Author Topic: How do you treat cash back from credit cards?  (Read 18455 times)

GGNoob

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How do you treat cash back from credit cards?
« on: June 22, 2014, 12:27:37 PM »
My wife and I put everything we can onto our cash back credit cards. We have 4 different cash back cards and use them so that we maximize our cash back and we get a minimum of 2% back on everything we buy.

When we redeem the cash back, I don't use it as an excuse to buy something in it's place by applying a credit to our budget in Mint. I instead, look at it as our credit card payment is lower so now we have extra money we can put into savings.

For example: We got our Barclaycard Arrival+ in March. Since then, we've redeemed $800 in rewards counting the $400 bonus for spending $3,000 in the first 90 days. Some of the bigger expenses on this card to earn those points were a couple of vacations, one of which was plane tickets and a hotel in Santa Barbara, CA that came in at $820. Instead of applying that $800 towards our vacation budget and say that we nearly got a free trip to Santa Barbara, we just act like we never got the $800 rewards. So because we had room in our vacation budget for this trip, we now have an extra $800 we don't have to pay on the credit card and can put that into savings.

So what do you guys do...look at it as a "free vacation" or look at it as another way to stash away more money into savings?

Emilyngh

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Re: How do you treat cash back from credit cards?
« Reply #1 on: June 22, 2014, 12:48:16 PM »
My wife and I put everything we can onto our cash back credit cards. We have 4 different cash back cards and use them so that we maximize our cash back and we get a minimum of 2% back on everything we buy.

When we redeem the cash back, I don't use it as an excuse to buy something in it's place by applying a credit to our budget in Mint. I instead, look at it as our credit card payment is lower so now we have extra money we can put into savings.

For example: We got our Barclaycard Arrival+ in March. Since then, we've redeemed $800 in rewards counting the $400 bonus for spending $3,000 in the first 90 days. Some of the bigger expenses on this card to earn those points were a couple of vacations, one of which was plane tickets and a hotel in Santa Barbara, CA that came in at $820. Instead of applying that $800 towards our vacation budget and say that we nearly got a free trip to Santa Barbara, we just act like we never got the $800 rewards. So because we had room in our vacation budget for this trip, we now have an extra $800 we don't have to pay on the credit card and can put that into savings.

So what do you guys do...look at it as a "free vacation" or look at it as another way to stash away more money into savings?

We have earned over $2k in rewards in the last year; it all gets put in the stache.

arebelspy

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Re: How do you treat cash back from credit cards?
« Reply #2 on: June 22, 2014, 12:51:54 PM »
So what do you guys do...look at it as a "free vacation" or look at it as another way to stash away more money into savings?

There is no "free" income - it's all just income.  If you want to put it towards a vacation, fine.  Count it as income, and spending.

But if you could save it, and choose not to, that's not a "free" vacation - that's you choosing to spend money you could have saved.
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GGNoob

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Re: How do you treat cash back from credit cards?
« Reply #3 on: June 22, 2014, 01:14:46 PM »
So what do you guys do...look at it as a "free vacation" or look at it as another way to stash away more money into savings?

There is no "free" income - it's all just income.  If you want to put it towards a vacation, fine.  Count it as income, and spending.

But if you could save it, and choose not to, that's not a "free" vacation - that's you choosing to spend money you could have saved.

I said I do not look at it as a free vacation and that I save the money instead. There's just so many people out there writing blogs on how to travel for "free" off of credit card rewards, but I always look at our rewards as extra income and more money to put into savings.

Jags4186

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Re: How do you treat cash back from credit cards?
« Reply #4 on: June 22, 2014, 01:25:07 PM »
I tend to look at it as free stuff. Simple reason is you can creatively use points for more than their cash back value. For example you could use 120k Chase Points points for $1200 cash back for for a $5k+  international business class/first class ticket.  So if you do that...is that $1200 income/$1200 spending?  Is it 5k income/5k spending?  Too many variables. It's free to me!  And if I paid cash cash for all that stuff I bought I wouldn't have had anything...bottom line is the same.
« Last Edit: June 22, 2014, 01:26:38 PM by Jags4186 »

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Re: How do you treat cash back from credit cards?
« Reply #5 on: June 22, 2014, 01:49:18 PM »
In the past, I've treated it as "free" money, in a way that kind of hid the true amount we spent in particular category/period. We've used some of it for charitable donations, spent some on Christmas (it pays for the bulk of Christmas), and just used some for frivolous spending throughout the year.  In the transition to Mustachian thinking, a little "cheating" money was nice now and then, and I didn't feel guilty about it.

I've switched now to counting it as income, and applying the spending to the appropriate categories, but I still allow for guilt-free extra spending as a result of the added income.  I might use my American Express rewards at Costco to make extra purchases of bulk items to stock my pantry, or use rewards to offset a particular large purchase that we've already decided to make anyway, just to reduce the cash flow impact, even though I record the spending as spending.

GGNoob

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Re: How do you treat cash back from credit cards?
« Reply #6 on: June 22, 2014, 02:14:18 PM »
I tend to look at it as free stuff. Simple reason is you can creatively use points for more than their cash back value. For example you could use 120k Chase Points points for $1200 cash back for for a $5k+  international business class/first class ticket.  So if you do that...is that $1200 income/$1200 spending?  Is it 5k income/5k spending?  Too many variables. It's free to me!  And if I paid cash cash for all that stuff I bought I wouldn't have had anything...bottom line is the same.

Very true. Usually before I cash out with our Chase Freedom, I look for discounts on Gift Cards. If there's a gift card where I can redeem $40 cash back for a $50 gift card at a restaurant we always eat at, it only makes sense that I get that gift card to save even more money.

In the past, I've treated it as "free" money, in a way that kind of hid the true amount we spent in particular category/period. We've used some of it for charitable donations, spent some on Christmas (it pays for the bulk of Christmas), and just used some for frivolous spending throughout the year.  In the transition to Mustachian thinking, a little "cheating" money was nice now and then, and I didn't feel guilty about it.

I've switched now to counting it as income, and applying the spending to the appropriate categories, but I still allow for guilt-free extra spending as a result of the added income.  I might use my American Express rewards at Costco to make extra purchases of bulk items to stock my pantry, or use rewards to offset a particular large purchase that we've already decided to make anyway, just to reduce the cash flow impact, even though I record the spending as spending.

We'll do the same sometimes...not feel guilty about going a little over our budget after we've redeemed some cash back.

Speaking of it paying for Christmas, I can see saving up cash back for certain things to be very smart. Lets say you don't have room in your budget for a Gift category, but you instead save up cash back and only redeem it to repay yourself for gifts. You could do the same for travel or any other category.

There really is no wrong way to do it and redeeming cash back always feels good!

wtjbatman

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Re: How do you treat cash back from credit cards?
« Reply #7 on: June 22, 2014, 03:01:18 PM »
It may not be actual income, but calling it "free" is doing yourself and your stache a disservice. You did something to earn that bonus/cashback, and now you're spending it on something instead of saving or investing it.

If your budget allows room for the vacation, by all means spend it on that. But pretending you never got it is like those people who spend their tax refund on a new HDTV because "It's free money!", or get a bonus at work and spend it on upgrading the deck because "Hey, it's money I didn't have before. It's extra money."

Jags4186

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Re: How do you treat cash back from credit cards?
« Reply #8 on: June 22, 2014, 04:51:05 PM »
It may not be actual income, but calling it "free" is doing yourself and your stache a disservice. You did something to earn that bonus/cashback, and now you're spending it on something instead of saving or investing it.

If your budget allows room for the vacation, by all means spend it on that. But pretending you never got it is like those people who spend their tax refund on a new HDTV because "It's free money!", or get a bonus at work and spend it on upgrading the deck because "Hey, it's money I didn't have before. It's extra money."

Okay let me rephrase:  I work all year strategically using different credit cards for different categories of purchases to earn maximum points. I will then use those points...99.9% of the time on travel. It's a way of taking a $4000 vacation for $2000 in cash.

I don't count it as income or spending when it comes to my savings rate. I.e. If I make 50k and spend 25k plus 2k worth of points I consider my savings rate to be 25/50 NOT 27k/52k

Cyrano

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Re: How do you treat cash back from credit cards?
« Reply #9 on: June 22, 2014, 05:26:14 PM »
I do not track rewards point balances in the household books.
1. Because they are the bedside "change jar" of electronic payments.
2. Because they could go *poof* any day if the sponsoring company withdraws the program.

I do count redemption as income in the household books when redeemed. So if I redeem points for an $840 plane ticket, I count that as an $840 transaction from Income:Miscellaneous:Credits to Expenses:Travel (or however you would arrange the expense account in your system).

The deciding factor in "why do I do it this way" is that I want the expense accounts to accurately reflect the cost of the household lifestyle, so that I'm not fooling myself about what it will cost to sustain that lifestyle in the future.


arebelspy

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Re: How do you treat cash back from credit cards?
« Reply #10 on: June 22, 2014, 05:54:04 PM »
I do not track rewards point balances in the household books.
1. Because they are the bedside "change jar" of electronic payments.
2. Because they could go *poof* any day if the sponsoring company withdraws the program.

I do count redemption as income in the household books when redeemed. So if I redeem points for an $840 plane ticket, I count that as an $840 transaction from Income:Miscellaneous:Credits to Expenses:Travel (or however you would arrange the expense account in your system).

The deciding factor in "why do I do it this way" is that I want the expense accounts to accurately reflect the cost of the household lifestyle, so that I'm not fooling myself about what it will cost to sustain that lifestyle in the future.

Big +1. I don't track ongoing, I do track when used.

Though I have and income:rewards category or something like that on Mint for where it comes from.
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Davids

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Re: How do you treat cash back from credit cards?
« Reply #11 on: June 22, 2014, 07:50:21 PM »
I just use them as statement credits.

Rural

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Re: How do you treat cash back from credit cards?
« Reply #12 on: June 22, 2014, 08:17:55 PM »
Mine constitute a very small discount on the things I use the card for, that's all. The cash back goes straight to the card itself without my having to touch it. Leaves a little more to go to savings in the months when I redeem.

Zoot Allures

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Re: How do you treat cash back from credit cards?
« Reply #13 on: June 22, 2014, 08:54:02 PM »
I'm using my miles and points strictly for trips I would have taken anyway. I've noticed with amusement that some of the "travel hacking" sites seem to focus on how to amass enough points that you can fly first class all the time. Lots of photos of luxury airliner cabins and such. It's not a very mustachian game when you play it that way.
« Last Edit: June 22, 2014, 08:56:47 PM by Spine »

RedMaple

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Re: How do you treat cash back from credit cards?
« Reply #14 on: June 22, 2014, 09:19:41 PM »
My cc is connected to a brokerage account. Every time I get cash back it goes into the brokerage account, which I then invest.

milesdividendmd

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Re: How do you treat cash back from credit cards?
« Reply #15 on: June 22, 2014, 09:48:04 PM »
This is an interesting question. And one that I've thought about a fair bit.

If there is a central thesis to my personal  philosophy it is that

A. the miles/Cashback game is a powerful way to get value added to your life.

And

B.  If you harness the proceeds from the miles game to invest in your own financial independence, you greatly amplify the added value.

I don't include miles or Cashback in my savings rate per se. But indirectly I certainly do.

As an example, last year I paid $8000 for my family of 5 to fly to japan to visit family. This year I paid $300 plus miles. I did not increase my spending to get this savings, and I will not buy other things with the savings. So that 7700 will end up in my taxable investment account before the year is through.

At the end of the year my savings rate will be the better for it.

It is not a stretch to say that the miles game/Cashback/manufactured spend hobby ends up looking more like a lucrative side gig on the books, often yielding > $200/hr in "income."



dragoncar

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Re: How do you treat cash back from credit cards?
« Reply #16 on: June 22, 2014, 11:48:23 PM »
This isn't quite what you're asking, but I account for it as reduced expenses.  I.e., if I spend $1000 this month, and get $10 cash back, I record my expenses as $990.  I usually choose to apply the cashback as a statement credit.

arebelspy

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Re: How do you treat cash back from credit cards?
« Reply #17 on: June 23, 2014, 12:01:56 AM »
This isn't quite what you're asking, but I account for it as reduced expenses.  I.e., if I spend $1000 this month, and get $10 cash back, I record my expenses as $990.  I usually choose to apply the cashback as a statement credit.

But you didn't spend less.

Why wouldn't you count it as income?  When I use it as a statement credit, I mark it in Mint as Income>Rewards.

Think of it as a low/no work side gig.  But it seems odd to me to count it as reduced expenses, rather than income...
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dragoncar

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Re: How do you treat cash back from credit cards?
« Reply #18 on: June 23, 2014, 12:26:52 AM »
This isn't quite what you're asking, but I account for it as reduced expenses.  I.e., if I spend $1000 this month, and get $10 cash back, I record my expenses as $990.  I usually choose to apply the cashback as a statement credit.

But you didn't spend less.

Why wouldn't you count it as income?  When I use it as a statement credit, I mark it in Mint as Income>Rewards.

Think of it as a low/no work side gig.  But it seems odd to me to count it as reduced expenses, rather than income...

Well I calculate how much money I need in FI based on my "expenses," lets say annual expenses time 25.  If I get $1 back on all $100 of CC purchases, which number do I need to multiply by 25 -- $100 or $99?  For accounting purposes, it's far easier for me to consider my actual credit card payments (net of cashback rewards) to be my expenses rather than model a phantom extra retirement income equal to 1% of my CC purchases.

How about when I buy a $100 camera with a $20 mail-in rebate?  Do I count the rebate as income or reduced expense?  You could go either way, but for me it's most useful to just say I bought an $80 camera.

arebelspy

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Re: How do you treat cash back from credit cards?
« Reply #19 on: June 23, 2014, 12:36:45 AM »
This isn't quite what you're asking, but I account for it as reduced expenses.  I.e., if I spend $1000 this month, and get $10 cash back, I record my expenses as $990.  I usually choose to apply the cashback as a statement credit.

But you didn't spend less.

Why wouldn't you count it as income?  When I use it as a statement credit, I mark it in Mint as Income>Rewards.

Think of it as a low/no work side gig.  But it seems odd to me to count it as reduced expenses, rather than income...

Well I calculate how much money I need in FI based on my "expenses," lets say annual expenses time 25.  If I get $1 back on all $100 of CC purchases, which number do I need to multiply by 25 -- $100 or $99?  For accounting purposes, it's far easier for me to consider my actual credit card payments (net of cashback rewards) to be my expenses rather than model a phantom extra retirement income equal to 1% of my CC purchases.

How about when I buy a $100 camera with a $20 mail-in rebate?  Do I count the rebate as income or reduced expense?  You could go either way, but for me it's most useful to just say I bought an $80 camera.

I'd multiply by 100.  I wouldn't count on 1% cash back to infinity, in other words, I'd have that 1% be a bonus side income that will hopefully last as long as possible.

In the latter case, yes, I'd count it as 80, because it was a direct to that purchase you got by shopping around, and could conceivably bought a $80 camera if that rebate wasn't available for the $100 one.

But 1% less on your food, for example, just because you used a CC, isn't accurate.  It's 1% earned back, not 1% less spent.

Not a big deal though, if it works for you, rock on.
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boarder42

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Re: How do you treat cash back from credit cards?
« Reply #20 on: June 23, 2014, 03:42:04 AM »
i'm on the side of counting as reduced expenses not income.  do you count coupons for a discount on products as income.  No so i look at my 6% on groceries as 6% off my grocery bill each month.  i shopped around for my CC and found the best one.  This isnt income and i dont see how it can be treated as such. 

Now signup bonus's should be treated as income.  but using a CC vs cash and getting 1+% back is just being smart and getting yourself 1 or more % off what you're buying already

arebelspy

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Re: How do you treat cash back from credit cards?
« Reply #21 on: June 23, 2014, 08:27:07 AM »
i'm on the side of counting as reduced expenses not income.  do you count coupons for a discount on products as income.  No so i look at my 6% on groceries as 6% off my grocery bill each month.  i shopped around for my CC and found the best one.  This isnt income and i dont see how it can be treated as such. 

Now signup bonus's should be treated as income.  but using a CC vs cash and getting 1+% back is just being smart and getting yourself 1 or more % off what you're buying already

Hah, I like how you can't see how cash back can be treated as income, but claim sign up bonuses should be. :D

They're the same thing, to me.  They're money you get for using a credit card in a certain way.  That, to me, doesn't reduce the amount of money you spend, but gives you a little back for doing so.  You're still spending the same amount, you just get a little income to offset it.

So if I manufactured enough spending to get 15k in cash back annually and spent 15k annually, would you say my spending is $0?  Or would you say I spent 15k and have a side-gig of churning CC spending to earn 15k extra income?
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

Brian Fellows

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Re: How do you treat cash back from credit cards?
« Reply #22 on: June 23, 2014, 08:53:56 AM »
I actually do what most people do here with their money - save up until you have enough to last a long time, and the rest is gravy.

I got majorly into cash back credit cards (points and miles, really) specifically with cheaper vacations in mind.  Now I've got more than enough miles and points in the airline and hotels programs that I want, so I pretty much exclusively use credit cards that gain points that can be used for straight up cash back.  That way, it's basically all my vacation fund without having to save any extra dollars. 

For example, I've got about 100,000 Chase Ultimate Rewards points.  These CAN be used to transfer out to airline miles or hotel points, but I've already got enough of that stuff, so what I'll probably do is turn them into cash to use on my next vacation.

Someone mentioned before that you can get more value out of the points than by turning them into cash.  Which is very true, and that's why I haven't been using them as cash until now.  But, being a typical American, I don't get anywhere near enough vacation to USE all of those points for things.  So I just put all of my spending on credit cards - the only change I make is that AFTER I spend vacation-type points, I'll use exclusively miles/points cards until my coffers are full again, THEN I'll switch over to the pure cashback cards. 


simonsez

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Re: How do you treat cash back from credit cards?
« Reply #23 on: June 23, 2014, 09:40:40 AM »
For example, I've got about 100,000 Chase Ultimate Rewards points.  These CAN be used to transfer out to airline miles or hotel points, but I've already got enough of that stuff, so what I'll probably do is turn them into cash to use on my next vacation.
Isn't there a non-zero risk associated with a rewards balance, more so a higher one?  Why not cash out (at least most of it) now and put in a interest bearing account or invest it until you go on vacation?  In the very least, statement credits or cash means you are realizing the benefits, rather than assuming the rewards system won't be modified/revoked by the company in the future.  To each their own, I just don't see what is gained by not realizing the benefits now and eliminating the risk completely that the rewards structure would be changed.

Middlesbrough

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Re: How do you treat cash back from credit cards?
« Reply #24 on: June 23, 2014, 09:54:58 AM »
I get cash back on my CC. I have to expense things for work and get paid back. I count the payback as extra income. I put my CC rewards as the same thing, other income.

Brian Fellows

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Re: How do you treat cash back from credit cards?
« Reply #25 on: June 23, 2014, 09:57:04 AM »
Isn't there a non-zero risk associated with a rewards balance, more so a higher one?  Why not cash out (at least most of it) now and put in a interest bearing account or invest it until you go on vacation?  In the very least, statement credits or cash means you are realizing the benefits, rather than assuming the rewards system won't be modified/revoked by the company in the future.  To each their own, I just don't see what is gained by not realizing the benefits now and eliminating the risk completely that the rewards structure would be changed.

Yes, but that's why I mentioned Chase Ultimate Rewards Points specifically.  If I transferred those points into air mileage or hotel points accounts, THOSE points get devalued regularly.  Chase points however always have a floor of 1 cent/point.  They could of course change that at any time, but given that it's been stable for the entirety of the Chase Ultimate Rewards' existence, I don't see them going away from it without making a lot of people very mad.  Or at least giving notice ahead of time.

Non-zero but stable enough for me. Especially given that, as I said, I consider it play money. I've been funding my vacation fund with awards from credit cards 100% for the last five years or so, and all I've ever done is maybe 5 total hours of up-front reading up on different cards and rewards programs. 

dragoncar

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Re: How do you treat cash back from credit cards?
« Reply #26 on: June 23, 2014, 10:06:46 AM »
This isn't quite what you're asking, but I account for it as reduced expenses.  I.e., if I spend $1000 this month, and get $10 cash back, I record my expenses as $990.  I usually choose to apply the cashback as a statement credit.

But you didn't spend less.

Why wouldn't you count it as income?  When I use it as a statement credit, I mark it in Mint as Income>Rewards.

Think of it as a low/no work side gig.  But it seems odd to me to count it as reduced expenses, rather than income...

Well I calculate how much money I need in FI based on my "expenses," lets say annual expenses time 25.  If I get $1 back on all $100 of CC purchases, which number do I need to multiply by 25 -- $100 or $99?  For accounting purposes, it's far easier for me to consider my actual credit card payments (net of cashback rewards) to be my expenses rather than model a phantom extra retirement income equal to 1% of my CC purchases.

How about when I buy a $100 camera with a $20 mail-in rebate?  Do I count the rebate as income or reduced expense?  You could go either way, but for me it's most useful to just say I bought an $80 camera.

I'd multiply by 100.  I wouldn't count on 1% cash back to infinity, in other words, I'd have that 1% be a bonus side income that will hopefully last as long as possible.

In the latter case, yes, I'd count it as 80, because it was a direct to that purchase you got by shopping around, and could conceivably bought a $80 camera if that rebate wasn't available for the $100 one.

But 1% less on your food, for example, just because you used a CC, isn't accurate.  It's 1% earned back, not 1% less spent.

Not a big deal though, if it works for you, rock on.

It's more like the rebate for me.  I make a lot of purchase choices based on cashback, including say using my 5% cashback card at shell vs using my debit card at Costco.  A lot of places also have cash only discounts.  You can't count on ANYTHING to infinity, for example my current expense report may show $3/lb for meat, but sure that could change in the future.  Anyways, I'll give a shrug here, as I can see either way being valid.  You are right that it's not technically a lower expense, but it's a reward that is directly a result of spending, so I consider it part of a single shopping transaction.

Edit, just to rub it in, I plan to count mortgage interest deductions as reduced housing expenses, not income I get at the end of the year in exchange for financing my house in a certain way.  I don't count sign up bonuses because that is a reward primarily for opening the account, not directly related to real expenses.

Another example is VAT in Europe.  If I buy something with 15% VAT in Germany, and then get the 15% back when I leave the country, I call that reduced expense not income for leaving the country.  Credit cards are similar in that the 1% back is really just a reimbursement of credit card fees charges to the merchant, which are typically reflected in higher sticker prices. A "visa VAT," if you will.
« Last Edit: June 23, 2014, 10:15:39 AM by dragoncar »

milesdividendmd

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Re: How do you treat cash back from credit cards?
« Reply #27 on: June 23, 2014, 10:15:14 AM »
i'm on the side of counting as reduced expenses not income.  do you count coupons for a discount on products as income.  No so i look at my 6% on groceries as 6% off my grocery bill each month.  i shopped around for my CC and found the best one.  This isnt income and i dont see how it can be treated as such. 

Now signup bonus's should be treated as income.  but using a CC vs cash and getting 1+% back is just being smart and getting yourself 1 or more % off what you're buying already

Hah, I like how you can't see how cash back can be treated as income, but claim sign up bonuses should be. :D

They're the same thing, to me.  They're money you get for using a credit card in a certain way.  That, to me, doesn't reduce the amount of money you spend, but gives you a little back for doing so.  You're still spending the same amount, you just get a little income to offset it.

So if I manufactured enough spending to get 15k in cash back annually and spent 15k annually, would you say my spending is $0?  Or would you say I spent 15k and have a side-gig of churning CC spending to earn 15k extra income?

I would say that you can reasonably spin it either way.

But for what it's worth the IRS sees cash back as a rebate, which is why cash back is not taxed as income.

Alexi
« Last Edit: June 23, 2014, 10:18:36 AM by milesdividendmd »

MrsPete

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Re: How do you treat cash back from credit cards?
« Reply #28 on: June 23, 2014, 10:30:53 AM »
So what do you guys do...look at it as a "free vacation" or look at it as another way to stash away more money into savings?

There is no "free" income - it's all just income.
Yeah, I treat it like any other asset.  Restaurant gift cards are about all I ever "buy" with my reward points.  I use them as gifts for my in-laws; they like them, and it's not money out of my pocket.  Right now I have a ton of points, and I am saving them to use for a family celebration at a restaurant when my youngest graduates next June.  We've also bought gift cards to use for meals on vacation. 

I do tend to keep track of my points and save them for something that's a bit more frivolous than I would usually do . . . but I don't treat them as free money. 

arebelspy

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Re: How do you treat cash back from credit cards?
« Reply #29 on: June 23, 2014, 10:41:07 AM »
i'm on the side of counting as reduced expenses not income.  do you count coupons for a discount on products as income.  No so i look at my 6% on groceries as 6% off my grocery bill each month.  i shopped around for my CC and found the best one.  This isnt income and i dont see how it can be treated as such. 

Now signup bonus's should be treated as income.  but using a CC vs cash and getting 1+% back is just being smart and getting yourself 1 or more % off what you're buying already

Hah, I like how you can't see how cash back can be treated as income, but claim sign up bonuses should be. :D

They're the same thing, to me.  They're money you get for using a credit card in a certain way.  That, to me, doesn't reduce the amount of money you spend, but gives you a little back for doing so.  You're still spending the same amount, you just get a little income to offset it.

So if I manufactured enough spending to get 15k in cash back annually and spent 15k annually, would you say my spending is $0?  Or would you say I spent 15k and have a side-gig of churning CC spending to earn 15k extra income?

I would say that you can reasonably spin it either way.

But for what it's worth the IRS sees cash back as a rebate, which is why cash back is not taxed as income.

Alexi

That's a good point.  It won't change my accounting on it, but I accept that as a valid reason for choosing the other way to look at it.
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taekvideo

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Re: How do you treat cash back from credit cards?
« Reply #30 on: June 23, 2014, 01:13:58 PM »
I just treat it as a 1% cost reduction.
Works well since I use the amazon card and it just subtracts my rewards from the price the next time I order something ^^

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Re: How do you treat cash back from credit cards?
« Reply #31 on: June 23, 2014, 01:19:16 PM »
Isn't there a non-zero risk associated with a rewards balance, more so a higher one?  Why not cash out (at least most of it) now and put in a interest bearing account or invest it until you go on vacation?  In the very least, statement credits or cash means you are realizing the benefits, rather than assuming the rewards system won't be modified/revoked by the company in the future.  To each their own, I just don't see what is gained by not realizing the benefits now and eliminating the risk completely that the rewards structure would be changed.

Yes, but that's why I mentioned Chase Ultimate Rewards Points specifically.  If I transferred those points into air mileage or hotel points accounts, THOSE points get devalued regularly.  Chase points however always have a floor of 1 cent/point.  They could of course change that at any time, but given that it's been stable for the entirety of the Chase Ultimate Rewards' existence, I don't see them going away from it without making a lot of people very mad.  Or at least giving notice ahead of time.

Non-zero but stable enough for me. Especially given that, as I said, I consider it play money. I've been funding my vacation fund with awards from credit cards 100% for the last five years or so, and all I've ever done is maybe 5 total hours of up-front reading up on different cards and rewards programs.
Where did you start?

frugalnacho

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Re: How do you treat cash back from credit cards?
« Reply #32 on: June 23, 2014, 01:27:31 PM »
This isn't quite what you're asking, but I account for it as reduced expenses.  I.e., if I spend $1000 this month, and get $10 cash back, I record my expenses as $990.  I usually choose to apply the cashback as a statement credit.

But you didn't spend less.

Why wouldn't you count it as income?  When I use it as a statement credit, I mark it in Mint as Income>Rewards.

Think of it as a low/no work side gig.  But it seems odd to me to count it as reduced expenses, rather than income...

Well I calculate how much money I need in FI based on my "expenses," lets say annual expenses time 25.  If I get $1 back on all $100 of CC purchases, which number do I need to multiply by 25 -- $100 or $99?  For accounting purposes, it's far easier for me to consider my actual credit card payments (net of cashback rewards) to be my expenses rather than model a phantom extra retirement income equal to 1% of my CC purchases.

How about when I buy a $100 camera with a $20 mail-in rebate?  Do I count the rebate as income or reduced expense?  You could go either way, but for me it's most useful to just say I bought an $80 camera.

I'd multiply by 100.  I wouldn't count on 1% cash back to infinity, in other words, I'd have that 1% be a bonus side income that will hopefully last as long as possible.

In the latter case, yes, I'd count it as 80, because it was a direct to that purchase you got by shopping around, and could conceivably bought a $80 camera if that rebate wasn't available for the $100 one.

But 1% less on your food, for example, just because you used a CC, isn't accurate.  It's 1% earned back, not 1% less spent.

Not a big deal though, if it works for you, rock on.

I agree with dragoncar.  What's the difference between getting 1% off the bill, or "earning" (which doesn't count as taxable income) 1% which is then applied directly your statement, effectively lowering it 1%?  I also see no conceivable reason to believe this reward system will go away anytime soon. 

However what if you use rewards cards for reimbursable business expenses?  If I put $100 worth of gas in a work vehicle I get a receipt for $100, and my company reimburses me $100.  Then I also get a $5 credit on my statement.  This scenario doesn't really lower any expenses, it creates a tax free income. 

gimp

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Re: How do you treat cash back from credit cards?
« Reply #33 on: June 23, 2014, 01:44:13 PM »
I use it to pay off part of the monthly spending. Discover lets me use it in $50 increments which nicely covers part of my gas expenses or whatever.

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Re: How do you treat cash back from credit cards?
« Reply #34 on: June 23, 2014, 01:45:16 PM »

There is no "free" income - it's all just income.  If you want to put it towards a vacation, fine.  Count it as income, and spending.

But if you could save it, and choose not to, that's not a "free" vacation - that's you choosing to spend money you could have saved.

Ditto, I just treat it same as any other income, just as if I stayed an extra hour at work or something. I just put in in the 'other' category of my income spreadsheet.

It's obviously up to you, but the whole reason I track my money is to get a realistic picture of what I am spending and earning. If I counted a $25 credit card reward as a 'free' night at the movies or something when I could have spent it on anything (or put it in the stache) then it isn't giving me an accurate picture of what is really happening with my money.

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Re: How do you treat cash back from credit cards?
« Reply #35 on: June 23, 2014, 01:55:01 PM »
I treat it as income normally if it is cash. 

Sometimes I'll treat it as a reduction of spending (like Starwood Preferred Guest points).  We redeemed 31,000 points for 8 nights in Sheratons and Four Points that would have cost $1600 or so.  That just means our vacation is $1600 less than it would have been ($4300 instead of $5900 in this case).

I just added up the value of redemptions and cash back earned year to date and it's around $5000-6000.  That's about a third of our retirement spending if I can sustain this rate of sign up bonuses and a little manufactured spend. 


netskyblue

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Re: How do you treat cash back from credit cards?
« Reply #36 on: June 23, 2014, 02:02:38 PM »
I treat it as income, "Income - Other" line item in my budget.  Usually it goes straight to savings.  I get it sent directly to my bank account, usually when it reaches $100 or $150 or so.

frugalnacho

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Re: How do you treat cash back from credit cards?
« Reply #37 on: June 23, 2014, 02:07:05 PM »
I treat it as income normally if it is cash. 

Sometimes I'll treat it as a reduction of spending (like Starwood Preferred Guest points).  We redeemed 31,000 points for 8 nights in Sheratons and Four Points that would have cost $1600 or so.  That just means our vacation is $1600 less than it would have been ($4300 instead of $5900 in this case).

I just added up the value of redemptions and cash back earned year to date and it's around $5000-6000.  That's about a third of our retirement spending if I can sustain this rate of sign up bonuses and a little manufactured spend.

But couldn't you have paid cash for those hotel nights, and redeemed the cash in another area, at least in theory?  There is still an opportunity cost of using that $1600 specifically for your vacation.  I could just as easily charge $500 worth of booze on my cc, then pay it off with my cash back rewards and say my booze is "free" even though I could have foregone the "free" booze and added $500 to my stash. 


BrianT

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Re: How do you treat cash back from credit cards?
« Reply #38 on: June 23, 2014, 02:07:43 PM »
I track it when redeemed. It's income as far as I am concerned. It seems more complicated than necessary to think of it any other way.

dragoncar

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Re: How do you treat cash back from credit cards?
« Reply #39 on: June 23, 2014, 02:21:43 PM »

I agree with dragoncar.  What's the difference between getting 1% off the bill, or "earning" (which doesn't count as taxable income) 1% which is then applied directly your statement, effectively lowering it 1%?  I also see no conceivable reason to believe this reward system will go away anytime soon. 

However what if you use rewards cards for reimbursable business expenses?  If I put $100 worth of gas in a work vehicle I get a receipt for $100, and my company reimburses me $100.  Then I also get a $5 credit on my statement.  This scenario doesn't really lower any expenses, it creates a tax free income.

Yeah, I wouldn't count rebate for reimbursed expenses as "reduced expenses" (and the IRS would agree with this distinction).  If I had a lot of reimbursed expenses on a cash back card (I don't) then efficiency would swing the other way -- easier to just consider it all as income. 

This is all a little similar to the gift card conundrum:  if I get a gift card as a gift, is that income?  If I spend it on a toy, is it expense, or was the toy a gift?  I think my final decision on this was to adjust both income and gift card expenditure by the liquidation ratio (e.g., 80% of face value by selling gift card).

frugalnacho

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Re: How do you treat cash back from credit cards?
« Reply #40 on: June 23, 2014, 02:33:25 PM »

I agree with dragoncar.  What's the difference between getting 1% off the bill, or "earning" (which doesn't count as taxable income) 1% which is then applied directly your statement, effectively lowering it 1%?  I also see no conceivable reason to believe this reward system will go away anytime soon. 

However what if you use rewards cards for reimbursable business expenses?  If I put $100 worth of gas in a work vehicle I get a receipt for $100, and my company reimburses me $100.  Then I also get a $5 credit on my statement.  This scenario doesn't really lower any expenses, it creates a tax free income.

Yeah, I wouldn't count rebate for reimbursed expenses as "reduced expenses" (and the IRS would agree with this distinction).  If I had a lot of reimbursed expenses on a cash back card (I don't) then efficiency would swing the other way -- easier to just consider it all as income. 

This is all a little similar to the gift card conundrum:  if I get a gift card as a gift, is that income?  If I spend it on a toy, is it expense, or was the toy a gift?  I think my final decision on this was to adjust both income and gift card expenditure by the liquidation ratio (e.g., 80% of face value by selling gift card).

I think it depends on what the gift card is.  If it's to KB toys, you are kind of limited and may have to use it and consider it a gift (hey, free RC car!).   But if you could replace some of your normal spending with it then it should count as income. 

RootofGood

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Re: How do you treat cash back from credit cards?
« Reply #41 on: June 23, 2014, 03:50:52 PM »
I treat it as income normally if it is cash. 

Sometimes I'll treat it as a reduction of spending (like Starwood Preferred Guest points).  We redeemed 31,000 points for 8 nights in Sheratons and Four Points that would have cost $1600 or so.  That just means our vacation is $1600 less than it would have been ($4300 instead of $5900 in this case).

I just added up the value of redemptions and cash back earned year to date and it's around $5000-6000.  That's about a third of our retirement spending if I can sustain this rate of sign up bonuses and a little manufactured spend.

But couldn't you have paid cash for those hotel nights, and redeemed the cash in another area, at least in theory?  There is still an opportunity cost of using that $1600 specifically for your vacation.  I could just as easily charge $500 worth of booze on my cc, then pay it off with my cash back rewards and say my booze is "free" even though I could have foregone the "free" booze and added $500 to my stash.

I suppose I could have used the 31000 points to redeem for $250 of gift cards or something like that.  Instead I chose to redeem for nice hotels (nicer than I would have picked were I paying cash).

I'm not claiming to have a 100% consistent treatment of the credit card rebates and points programs.  I redeemed $500 from the Barclay Arrival Plus card for apartment rentals, but I'm still counting the full price of the apartment rentals as an expense (even though over 1 week was "free" after the redemption).  The sheraton points aren't as easily redeemed for a good cash value. 

I do keep track of the value of all credit card promos I get (and cash back).  It turns out to be a significant proportion of what we have in our retirement budget.  Keeping up with the credit card game means less portfolio withdrawals 

Brian Fellows

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Re: How do you treat cash back from credit cards?
« Reply #42 on: June 24, 2014, 05:59:57 AM »
Isn't there a non-zero risk associated with a rewards balance, more so a higher one?  Why not cash out (at least most of it) now and put in a interest bearing account or invest it until you go on vacation?  In the very least, statement credits or cash means you are realizing the benefits, rather than assuming the rewards system won't be modified/revoked by the company in the future.  To each their own, I just don't see what is gained by not realizing the benefits now and eliminating the risk completely that the rewards structure would be changed.

Yes, but that's why I mentioned Chase Ultimate Rewards Points specifically.  If I transferred those points into air mileage or hotel points accounts, THOSE points get devalued regularly.  Chase points however always have a floor of 1 cent/point.  They could of course change that at any time, but given that it's been stable for the entirety of the Chase Ultimate Rewards' existence, I don't see them going away from it without making a lot of people very mad.  Or at least giving notice ahead of time.

Non-zero but stable enough for me. Especially given that, as I said, I consider it play money. I've been funding my vacation fund with awards from credit cards 100% for the last five years or so, and all I've ever done is maybe 5 total hours of up-front reading up on different cards and rewards programs.
Where did you start?

I basically already had the basics down - my first credit card was some old Chase rewards card that doesn't exist anymore.  My Chase banker suggested I get a Freedom in addition (both were zero annual fee).  Eventually I moved and got a Delta card because I needed to fly home several times a year and lived near a Delta hub, and the card got me free carry ons so I actually saved money.  Then I got mad at Amex for reasons I won't get into and got a Discover card.  So I was already earning lots of cash back and miles.

Then sometime in 2012 I was wondering if there were more efficient ways to earn and spend miles/points, and I found the Milevalue blog.  Nowadays it looks like it's just like any other miles and points blog, where he's trying to sell you on specific credit cards that give him kickbacks and to advertise his booking services.  But his beginning series, which was all about what miles were worth, the fastest ways to earn them for free, and how to best use them, was incredibly helpful.  Reading through that I was able to make a spreadsheet of all of the major cards and what their points were best used for, and I've just used that ever since.

Sign up bonuses are the fastest way to get points, so that's basically how I filled my coffers, and now that they're full I'm in mostly cashback mode until I use up all/most miles and hotel points.  I've got a trip to Africa coming up in September, I earned air miles specifically for the trip, and the flights will cost ~$125 out of pocket (taxes and fees).  The flight itinerary shows up as $1893 at the cheapest right now online.

arebelspy

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Re: How do you treat cash back from credit cards?
« Reply #43 on: June 24, 2014, 08:30:55 AM »
If you want to learn about travel hacking and have someone help you, I highly recommend Brad over at http://www.richmondsavers.com/

A Mustachian couple, they write about travel hacking and give free coaching lessons:
http://www.richmondsavers.com/free-travel-rewards-coaching-program/

Literally free.  Brad will email you, chat on the phone with you for 45 minutes, etc. helping you out.  All they ask is if you do sign up for some cards, use their referral links (but they don't push any particular thing).

I don't see how that's sustainable time-wise, so I'd jump on it now if you're interested.  ;)
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
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Another Reader

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Re: How do you treat cash back from credit cards?
« Reply #44 on: June 24, 2014, 08:49:06 AM »
Great link!  Thanks for posting that, Arebelspy.

dragoncar

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Re: How do you treat cash back from credit cards?
« Reply #45 on: June 24, 2014, 08:52:38 AM »
If you want to learn about travel hacking and have someone help you, I highly recommend Brad over at http://www.richmondsavers.com/

A Mustachian couple, they write about travel hacking and give free coaching lessons:
http://www.richmondsavers.com/free-travel-rewards-coaching-program/

Literally free.  Brad will email you, chat on the phone with you for 45 minutes, etc. helping you out.  All they ask is if you do sign up for some cards, use their referral links (but they don't push any particular thing).

I don't see how that's sustainable time-wise, so I'd jump on it now if you're interested.  ;)

Is travel hacking just a fancy way of using credit card rewards or is there more to it than that?

arebelspy

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Re: How do you treat cash back from credit cards?
« Reply #46 on: June 24, 2014, 09:07:10 AM »
If you want to learn about travel hacking and have someone help you, I highly recommend Brad over at http://www.richmondsavers.com/

A Mustachian couple, they write about travel hacking and give free coaching lessons:
http://www.richmondsavers.com/free-travel-rewards-coaching-program/

Literally free.  Brad will email you, chat on the phone with you for 45 minutes, etc. helping you out.  All they ask is if you do sign up for some cards, use their referral links (but they don't push any particular thing).

I don't see how that's sustainable time-wise, so I'd jump on it now if you're interested.  ;)

Is travel hacking just a fancy way of using credit card rewards or is there more to it than that?

Nope, that's it.  But there's a lot to it (when do you sign up for what cards, most efficient ways to use the points, manufactured spend, etc.).  If you've been doing it for awhile, most of it's probably sunk in naturally, but for a beginner it can be overwhelming.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

dragoncar

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Re: How do you treat cash back from credit cards?
« Reply #47 on: June 24, 2014, 09:23:12 AM »
If you want to learn about travel hacking and have someone help you, I highly recommend Brad over at http://www.richmondsavers.com/

A Mustachian couple, they write about travel hacking and give free coaching lessons:
http://www.richmondsavers.com/free-travel-rewards-coaching-program/

Literally free.  Brad will email you, chat on the phone with you for 45 minutes, etc. helping you out.  All they ask is if you do sign up for some cards, use their referral links (but they don't push any particular thing).

I don't see how that's sustainable time-wise, so I'd jump on it now if you're interested.  ;)

Is travel hacking just a fancy way of using credit card rewards or is there more to it than that?

Nope, that's it.  But there's a lot to it (when do you sign up for what cards, most efficient ways to use the points, manufactured spend, etc.).  If you've been doing it for awhile, most of it's probably sunk in naturally, but for a beginner it can be overwhelming.

Ok, I'm not any kind of rewards expert, but from the name I always assumed it had more to do with finding great deals like negotiating with hotels or buying flight segments separately or couch surfing, etc. (plus the points stuff)

arebelspy

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Re: How do you treat cash back from credit cards?
« Reply #48 on: June 24, 2014, 10:00:29 AM »
Sure, those can be part of it, but it's mostly the how to earn free points and the best way to spend them (separate flight segments can be one way, at times), so that you net free or very cheap travel.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

milesdividendmd

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Re: How do you treat cash back from credit cards?
« Reply #49 on: June 24, 2014, 10:07:18 AM »
If you want to learn about travel hacking and have someone help you, I highly recommend Brad over at http://www.richmondsavers.com/

A Mustachian couple, they write about travel hacking and give free coaching lessons:
http://www.richmondsavers.com/free-travel-rewards-coaching-program/

Literally free.  Brad will email you, chat on the phone with you for 45 minutes, etc. helping you out.  All they ask is if you do sign up for some cards, use their referral links (but they don't push any particular thing).

I don't see how that's sustainable time-wise, so I'd jump on it now if you're interested.  ;)

+1 on Richmondsavers.com. Brad is the real deal. He's a great guy with great values and a great site.

I'd recommend his free service to anyone interested in getting started travel hacking.

Alexi