It’s time to think differently!
It’s up to you. Can you use an extra $11,000?
What if what you thought was the RIGHT thing to do all these years was really the WRONG thing to do all these years? You might say, “Hey Randy, wait just a goldarned minute. I made it this far and didn’t need any help from you. However, I like to think of myself as open-minded as the next girl/guy so whattaya got for me”?
That’s all I can ask from you! Just keep an open mind.
I will now share with you a financial strategy that up until now you may have thought was exactly the WRONG way to do things. I hope with the numbers I share you will come to believe these “WRONG” ideas are the “RIGHT” ideas. Let’s go.
How to get rich by making the minimum payment.
What? Now hold on just a minute! You said you were open-minded, right?
Here’s what I’m recommending you do. First, charge as much on your credit card as you can. Then each month make only the minimum payment. Finally, ask the credit card company to raise your credit limit as high and as often as possible. Do you feel comfortable doing those things? No? Keep reading. With an open mind, you will come to embrace these heretofore foreign ideas.
Currently, I’m charging every possible expense on my Chase Freedom Unlimited (CFU) card. Please don’t jump to any conclusions or project negative future outcomes when that isn’t warranted. Here are a couple of important things to consider. First, I never buy and charge anything that I wouldn’t normally want to buy. Secondly, if you read these pearls of wisdom and don’t act right away you may lose out.
On the plains of hesitation bleach the bones of countless millions who, at the dawn of decision, sat down to wait, and waiting died.
Important!
Please. The first time through this don’t get bogged down in the numbers. Just read for an understanding of the general concept. Then you can go back later and nitpick the numbers. For any skeptics, I recommend just discounting what I’m telling you by 25%. That likely won’t get you to a more accurate number but I’m thinking it might make you feel better.
Part 1 – Interest-earning
My Freedom Unlimited card does not charge an annual fee. They also offer a ZERO PERCENT ANNUAL PERCENTAGE RATE for the first 15 months of my card usage. Yes! Take that Dave Ramsay. I can buy as much as I want (up to my credit limit, which is currently $27,500), pay the minimum payment which has been less than $100/month, and pay ZERO, (Randy repeats) ZERO finance charges. I just paid my quarterly estimated federal taxes with the card. I will pay our auto and home insurance with the card. I will pay our home real estate taxes with the card. If McDonald’s wants to charge me 50 cents for an extra packet of buffalo sauce…I will pay with my CFU card. That normally frosts them.
Urgent update! While I was preparing to share this strategy, I called up Chase. Chase is the bank that holds four of my credit cards. I told you my credit limit (CL) was $27,500 for my Freedom Unlimited card. That limit is not going to be enough for what I plan to do with that card.
I called Chase. In a matter of about five minutes, Chase moved some of my CL from my other cards to the CFU card. Now my CFU limit is $85,600. Easy Peasy. I left enough CL on the other three cards to allow me to use them the way I need to use them over the next year. As time goes along I can mix and match those credit limits as needed. Should I need to increase my total Chase credit card limit I can ask to do that as well.
VUSXX.
Let’s say my CFU credit card bill averages $8,000 in charges each month. Let’s say my minimum monthly payment is $100. I will then take the difference, $7,900, and put those funds in a Vanguard Money Market fund. Currently, I use the Vanguard Treasury Money Market Fund (VUSXX). This fund has the best tax-effective yield I’ve seen. Interest earned from VUSXX is not subject to state income taxes. Currently, using my federal (22%) and state (9.3%) marginal tax rates, the tax-effective yield on VUSXX is 5.85%. That’s a great rate for an ultra-safe investment.
See what I did there? I’m charging stuff like a madman. I’m only making the minuscule minimum payment. I’m putting the money I would normally pay the credit card company into a safe Vanguard money market fund.
I’ve got a question for you Dave Ramsay listeners. Ever heard Ol’ Dave share this idea? Please don’t tell me Dave Ramsay got rich avoiding debt. He got rich telling OTHER people to avoid debt. Frequently, if you know what you are doing debt can be your very good friend.
Just to be clear. I’m not really intending the throw Dave Ramsay under the bus. He does good for lots of people. It’s just that his “don’t have any debt” philosophy is not right all of the time. Few philosophies are. He is dead wrong about borrowing at low rates, or in this case, using a 0% APR to your advantage. I’d like to see Dave Ramsay address this idea. He never has. I called his show one day and mentioned this idea. He never called back.
Part 2 – Points earning
But wait. There’s more. The Chase Freedom Unlimited Card gives me points for the stuff I buy. Yes! How many points? Lots. A minimum of three points is earned per dollar spent. Some categories earn more than three points per dollar. For now, and to think about this conservatively, we will stick with three points. Ever had a card that paid you three points, minimum, for each credit card dollar spent? I didn’t think so.
What is a “point” worth? I value a point at 2.5 cents. I can buy room nights at Hyatt Hotels all day long for 2.5 cents per point. I just bought a night at a Hyatt hotel near Chicago that was charging $100/night for 3,500 points. In Qatar, we got a beautiful Hyatt where the best rate was $250/night for 5,000 points. I can count on getting a $125 room for 5,000 points which is why I value my Chase points at 2.5 cents each. I can use my Chase points to buy airline tickets and hotel rooms. If you don’t travel much, as you probably should, you can sell your points back to Chase for 1.5 cents. It’s important to note that my ultra-finance-minded son values his Hyatt points at 6.5 cents each. He uses his points for very expensive hotels all around the world and his valuation is fully justified in those circumstances.
I currently estimate we will “launder” about $100,000 through this program in the first 12 months even though the 0% APR program is good for 15 months. Wait! Did I say launder? Poor choice of words. I meant to say we will charge about $100,000 worth of goods, services, insurance premiums, and taxes with the card. Then I will instruct Carol to make the minimum payment each month. Just to make some of you comfortable there is no one any more skeptical than Carol when she wants to be. However, she believed me when I told her I would be investing the money we would normally be paying Chase into a money market fund paying nearly 6%. Yep, the money formerly going to Chase now resides, for the next year, with Vanguard.
From just the laundering….sorry….there I go again….I can’t get that word out of my head; I will earn $2,666 in AFTER-TAX income. That’s $2,666 in CASH. Someday I will spend that $2,666 on more stuff. However, if I wasn’t using this strategy or if more importantly, YOU weren’t using this strategy you would either have to work to get $2,666 in cash or take the money out of your taxable IRA in most instances to get cash. Of course, it is rare that your employer would pay you in cash or that your IRA brokerage firm would pay you in cash without notifying the tax man.
To get cash when you work or get cash from your IRA you have to take care of taxes. If you had the same marginal federal and state income tax rates I have you would have to earn or withdraw right around $3,501 (not a typo) to clear $2,666. That’s right. This little idea is worth $3,500 in pre-tax income!!
Recapping. The value of the after-tax interest earned in the Vanguard account is $2,666. The pre-tax value of that interest, at my marginal tax rate is $3,501. Of course, I have to pay tax on the earned interest of $834.
Let’s get back to those pesky credit card points. That’s the SECOND part of the program and the most important of this two-pronged approach. I will spend about $100,000 on this card in 12 months. That $100,000 will earn 3 points per dollar. That’s 300,000 points. For the moment I’m not including the categories that earn more than 3 points per dollar.
Points equal money. When I convert the 300,000 points at 2.5 cents per point that creates $7,500 in after-tax dollars. Of course, that’s $9,847 in pre-tax dollars. Yes, to buy $7,500 in airline tickets or hotel rooms I would need to earn/withdraw $9,847 to clear $7,500.
Parts 1 and 2 – The whole goldarned thing (yes, using that really cool word twice)
Let’s sum up. Part 1 (interest earning) provides $3,501 in pre-tax income. Part 2 (points earnings) provides $9,847 in pre-tax income. That’s a total of $13,349 in pre-tax income!! There are some expenses to consider. I have to pay fees for using a credit card to pay my federal taxes (1.82%) and my real estate taxes (2.29%). Those fees are based on my tax estimates and will be a bit more than $2,000. After those expenses, I will earn $11,340 in pre-tax income.
$11,340.
Sound confusing? It’s really not.
You should know I have several credit cards. I use each for a different purpose. Worried that this is all too complicated? Do you think you’re going to open your email; read a post from a guy you have come to trust and $11,000 will fall out of the ceiling fan? This is easy…but not that easy.
Think about it this way. How many food and clothing items do you have in your home? Hundreds, right? Is it confusing to know that your waffles are used for breakfast, or that a really heavy coat is needed for sub-zero outside temperatures? How about that 19th pair of shoes you have in your closet that you haven’t worn in more than 10 years? If that was a credit card I would get rid of it!
Here’s how I use my credit cards.
Chase Freedom Unlimited – Everything except foreign expenses and the expenses mentioned below. The card does not have free foreign exchange fees
Chase Sapphire Reserve – rental cars (provides the insurance), Priority Pass airport lounges and restaurants
Citi Costco Visa – 5% on gasoline although I use free supercharging for my Tesla
Chase Marriott Visa – Marriott hotels
Chase World of Hyatt – Hyatt hotels and $3,000 spend in next three months to earn 6-9 nights of free Hyatt stays
Alaska Airlines Visa – Free companion pass once a year, free bags on Alaska
You should know I listen to travel podcasts where people have 40-50 credit cards. Each one “pays for itself” in one way or the other. When a card no longer pays its way it gets dropped.
Final thoughts.
If you implement this financial strategy by paying the minimum payment, don’t forget to put the money you still owe the credit card company in a high-earning safe interest-bearing account like the fund I mentioned. Vanguard Treasury Money Market fund (VUSXX). The worst thing you could do is charge $100,000 like I am doing, earn all of those points, and then blow the 100 grand at the dog track. You feel me, right?
By not paying your credit card in full every month, despite not incurring any finance charges, your credit rating might be affected. I don’t think your credit score will change in a meaningful way. You can track your credit rating at no charge every day if you want. If you see your score change you can always take the money from your money market fund and pay your credit card balance in full.
One more final thought.
Do I need $11,000? Not really. However, I grew up poor. My life strategy has always been to work just hard enough for people to believe I was doing a really good job. They wouldn’t believe that if I wasn’t doing a good job. Earn the money, invest it wisely, and spend it. For gosh sake, money is meant to be spent and not hoarded.
We’re not really stressing about money here. We are talking about being smart and earning more money. If you know what you’re doing, and I just explained how to do things, this will be some of the easiest money you’ve ever made. What if you can’t get more than $11,000 after tax like I am doing? No big deal. Maybe you can only work on a plan that yields $2,000 or $6,000. That’s not bad, is it?
What if the card situation I’m working with isn’t available when you get around to checking things out? No problem. Only a few minutes ago I found 13 credit cards currently offering a 0% Annual Percentage Rate (APR). Card earning points opportunities are all over the board and change by the minute. At least now you have a concept to emulate. Good luck with that!
Every Monday morning, I drop a twenty-dollar bill in a plastic guitar-shaped Elvis Pressley bank. Sometimes I add a little more. That money is meant to be used on something frivolous. A couple of years ago I emptied the bank. About $5,600 and change fell out. I took that money to Costco and bought the biggest, baddest and best TV they had, an 81-incher. I love that TV. I feel like Johnny Cash. I got that TV….”one piece (twenty-dollar bill) at a time”!
So…what will I do with 11 grand? I’m just gonna blow it. I will have gotten that money by listening to others and using THEIR ideas for my OWN benefit. That’s how I have always lived my life…using other people’s ideas.
One last final thought.
I have been counseled by others NOT to send out this post. I was told that people might not be able to handle this strategy. Is this like giving fireworks to five-year-olds? I don’t think so.
Some will think this idea is too much work. It isn’t. Some will think this idea won’t work. It will. Some won’t take the time to read and understand. Those are the folks that you won’t see at Costco or somewhere else blowing 11 grand. Some will say there is too much risk. I don’t see any risk at all. Some will say “I don’t need 11 grand”. Those will very likely be the people who complained about the increasing price of butter in the past couple of years at the grocery store. By the way, I never did that. I know what my personal inflation rate is. It was never 9%. My personal inflation rate is fixed for the next several years at 2.9% no matter what the guy and gals on radio and TV say.
Here’s a personal testimony from an executive in Nebraska from when I referenced this general idea in a previous post.
“Thanks for the Chase card tip. I have a sizable state tax deposit that I need to make this month that will blow the credit limit in one transaction and I can keep my money in T-bills for another 15 months. Since I already have a Chase card for Amazon purchases the application process took all of 30 seconds.
You can use the above for a testimonial LOL! Thanks again Randy!”
I do know this. There will be that ONE person, and hopefully more, who “gets this”. They understand. They are hungry enough to act no matter what their age or financial circumstances. Good for them!
Randy Lewis
Credit cards…don’t leave home without ’em