Thursday, October 21, 2004

Using Cash-Back Credit Cards to retire earlier

I received a few weeks ago a new Cash-Back credit card with no annual fee. This credit card gives 1% cash back on any purchase made with the card. No points to collect and exchange against useless (and overvalued) items, no restriction on what or where you need to buy to receive rewards, no balance to get the reward and no annual fee.

Now, I try to put as much as I can on my credit card. But to do so, one need to be much disciplined: you should keep track of what you buy (in order not to buy more that before) and you should always pay your bill entirely each month. You should not use your credit card to increase your survival debt.

I’ve calculated that I am able to put about 35% of my actual total yearly expenses on my card. Among things I cannot put on the card are: mortgage payments, city taxes and car loan payments. Groceries, furniture, restaurant, fuel, cell phone bills, etc., all go on the card. The ratio would be higher if I consider only my post-retirement expenses. At that moment, the mortgage should be paid, thus the higher ratio.

As a consequence, the total expenses I would be able to put on the card would be about 50% of all my expenses. That is, my expenses would be reduced by 0.5% when I will retire, thank to the cash-back plastic. That is a modest $80 at today money value, since my expected expenses after retirement (the amount I plan to withdraw each year from my portfolio) is $16 000. A small, negligible amount, you say? $80 a year for 51 years (up to my expected age of death at 80), inflation-adjusted (using 3% yearly inflation increase), invested in a bill that return a real 3% (say a nominal return of 6% - 3%), means a total saving of nearly $10 000 (today’s dollar). If you buy low-energy bulbs, you total savings reach over $20 000 using the same time span. This might be enough to retire some months earlier than planned.

Simple and small savings that bring no feeling of deprivation is one major step towards early retirement.

Jack

What is inflation? Inflation is the most pitfall ahead for your ER plan, make sure you understand what that means exactly.

10 Comments:

Anonymous Anonymous said...

Interesting site. Congrats on your goal. I'm sure you've read "Your money or your life." If not, I highly recommend it.

Keep up the good work!

Lynne
http://lynnedurham.typepad.com/je_cours

4:08 PM  
Anonymous Anonymous said...

You should also read the Book 'Keep what you earn' by Terry Coxon. It's a good book about keeping your money from "lawsuits, taxes, and other financial predators" :)

Its a good book, and sits right next to 'Rich Dad, Poor Dad' on my bookshelf. I'll keep this sight on my bookmarks list; I'm planning on retiring by 35 :p

Ravi.

6:29 PM  
Blogger Jack said...

Thank you both for the book suggestions.

7:10 AM  
Anonymous Drew said...

Hi, found the link on the Moneysense.ca site to your page.

This 1% cashback credit card ... which bank issues it? I have a CIBC no-fee dividend card, but it's not straight 1% cashback. It's structured from 0.25% to 1% depending on your annual spending. Your card sounds like a good deal. Would like to know more about this product.

Good luck!

9:46 PM  
Blogger Jack said...

Hi Drew,

There quite many credit cards that offer the 1% cashback.

Mine is a MBNA card deal with Belair, my car/home insurance company: http://www.belairdirect.com/english/ontario/financial/products_credit_card.htm.

Unfortunately, I cannot find anymore the cashback card I subscribed to last august. Maybe it was a limited time offer. Good luck!

5:42 AM  
Blogger ninest123 Ninest said...

ninest123 10.26
nike outlet, michael kors outlet, michael kors outlet online, gucci handbags, louis vuitton outlet, ugg boots, replica watches, polo outlet, burberry handbags, christian louboutin shoes, polo ralph lauren outlet online, christian louboutin outlet, oakley sunglasses, uggs outlet, christian louboutin, louis vuitton outlet, ugg boots, michael kors outlet, chanel handbags, ray ban sunglasses, jordan shoes, prada outlet, oakley sunglasses wholesale, nike air max, cheap oakley sunglasses, michael kors outlet online, uggs on sale, burberry outlet, oakley sunglasses, louis vuitton, christian louboutin uk, kate spade outlet, nike free, louis vuitton outlet, tiffany and co, replica watches, nike air max, longchamp outlet, uggs outlet, longchamp outlet, tiffany jewelry, longchamp outlet, ray ban sunglasses, michael kors outlet online, louis vuitton, prada handbags, michael kors outlet store, ray ban sunglasses

7:18 PM  
Blogger ninest123 Ninest said...

sac vanessa bruno, louboutin pas cher, new balance, hollister uk, coach outlet store online, longchamp pas cher, nike tn, nike air max uk, north face, true religion outlet, lululemon canada, michael kors outlet, true religion outlet, coach purses, abercrombie and fitch uk, sac longchamp pas cher, polo ralph lauren, ray ban uk, vans pas cher, nike free run, air max, michael kors, north face uk, hollister pas cher, oakley pas cher, converse pas cher, nike free uk, nike air force, true religion outlet, coach outlet, jordan pas cher, sac hermes, guess pas cher, nike roshe, polo lacoste, nike roshe run uk, michael kors pas cher, ray ban pas cher, nike air max uk, kate spade, burberry pas cher, nike air max, nike blazer pas cher, ralph lauren uk, coach outlet, michael kors, hogan outlet, mulberry uk, timberland pas cher, true religion jeans

7:20 PM  
Blogger ninest123 Ninest said...

mac cosmetics, gucci, hollister, herve leger, babyliss, hermes belt, soccer jerseys, nike trainers uk, celine handbags, vans, abercrombie and fitch, jimmy choo outlet, giuseppe zanotti outlet, nike air max, ferragamo shoes, lululemon, ray ban, ralph lauren, iphone 6 cases, converse outlet, asics running shoes, ghd hair, north face outlet, valentino shoes, timberland boots, insanity workout, nike air max, north face outlet, nfl jerseys, chi flat iron, hollister, vans outlet, beats by dre, soccer shoes, longchamp uk, p90x workout, louboutin, oakley, mont blanc pens, mcm handbags, converse, reebok outlet, hollister clothing, baseball bats, wedding dresses, nike roshe run, bottega veneta, new balance shoes, nike huaraches, instyler, tory burch outlet, oakley sunglasses

7:23 PM  
Blogger ninest123 Ninest said...

louis vuitton, thomas sabo, michael kors outlet, louis vuitton, pandora jewelry, swarovski crystal, canada goose outlet, juicy couture outlet, barbour, louis vuitton, canada goose jackets, hollister, marc jacobs, barbour uk, moncler outlet, louis vuitton, canada goose outlet, supra shoes, canada goose, canada goose outlet, moncler uk, michael kors outlet online, toms shoes, wedding dresses, pandora jewelry, ugg pas cher, ugg,ugg australia,ugg italia, swarovski, doudoune moncler, moncler, pandora uk, moncler, moncler, juicy couture outlet, michael kors handbags, replica watches, ugg,uggs,uggs canada, ugg uk, pandora charms, louis vuitton, montre pas cher, moncler outlet, moncler, lancel, canada goose, ugg, doke gabbana, links of london, canada goose, karen millen uk, canada goose uk, coach outlet
ninest123 10.26

7:24 PM  
Blogger 03 Yang said...

burberry sunglasses
chanel sunglasses
cartier sunglasses
cartier watches
cazal sunglasses
louis vuitton sunglasses
cartier outlet
dior sunglasses
versace sunglasses
chrome hearts
police sunglasses
prada sunglasses
chrome hearts outlet
gucci sunglasses

10:32 PM  

Post a Comment

<< Home