Accounting for CC cash back in personal budget

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airborne
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Accounting for CC cash back in personal budget

Post by airborne »

Now that Chase has rolled out "Pay Yourself Back" it is much more tempting to redeem Ultimate Rewards points on my CSR card for cash because the redemption value (50% bonus) is the same as booking travel through the travel portal. I foresee myself doing quite a bit of this for the duration of the program regardless of when travel picks back up.

Which brings me to a completely trivial matter.

I can't decide which route to go when it comes to accounting for this in my Mint budget. For those of you who do credit card cash back, how do you account for it? Do you add the redemption transaction to the income category, or do you use it to offset a spending category? I can think of pros and cons for both, but I am leaning toward the income category. If it is accounted for as an offset to spending, psychologically I may end up spending more as I see category spend lower than it actually was. Then again, it isn't truly income. It's a rebate.

What say you?
EnjoyIt
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Re: Accounting for CC cash back in personal budget

Post by EnjoyIt »

airborne wrote: Wed Aug 05, 2020 10:00 am Now that Chase has rolled out "Pay Yourself Back" it is much more tempting to redeem Ultimate Rewards points on my CSR card for cash because the redemption value (50% bonus) is the same as booking travel through the travel portal. I foresee myself doing quite a bit of this for the duration of the program regardless of when travel picks back up.

Which brings me to a completely trivial matter.

I can't decide which route to go when it comes to accounting for this in my Mint budget. For those of you who do credit card cash back, how do you account for it? Do you add the redemption transaction to the income category, or do you use it to offset a spending category? I can think of pros and cons for both, but I am leaning toward the income category. If it is accounted for as an offset to spending, psychologically I may end up spending more as I see category spend lower than it actually was. Then again, it isn't truly income. It's a rebate.

What say you?
I use Personal Capital instead of Mint, for the purpose of tracking my spending so that I know how much I need in retirement. All those cash back programs fluctuate and I would rather make all my budgetary plans as if cash back did not exist. With that in mind I would put the cash back as well as sign on bonuses on the income side of the equation.
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delamer
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Re: Accounting for CC cash back in personal budget

Post by delamer »

I have a unique income category that is called “Credit Card Rebates.”

I agree with you that using the rewards to directly offset spending would skew the spending numbers.
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Re: Accounting for CC cash back in personal budget

Post by randomguy »

airborne wrote: Wed Aug 05, 2020 10:00 am Now that Chase has rolled out "Pay Yourself Back" it is much more tempting to redeem Ultimate Rewards points on my CSR card for cash because the redemption value (50% bonus) is the same as booking travel through the travel portal. I foresee myself doing quite a bit of this for the duration of the program regardless of when travel picks back up.

Which brings me to a completely trivial matter.

I can't decide which route to go when it comes to accounting for this in my Mint budget. For those of you who do credit card cash back, how do you account for it? Do you add the redemption transaction to the income category, or do you use it to offset a spending category? I can think of pros and cons for both, but I am leaning toward the income category. If it is accounted for as an offset to spending, psychologically I may end up spending more as I see category spend lower than it actually was. Then again, it isn't truly income. It's a rebate.

What say you?
Same thing you did when you redeemed points for travel.
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Re: Accounting for CC cash back in personal budget

Post by Broken Man 1999 »

I see rewards dollars as simply a reduction in my spending.

I don't do budgets, so I wouldn't try to determine the reduction of any spending that could be attributed to rewards dollars, on individual purchases.

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Kenkat
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Re: Accounting for CC cash back in personal budget

Post by Kenkat »

delamer wrote: Wed Aug 05, 2020 10:11 am I have a unique income category that is called “Credit Card Rebates.”

I agree with you that using the rewards to directly offset spending would skew the spending numbers.
I do something similar in Quicken.
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Re: Accounting for CC cash back in personal budget

Post by UpperNwGuy »

I use an income category called "credit card rewards." And, yes, I understand that the rewards don't count as income for tax purposes. I have a couple of other misc income categories that also don't count.
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whaleknives
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Re: Accounting for CC cash back in personal budget

Post by whaleknives »

airborne wrote: Wed Aug 05, 2020 10:00 amDo you add the redemption transaction to the income category, or do you use it to offset a spending category?
I put it in a "miscellaneous financial" line item of my expense budget, along with the occasional fee and safe deposit rental. It's a correction to your actual spending, and not income.

I don't assign it against any particular expense, although I might be tempted for a large one. And I don't prorate it over all expenses, because you've got to draw the line somewhere.
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Re: Accounting for CC cash back in personal budget

Post by HomeStretch »

I view credit card rebates as an expense reduction rather than an income item. My Excel cash flow sheet has a “Total Expenses” line, then a “Credit Card Rebates/Bonuses” line and the two added together are my “Net Expenses” line.
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Re: Accounting for CC cash back in personal budget

Post by runner3081 »

I count them as "side hustle" income, along with bank account bonuses, surveys, etc.
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airborne
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Re: Accounting for CC cash back in personal budget

Post by airborne »

As expected from this board, a variety of opinions and good arguments for them all. Thanks for your input!

randomguy wrote: Wed Aug 05, 2020 10:16 am Same thing you did when you redeemed points for travel.
When I redeemed for travel there was never a line item transaction, so no need to place it under a category. I do see what you're saying however as the principle is the same.
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Re: Accounting for CC cash back in personal budget

Post by Jack FFR1846 »

I count it the same way I would count finding a 20 dollar bill in the street. Nice to get but I wouldn't count on it happening on a regular basis.

Things that could stop at any time:

Tradeline sales
Credit card cash back
Low balance forgiveness
supermarket gas points
gift card manufactured spending
Bank/broker/creditcard bonuses of various types

By counting all this as zero, I don't depend on it.
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Rainmaker41
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Re: Accounting for CC cash back in personal budget

Post by Rainmaker41 »

I treat credit card cashback as non-taxable income, rather than an offset on spending. This makes tracking spending simpler, particularly as it would be quite complicated to calculate how much cashback is attributable to each spending transaction, some cashback is realized annually due to redemption minimums, etc.

In my system, any money coming in regardless of source is income, any money going out is spending. I don't treat accrued rewards as assets either. If I am able to use airline miles or points, that doesn't show up in an accounting sense except insofar as the actual cash spending on a ticket is lower. Until they are used, I regard such things as akin to monopoly money (especially these days...). There isn't enough cashback to truly make a difference, so this is really just so the accounting looks neat with no error.

My annual financial statements show the following for cash-flow recording purposes:

Job Income
Taxable Investment Income
(Tax Liability)
Employer Retirement Matches
Credit Card Cashback
Cash Gifts Received
Economic Impact Payment Received
-----------------
Disposable Income

Budget Category 1
Budget Category 2 etc.
Economic Impact Payment Donated to Charity
-----------------
Spending

Retirement Accounts
Employer Retirement Matches
Taxable Account
Cashflow surplus or (Cashflow deficit)
-----------------
Savings

Savings / Disposable Income = Savings Rate %

I record exact cash balances at the end of every year, so by comparing calculated values to actual values I can detect tracking errors in real time.
Last edited by Rainmaker41 on Wed Aug 05, 2020 11:26 am, edited 2 times in total.
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BuckyBadger
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Re: Accounting for CC cash back in personal budget

Post by BuckyBadger »

I don't do anything special. I just ignore it until I get a higher than normal credit card bill due to travel, or Christmas, or whatever. Then I apply it as a credit to that particular bill. I usually apply it once a year at some point.
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Re: Accounting for CC cash back in personal budget

Post by Jags4186 »

I consider all account bonuses and rewards that come to me as cash as a special income category called "bonus". This is a non trivial piece of our income -- $8k - $10k/yr. Nearly every month of the year I have at least a few $100 coming to me this way.

If I use points to pay for a flight or hotel, I just don't count either the purchase of the flight/hotel as an expense nor the redemption of points as income. For example, if I transfer 60,000 AMEX MR points to Air Canada and book a flight that costs $1000, I don't record a $1000 expense and a $1000 income, I just record the $5.70 fee (or whatever the fee is) as an expense.

The exception to this rule is with my US Bank Altitude Reserve card. Since you actually make a transaction and then redeem points as a statement credit I categorize the statement credit the same way as the transaction. So, if for example, I use 10,000 points to pay for a $150 flight which gets me a $150 statement credit, I call the $150 purchase "travel" and the $150 credit "travel".
mptfan
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Re: Accounting for CC cash back in personal budget

Post by mptfan »

delamer wrote: Wed Aug 05, 2020 10:11 am I have a unique income category that is called “Credit Card Rebates.”
I do the same.

Edited to add: I don't keep a budget, I track the income as part of my spending.
Last edited by mptfan on Thu Aug 06, 2020 3:10 pm, edited 1 time in total.
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Re: Accounting for CC cash back in personal budget

Post by H-Town »

airborne wrote: Wed Aug 05, 2020 10:00 am Now that Chase has rolled out "Pay Yourself Back" it is much more tempting to redeem Ultimate Rewards points on my CSR card for cash because the redemption value (50% bonus) is the same as booking travel through the travel portal. I foresee myself doing quite a bit of this for the duration of the program regardless of when travel picks back up.

Which brings me to a completely trivial matter.

I can't decide which route to go when it comes to accounting for this in my Mint budget. For those of you who do credit card cash back, how do you account for it? Do you add the redemption transaction to the income category, or do you use it to offset a spending category? I can think of pros and cons for both, but I am leaning toward the income category. If it is accounted for as an offset to spending, psychologically I may end up spending more as I see category spend lower than it actually was. Then again, it isn't truly income. It's a rebate.

What say you?
CC cashback is treated as Income.

I wanted to keep expense as accurate as possible for planning purpose. I don't want to understate "travel expense", "groceries expense", etc. when CC reward points fund some of those expenses.
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Re: Accounting for CC cash back in personal budget

Post by Stinky »

mptfan wrote: Wed Aug 05, 2020 11:36 am
delamer wrote: Wed Aug 05, 2020 10:11 am I have a unique income category that is called “Credit Card Rebates.”
I do the same.
Yes, same here.

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orangesherbet
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Re: Accounting for CC cash back in personal budget

Post by orangesherbet »

I am another one for adding in cash back / rewards as income and then recording the actual spends in expenses. I feel that gives a more accurate picture of what our expenses were.
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Re: Accounting for CC cash back in personal budget

Post by MikeG62 »

Broken Man 1999 wrote: Wed Aug 05, 2020 10:17 am I see rewards dollars as simply a reduction in my spending.
Same. For all my cash back cards, the CB is recorded as a reduction of the expense giving rise to the cash back.

I have done the pay yourself back option on my CSR card. I also recorded that as an expense reduction.
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atdharris
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Re: Accounting for CC cash back in personal budget

Post by atdharris »

I put it in a savings account for "travel" but I am now unsure if I am going to keep contributing to it. I generally don't include the money in my monthly budget because the amount of cashback is sporadic.
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Re: Accounting for CC cash back in personal budget

Post by hoffse »

I have a line item under income for credit card cash back/points cash out. I want to see my total spend since credit card programs are constantly changing. I don’t lump in the cash back with regular income because it’s not taxable. I net between $5-$10k per year in cash back rewards, and I also pay estimated taxes on all of my taxable income. So I keep the rewards as a separate line item so I know I don’t have to pay taxes on it.
EnjoyIt
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Re: Accounting for CC cash back in personal budget

Post by EnjoyIt »

Jack FFR1846 wrote: Wed Aug 05, 2020 11:03 am I count it the same way I would count finding a 20 dollar bill in the street. Nice to get but I wouldn't count on it happening on a regular basis.

Things that could stop at any time:

Tradeline sales
Credit card cash back
Low balance forgiveness
supermarket gas points
gift card manufactured spending
Bank/broker/creditcard bonuses of various types

By counting all this as zero, I don't depend on it.
Exactly. For budgeting when retired I even add back in free travel I paid with points because I don’t know if those points will exist when I retire and I want to make sure I am budgeted for travel expenses in retirement.

One caveat, when I get first class international tickets with points/miles, I count them as economy plus in my budget. I would practically never for example pay $4k one way or $16k round trip for the both of us. But I would drop 300k miles or pay $5k for economy plus. So I value that as $5k spent on travel.
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fallingeggs
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Re: Accounting for CC cash back in personal budget

Post by fallingeggs »

I set Mint to ignore it. Same with the $300 in travel credits. Both are small potatoes in my annual budget and the effort to "fix" isn't worth it to me.
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Re: Accounting for CC cash back in personal budget

Post by GerryL »

If I take cashback as cash -- e.g., Costco Visa annual cashback -- I just set it aside for gradually putting in my wallet and don't even enter it into Quicken. The amounts are not so significant that I feel a need to track it as income. If something comes into an account as a credit, I categorize it in Quicken as a "Reimbursement," much as I would for a credit on a return, just to account for it when reconciling a statement.

I'm not super fussy with my entries in Quicken. If I happen to buy a screwdriver while on a grocery shopping trip and it's on the same register tab with groceries, it gets categorized as "Groceries." If I use cash to buy a loaf of bread, Quicken never knows about it. I figure it balances out. The credits that I get using Amazon Prime are not tracked and are simply reflected in lower spending on a future purchase.

If I felt the need to track spending and (minor) income in any more detail, I probably would have given up years ago. The long history of spending in Quicken was more than good enough to plan my expenses as I prepared for retirement.
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Re: Accounting for CC cash back in personal budget

Post by hansp »

In Mint, i just use the default "Bank Fee" category. This way it also offsets the annual fees charged by any of the credit cards.
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Re: Accounting for CC cash back in personal budget

Post by bertilak »

delamer wrote: Wed Aug 05, 2020 10:11 am I have a unique income category that is called “Credit Card Rebates.”
As do I but I call it "credit card rewards" and have it as a subcategory of "miscellaneous income" which is in turn a subcategory of "income." This is in Quicken.

I do not keep a budget, but if I did I would probably not track it, or project it as zero. Anything I get is pure gravy!
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Re: Accounting for CC cash back in personal budget

Post by whodidntante »

My solution is that I only track spending, not income. So I do not have a budget so to speak. I earn several thousand in bank, credit card, and brokerage bonuses each year and my cash back kung fu is strong so it would get a little ridiculous in my case.
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Re: Accounting for CC cash back in personal budget

Post by novemberrain »

Spending category is more appropriate
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Re: Accounting for CC cash back in personal budget

Post by muddgirl »

I use YNAB which is basically an envelope or zero-budget method ("give every dollar a job"). Cash rewards are "income to be budgeted."
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Re: Accounting for CC cash back in personal budget

Post by PaunchyPirate »

I use Quicken to track my expenses. I don't really track my income except at tax time. I have a Category called "ATM Withdrawals". I only get cash from ATMs about 6 times a year and usually only get $100 out at a time. This money is used for the occasional purchases where credit cards aren't really convenient or usable -- the barbershop I go to, food stands along the roadside, tipping a delivery person, etc. I decided to put the cash back rewards in that category since it's rather like miscellaneous cash.
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Re: Accounting for CC cash back in personal budget

Post by dbr »

I don't use an app for tracking, but technically you should reduce the cost of whatever item you bought with that card by 1% or 1.5% or whatever because using the card gave you a price reduction. It is no different from listing the cost of a box of cereal at $3.79 instead of $4.49 if you buy the cereal on sale at the first price and the second is the regular price. To you the spend is $3.79.

If all you know is that at the end of the month you are getting $85 in cash back and you aren't going to go in and figure out which items that came from, then you could have a spending item called "cash back" and it would be a negative expense.

Amazon offers a 5% cash back card on Amazon purchases. You can take that back as a credit against any purchase. Technically taking that rebate messes up tracking of what you spent on what kind of purchase, but it isn't worth the bother to track it. You just got one purchase subsidized by some other purchases.

When I redeem card points for travel that travel costs me $9.00 and not $199 and I don't put that down as $199 spent on travel and an income item of $190. I do like to keep track of what the points were worth to me but not as income. This is a case where counting the benefit as income might make sense.

I carry insurance with a company that rebates a portion of the premium paid at year end if the finances work out. I always have them apply that against the next premium payments because the rebate is exactly a reduction of premium, reduction of spending.
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Re: Accounting for CC cash back in personal budget

Post by MBB_Boy »

I can see the merits of both major approaches (income or offset spending). I chose to offset spending categories, because that's the same way I treat hotel points / upgrades / airline miles. If we buy $15K worth of tickets for an international trip, but only spend $5K - I don't go update my budget for show $15K so that my future retirement budget "truly understands the worth of my vacation".

Instead, I set a vacation budget for the year, and spend up until that limit. The point of the miles, status, and credit card games is simply to maximize that budget and get more "bang for the buck". The effort I put into using the CSR and cashing in the points just means that I get to eat out at more restaurants on the same budget. So this year, I have redemptions that offset grocery (Amex BCP + CSR), travel (CSR), restaurants (CSR), and "general merchandise" (my generic cash back card).

However, I DO have a space in my spreadsheet trackingthese redemptions. I tend to do large, infrequent cashback pulls so it isn't a big pain. If I felt it was important, I have the ability to see what the "true" spend is for the relevant categories
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Re: Accounting for CC cash back in personal budget

Post by pete1983 »

I use mint and label cash back an income category but don’t include that income category on my monthly budget. I also put all cash back/discounts/coupons... I get from the credit cards into a separate taxable brokerage account at fidelity. It’s lots of small transactions but it’s fun to watch the balance grow and know that it is all courtesy of Chase and American Express. Getting the market return on free money is the best use of points in the long run
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Re: Accounting for CC cash back in personal budget

Post by bertilak »

pete1983 wrote: Sat Aug 08, 2020 9:35 am it’s fun to watch the balance grow and know that it is all courtesy of Chase and American Express.
It's only fair. The places you buy things from have all jacked up their prices to cover the costs of accepting credit cards.
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Re: Accounting for CC cash back in personal budget

Post by dbr »

pete1983 wrote: Sat Aug 08, 2020 9:35 am I use mint and label cash back an income category but don’t include that income category on my monthly budget. I also put all cash back/discounts/coupons... I get from the credit cards into a separate taxable brokerage account at fidelity. It’s lots of small transactions but it’s fun to watch the balance grow and know that it is all courtesy of Chase and American Express. Getting the market return on free money is the best use of points in the long run
Nothing wrong with keeping track of that. I do it for my credit card bonuses taken in the form of airline travel.

However, it is not free money. It is just what the market price of the items you buy is. That price is different for everyone depending on how they buy the item. We used to comment about Sears that everything was on sale all the time, and that is really an accurate description of everything that is for sale everywhere all the time. For example, who would not shop at Amazon with a 5% back Amazon card? The answer is everyone who can buy those same items even cheaper somewhere else with or without some other card.
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Re: Accounting for CC cash back in personal budget

Post by bertilak »

dbr wrote: Sat Aug 08, 2020 9:49 am ... who would not shop at Amazon with a 5% back Amazon card? The answer is everyone who can buy those same items even cheaper somewhere else with or without some other card.
I use AMEX and even though I don't get quite the same amount back as with the other cards I try to keep the number of cards to a minimum. The marginal extra savings is not worth the hassle of yet another card.

I have three cards:
  1. AMEX: Cash back is petty good. Extended warranties. They are ALWAYS on my side with any dispute.
  2. Chase VISA: Comes with Costco. Best gasoline cash-back.
  3. Credit Union VISA: Comes with CU account.
That's enough even without the Amazon card.
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Re: Accounting for CC cash back in personal budget

Post by lazynovice »

I keep track of everything at a much higher level than Mint or YNAB so it probably matters less to me. We treat it as a reduction in expenses. I treat it like the credit card rebating me part of the fee they charged the company I paid the expense to. Basically a coupon. Same way we treat the Costco rewards check.
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Re: Accounting for CC cash back in personal budget

Post by EnjoyIt »

bertilak wrote: Sat Aug 08, 2020 10:06 am
dbr wrote: Sat Aug 08, 2020 9:49 am ... who would not shop at Amazon with a 5% back Amazon card? The answer is everyone who can buy those same items even cheaper somewhere else with or without some other card.
I use AMEX and even though I don't get quite the same amount back as with the other cards I try to keep the number of cards to a minimum. The marginal extra savings is not worth the hassle of yet another card.

I have three cards:
  1. AMEX: Cash back is petty good. Extended warranties. They are ALWAYS on my side with any dispute.
  2. Chase VISA: Comes with Costco. Best gasoline cash-back.
  3. Credit Union VISA: Comes with CU account.
That's enough even without the Amazon card.
For something that is online, I think having an extra card adds no additional complexity. You don't have to carry the card in your pocket. Just put the numbers into your amazon account and never worry about it again. What I do is even more complex. Every so often I will purchase $500-$1000 amazon gift card from office depot using my chase ink card. I get 5 points cash back which is worth almost 1.5 cents per point effectively getting almost 7.5% cash back.

I use the word "almost" because one is often able to find deals that make the value anywhere between 1.4-1.5 cents per point. Either way 7% - 7.5% cash back is worth a stop in office depot every so often and letting amazon hold unto that money. Today, I don't even have to go to Office depot. I can just load it with my chase freedom card because it is the 5% category at the moment. Can't get easier than that.
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Re: Accounting for CC cash back in personal budget

Post by bertilak »

EnjoyIt wrote: Sat Aug 08, 2020 3:03 pm For something that is online, I think having an extra card adds no additional complexity. You don't have to carry the card in your pocket. Just put the numbers into your amazon account and never worry about it again.
Very convincing!

I was looking at it is just one more thing to keep track of.
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EnjoyIt
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Re: Accounting for CC cash back in personal budget

Post by EnjoyIt »

bertilak wrote: Sat Aug 08, 2020 3:12 pm
EnjoyIt wrote: Sat Aug 08, 2020 3:03 pm For something that is online, I think having an extra card adds no additional complexity. You don't have to carry the card in your pocket. Just put the numbers into your amazon account and never worry about it again.
Very convincing!

I was looking at it is just one more thing to keep track of.
I guess it all depends how much you buy on amazon.
For every $1k you spend, you get an extra $30 back compared to a 2% card. Is that worth tracking or not?
We spend a few thousand a year on amazon so it is worth the “hassle” for us.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
SantaClaraSurfer
Posts: 310
Joined: Tue Feb 19, 2019 11:09 am

Re: Accounting for CC cash back in personal budget

Post by SantaClaraSurfer »

We use AmEx Blue and put the returns into a Schwab S&P 500 Mutual Fund (SWPPX).

Advantage 1: we aren't tempted to "spend more to get more" since we budget and pay full price for everything and never apply the discount to the balance.

Advantage 2: it doesn't matter how little the cash back is in a given month, you can always turn around and use it to make a mutual fund purchase.

Little numbers add up to bigger ones.
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