bonuses over maximizing, earning, and spending categories on your existing cards. 

Before we jump into it if you have a second to do it safely and you're not currently driving. Please leave us a five-star review on Spotify, or a rating and a review on Apple Podcast that helps us out and helps spread the word about the good things we're doing here on the podcast.

Recently we passed over 50,000 downloads of the podcast and we're incredibly grateful for that. So thank you for all the love and let's keep it coming. 

Today we're going to respond to a reader question that came in. Spencer, what's the question and the topic we're going to talk about today?

[00:01:21] Spencer: Hey, Jamie. So the question I got was, I think this one was via email.

And he said, “Hey Spencer. I recently started my active duty service and I got the Amex Platinum card (Good move) recently and was going to apply for the Amex Gold soon for the bonus. However, I do spend a decent amount of money on gas each month because I do a lot of driving and I was wondering which card you would suggest for gas purchases. I know my credit card is out of order from this list.” 

I think he's talking about my recommended list of cards on my website, militarymoneymanual.com But he goes on to say, “but not sure how deep I want to get into the credit card game just yet. Do you think this is a good start or should I go a different route for my next card?”

So basically this guy's asking, and I didn't write down his name, so sorry, we'll call you John. What John is asking here is, should I prioritize the spending category bonus? So for instance, sometimes the Amex Gold card, for instance, offers 4x or four times or 4% back on your spending on restaurants and groceries.

He's saying that he spends a lot of money on gas, so should he get a card that offers better cash back or travel rewards on gas purchases, which could be like Citi Double Cash Card. That's 2% back on all purchases, so that would be 2% there. It depends on which program he's trying to earn the points in.

And I think that really gets to the point where like all these credit card bonus points are very flexible, But they're all separate programs. So a Chase Point is not an Amex point is not a Capital One point. Now you can consolidate them into certain programs like Emirates, Etihad, Singapore, and the big international super luxe business class air carriers.

You can combine all your points by transferring them into your frequent flyer account for those airlines. But you can't combine a Chase point and an Amex point.

[00:03:12] Jamie: So how do we know how beneficial a welcome bonus is when we see a big amount, like maybe 100,000 or 60,000 American Express membership award points?

How do we compare that and know if it's a better deal than earning 3x or 4x per dollar in a given category? How powerful can the welcome bonuses be, I guess is the root of the question.

[00:03:35] Spencer: Yeah, so there are three levels really to a welcome bonus. So you might, and it's hard when you're first looking at it, you're like what is a point worth?

And at the base, a credit card reward point is usually worth about a penny. So 100 credit card reward points are worth $1. So if you see a hundred thousand point bonus like the Amex Platinum is currently offering, and then it might not be offering this when you listen to this podcast, but currently, in 2022, the Amex platinum card is offering a hundred thousand point bonus, and you can basically look at that divided by a hundred and realize, Hey, that's about a thousand dollars bonus.

Now, what's interesting about the Amex points though, is you can't directly cash them out for cash. Now if you have a Charles Schwab Amex Platinum card, which I also talk about on my website, you can transfer your points to your Charles Schwab investor checking account at 1.1 cents per point. So actually 100,000 Amex points are worth $1,100.

Same thing on the Chase side. Chase points you actually can directly cash out. I think the same thing with Capital One, and the same thing with Citi thank you points where you can just ask for a check or you can apply a statement credit to your account. That's as good as cash back right there. Those are always, you can always cash those out for a penny per point.

If you think about the Chase Sapphire Reserve card, currently it's spend $4,000 and you earn 60,000 bonus points. So you can just take the $4,000 divided by the 60,000 bonus points and work out, how much cash back that essentially is. And let's say that you spent $4,000 on travel.

So the Chase Sapphire Reserve does 3x points on the travel category, so you're going to earn 12,000 points for your $4,000 of spend, plus your 60,000 points welcome bonus because you spent $4,000 in the first three months. So now you have 72,000 points and you only spent $4,000. You can immediately cash out those 72,000 points for $720.

So that's 18% cash back right there. That's absurd. When you think about it, that's almost 20% cash back.

[00:05:41] Jamie: That's not even one of the biggest bonuses out there. Bringing it for cash isn't even one of the best ways to redeem it. But if you pull it and use it for cash, you can see 18% is a great redemption method.

We talk about other strategies to get even more bang for your buck per mile, so that's really neat. 

Spencer, when would a time be to not worry about maximizing the categories quite yet, is there ever a time when people may want to maximize their category spending, or is that more advanced?

[00:06:09] Spencer: Honestly, I think when you're first getting started with travel hacking, especially in the military, when you don't have to worry about annual fees on the credit cards, the Chase, the Citi, the American Express cards, the world is your oyster. If you can meet the spending bonuses through your natural everyday spending, so you're not spending extra money.

I think that's the critical thing there. If you're, yeah, an E-2, an E-3, living in the dorms, eating at the DFAC, or whatever your equivalent is for your branch when you're eating at the chow hall. You're not spending any money. This is a great place to be like, save your money, and max out your Roth IRA.

Don't worry about credit cards until you've got the foundation of your financial house in order. I talk a lot about this in my book, The Military Money Manual where you need to make sure that you've got the basics right before you move on to these advanced travel hacking strategies. I see it on Reddit all the time where guys are like, “Hey, I opened up the Amex platinum card and I didn't meet the minimum spend, so I didn't get the welcome bonus.”

It's dude, okay, a great card to have year to year, a lot of annual benefits, but you just missed out literally on over a thousand dollars of value. Either you didn't keep track of it or your natural spending just doesn't allow you to meet the welcome bonus. So if you're not spending, if it's for the Amex Platinum card, let's say it's a hundred thousand points, $6,000 spend in six months, that's a thousand dollars per month of spending.

And if you're living overseas where they don't accept American Express cards as often, that can be a hard barrier to meet. I really urge people, I really encourage people, don't open up these cards unless you're natural spending will easily meet the welcome bonus spending requirement. If you think it's going to be close or if it's going to add any additional stress to your life, then don't do it.

This should be fun, and honestly, it should be pretty easy, the travel hacking game. I know when I was younger, there were times when I would open up a card and I didn't know if I could meet the spending bonus and I would have to either front load and buy some gift cards to like gas stations or buy some Amazon gift cards.

And Amazon gift cards are a good way to do it because especially in the States, everybody spends money on Amazon eventually. So that's it's a way that you can front-load your spending if you got Christmas coming up or whatever you might be able to buy a couple hundred dollars of Amazon gift cards, but you don't want your natural spending to increase.

Just to meet a welcome bonus, you need to make sure that you have a spending plan, you have a budget, you have a cash flow plan, and you want to make sure that the credit cards are adding value to your life and they're not creating stress, and they're not detracting from your enjoyment of life.

[00:08:48] Jamie: A minute ago you mentioned that there are even more ways to maximize your signup bonuses to get the most bang for your buck. You mentioned the travel portal and some things like that, so how can we make even better gains than just simply pulling cash out of these signup bonuses?

[00:09:04] Spencer: Yeah, so in the example I gave, Chase Sapphire Reserve, not the best bonus available right now unless you are really going for Chase Sapphire Reserve points.

Chase Ultimate Reward points transfer to Hyatt, they transfer to Southwest, and they transfer to United. They have a bunch of other travel partners, so it might be the right card for you. Plus the Chase Sapphire Reserve has other benefits like no annual fee for the military and a $300 annual travel credit.

So I can definitely understand why you would go for that card, but we'll use this card as an example because I've already done the math. So like I said, you've got three tiers of credit card points. At the very bottom, you can just cash them out for straight cash. Or if you're like one of our friends, he uses them on amazon.com, which is actually the worst value because you're not even getting a penny per point.

You're getting 0.70 cents per point on your Amex points. But we'll say the absolute bottom tier is cashing out the points at a penny per point. Then the next level up is using one of the travel portals. So like Chase for instance, if you have a Chase Sapphire Reserve, you can cash out your Chase ultimate reward points at 1.50 cents each.

So now all of a sudden, those 72,000 points we talked about earlier when you're earning a 60,000 point welcome bonus plus 12,000 points for spending on travel on your CSR card. Now that 72,000 points are not worth $720, but they're worth $1,080. So you can bump it up by 50%. Again, you only spent $4,000 to earn 72,000 points.

But those 72,000 points, if you use them through the travel portal for hotels or for airfare, it's now worth over a thousand dollars. So now the cashback value of your spending is 27%. Go try to find a card that's going to offer you 27% cash back on gas or groceries or anything. They won't, the company would go bankrupt.

[00:10:54] Jamie: That's an incredible value on your points. But what about if you take advantage of their travel partners and transfer to another airline or one of their travel partners instead? It's even more beneficial.

[00:11:04] Spencer: Yeah, this is where it gets crazy, right? So we talked about if you just cash it out, you're getting like 18% cash back.

Underspending. If you are using one of the travel portals, you're going to get 27% cashback. But then the ultimate level is when you transfer your Chase Ultimate Reward points to one of the travel transfer partners like Hyatt. I have redeemed Hyatt points for 3 cents of value before and I have redeemed Singapore and several other airlines for between 3 and 4 cents.

So let's say you transfer your points to Hyatt, and you're getting 3 cents of value. So now you're 72,000 points. They're not worth $720. They're not worth $1,440. No, they're worth $2,160. So that's when you're getting, and again, remember, you've only spent $4,000 and it was money that you were going to spend anyways.

Now you've spent $4,000. You've earned $2,160 worth of value. From your points, that's a 54% cash-back value. That just demonstrates right there that it's way more efficient to focus on earning the welcome bonuses than to mess around with spending reward categories. I understand if you spend a lot of money on gas, it might seem like, man, why am I using a card that only gets one x points or 1% cash back on gas? But if there are still cards out there that you haven't opened yet, whether it's one of the hotel credit cards or the airline credit cards, and if you've got a trip coming up, especially if there's a card out there that you haven't opened up.

That's going to earn some of the credit card points. Chase ultimate reward points. American Express Membership Reward points, Capital One miles, Citi Thank You points, any of those. If there's still a card out there that you haven't opened where you can earn those points, those points are so flexible and so valuable, you need to go open up those cards and earn those points if you want to maximize this.

[00:13:01] Jamie: It reminds me of a saying you mentioned a couple of weeks ago about stepping over dollars to pick up pennies.

[00:13:09] Spencer: Yeah, that's right. Yeah. It's an application really of the Pareto principle, which you can Google, but Wikipedia says that 80% of the consequences come from 20% of the causes 

A lot of things in life, and you'll notice this even at work, 80% of the work is done by 20% of the people. If you have a business, you might notice that 20% of your customers, or 20% of your products generate 80% of your revenue. So what you can do then with that Pareto principle, is you can ruthlessly cut the 80% that's not providing value and focus on the part that is providing you value. In this case, for travel hacking, especially military travel hacking, when you're not worried about annual fees on your credit cards, you can focus on the 20% of the travel hacking that generates 80% or even 90% really of the benefit.

And in this case, it's focusing on the welcome bonus. So you don't have to worry about every single purchase being the optimal purchase. All you have to worry about is, am I working on a welcome bonus? And if I'm not, then what's my next card? What card am I going to get next? And that should become the question.

Now, once you've gotten to 20 or 30 cards like Jamie and I have, yeah, sure, then you can prioritize, okay, I'm going to use this specific card because it's going to get me the most on groceries or gas or restaurant purchases.

[00:14:33] Jamie: People think that opening up a lot of cards is going to make their travel hacking and credit card or budgeting more complicated, but the way that you just sold it to me makes it sound less complicated.

If I'm just focusing on a spending bonus and not really trying to maximize, with a sticker on each credit card for which one's going to be best at the commissary and which one's going to be best at the groceries, and which one's going to be best eating out. If I only have one new card at a time and I'm working on the spending bonus, that's a very simple way to manage 15 or 20 credit cards.

[00:15:01] Spencer: Then if you've got autopay set up on all of them you never have to worry about missing a payment. If all that sounds daunting, you're like, dude, I don't want 20 or 30 credit cards. You can get 80% of the benefits from military travel hacking by just focusing on 20% or even really 10% of the credit cards that are available out there.

So in that case, I would recommend an Amex Platinum card. Then you're getting, 5x points on air travel. Amex Gold card, you're getting 4x points on restaurants and groceries. Chase Sapphire Reserve. That's picking up all your other travel categories with 3x points. Plus, sometimes American Express isn't as widely accepted as Visa or MasterCard, especially overseas.

And then you can pick up one of each of the hotel credit cards. IHG, Hilton, Marriot. That's pretty much, once you've built that roster right there, that'll take you, if you slow roll it and you're taking the entire, three or six months to meet the minimum spend, it might take you a couple of years right there and then you've pretty much, that's a pretty good quiver right there, that you can pull those arrows out.

[00:16:08] Jamie: And it could be as simple as, I'm going to use my platinum card for airfare and I'm going to use the gold one for eating out in grocery and just put a recurring expense like Netflix or Spotify on these extra cards, but not really use them as daily drivers. That's a really easy way to maximize your benefits from each card, but not spend a ton of time trying to find the perfect strategy.

[00:16:31] Spencer: Exactly. Yeah, and I think for most people, I mean for me, even with 30 cards, I don't have time to figure out the exact perfect optimal strategy, but I do know I have a couple rules in my head, okay, airfare is probably going to go in my Amex Platinum or my Chase Sapphire Reserve. Then it might depend on whether I’m trying to earn Amex points or do I have a million Amex points and can't spend them fast enough.

And so I want more Chase Sapphire Reserve points because I find those are easier and more flexible to use through the Chase travel portal. I think early in the game, especially when you still have 5 and it's 24, that's five credit cards opened in 24 months. That's a Chase rule. You can Google Chase application rules or go to my website, I've got an article about that as well. But you want to focus on the big wins. You want to go for the signup bonuses, go for the welcome bonuses. If you're not working on a welcome bonus and you're still early in the game, you still have 5 out of 24 slots open, it's probably time to open up a new card if you've got your spreadsheet built out or if you're using one of those free tracker apps.

One I've been using recently is Travel Freely by a guy named Zach Hood. We're going to have him on the podcast sooner rather than later, but he's got this great app, and that's what he talks about in his app is focusing on those 80% wins, where you're not worried about which card you're going to use for which spending category.

The 80/20 principle is something that I talk about in my book, where if you focus on optimizing the big three spending categories, housing, transportation, and food, which are usually, that's pretty true for most American families. Those are going to be the three things that you spend the most money on.

If you can focus on optimizing those, that's going to be 80% of the benefit from budgeting or being intentional, being mindful with your money, with only 20% of the work. If you can optimize those and you can make sure that you're not buying too much house, you are not buying too much car, or you're buying a more fuel-efficient car so you're not spending so much on gas.

If you can figure out a way that you're not eating out lunch every day, I mean that for a young airman or a soldier, $20 bucks on lunch every day. That's going to, that's massive, man. That's $400 a month. That's almost enough money to max out your Roth IRA. So if you can figure out a way to optimize just that one little thing and maybe cut your lunch expenditures down to $10 a day, that's another $200 that you can be throwing into your investments.

[00:18:51] Jamie: We hope today's discussion and this frequently asked question that we talked about maximizing your signup bonuses via the welcome bonus on the credit cards over maximizing, earning, and spending categories on your existing cards has been beneficial for you, and that it will encourage you on your journey to financial independence while serving in the military and will help you maximize your military benefits.

As always, if you have any questions or feedback, message us on Instagram at @militarymoneymanual or via email at podcast@militarymoneymanual.com. We love the questions and messages we are getting. Thank you so much for sending them in like this one. We appreciate you joining us today and we're grateful for all of you.

Please keep sharing the podcast with your friends and family and coworkers. It really means a lot to us.

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