If you buy grocery gift cards you are spending $1,425 for $1,500 in groceries. Or to put it another way, you are making 5.26% on your $1,425 investment. Not a bad return. But like I said, this is what is convenient for me - it may not work for everyone.
Not quite true. You have to subtract the earnings of your next best card for groceries, whatever that happens to be, because that is your true gain. Or the rate of your best flat rate card. So you have to subtract at least 1%, since virtually every rewards earning card gets at least 1%.
I would disagree that you need to subtract anything. Your return is on a $1,425 investment is 5.26% --- 75 / 1,425 = 5.26% Admittedly you could have used a Citi Double Cash card and your return would be 30 / 1,470 or 2.04%. But we can't say that the return for using a 5% cash back card is 3.22% (5.26% - 2.04%) because that isn't true. Your return is 5.26%.
It is, because now you're trading $1425 of cold hard cash, which can be used for anything, into a less liquid pseudo currency, a grocery gift card. While the gift card balance is still positive, you could have invested this money elsewhere.
Instead, you could just continue buying groceries with a 2% flat rate card without having to make this "investment," and park your cash anywhere you like. So your gain is only 3.22%
I can see that we could say that the marginal gain is 3.22% by using a 5% cash back card vs. a 2% cash back card but I think it is pretty much indisputable that 75 / 1,425 = 5.26%. That is what you are making.
Oh no I'm not disputing that 75/1425 = 5.26% by any stretch of the imagination.
What I'm talking about is economic profit, whereas you're talking about accounting profit. Your true economic gain incorporates the opportunity cost of giving up a 2% reward which you can always get anywhere is 3.22%.
But I bring this up because economic profit is what you really should be using in making decisions. For example, suppose you have a BS and you're contemplating getting a MS. With a BS, your starting salary is $60k. Your MS will cost you $50k, but your starting salary will be 80k higher.
Suppose the MS takes one year.
By the end of your first year at your job post MS, accounting profit would say that you spent $50k, and then made $80k, so you're up $30k.
But economic profit says you actually lost $90k. By starting with a BS, you would've made $120k in two years.
Can you really say by the end of two years that you're $30k better off by getting a MS? No, you cannot.
(Obviously a MS will pay off in the long run with these numbers...but that's beside the point of this example).
