Use Credit Card Rewards Programs to Save for Retirement
Participating in your employers 401(k) match program allows for a great way to accelerate your retirement savings, but have you ever considered using your credit card rewards program as a means to save? Although rewards programs are all over the map in their offerings, certain programs present a great way to add to your future nest egg. Despite the great opportunity for additional savings, nobody paying interest on their current card should spend with the rewards in mind – no program will out accrue your current cards interest rate.
What I Do
My wife and I use a credit card for nearly 100 percent of our purchase and about 50 percent of our monthly bills. Because charging as much as we do can lend itself to overspending, it is only recommended for disciplined spenders that stick to a budget and spend only what you can afford. If cards are used like this, they actually offer you a no interest loan during the grace period in additional to the cash back award. Hey, it’s free money – if you have the discipline, take it.
I now have a personal IRA account with Sharebuilder, which offers a Visa card with a 1 percent cash back on all purchases. This program in my opinion is extremely valuable, because the cash back is automatically deposited into your Roth IRA, instantly earning additional monies in a money market fund. Also, because Roth IRA’s grow tax-free, the free money you earn is truly all yours.
One percent may not sound like much, but considering how much you spend in a year, coupled with compound interest, has the potential to add up to a significant amount. Like I said above, we use our card for nearly all our purchases and about 50 percent of our bills. Last year alone, we put about 36k on our card (remember, we are constantly paying it off, with multiple payments throughout the month). As you can tell from the figures below, using your card the right way can really boost your savings.
———————————————————————-
Estimated Earnings Potential -
Average yearly amount spent on card = $36,000
Average yearly cash back amount received = $360
40-year earnings based on an 8 percent return = $ 104,730.23
———————————————————————-
Remember if you decide to use your card as a savings vehicle, keep your debt to credit level around 35 percent as to not negatively affect your credit score, learn more about what I mean here. Also important to keep in mind is that most rewards programs have limits as to the actual amount of money you can receive in a year while participating in their programs. Do you currently participate in a rewards program worth sharing? $
If you enjoyed this post, consider subscribing to our RSS feed, or better yet, get us in your Email, Stumble it, or give it a Digg!
Related articles you might be interested in:
If you enjoyed this post, please consider to leave a comment or subscribe to the feed and get future articles delivered to your feed reader or email.
Comments
No comments yet.
Leave a comment