Saving is hard. It
feels like we are depriving ourselves from the fun things we work hard
for. For this reason, any tip or trick
we can use to help us save or just make saving less painful becomes very
useful. Here is one of my tricks:
First, I have the Citi®
Double Cash* credit card that pays me 1% cash back on all purchases and
another 1% cash back as I pay off those purchases. This essentially equates to 2% cash back. Let’s say in an average month I charge $3,000
worth of bills and purchases then immediately pay off the credit card at the
end of the month to avoid any interest charges.
This should provide me with $60/month
in cash back rewards for a total of $720/year.
Second, I have a higher interest checking account and Roth
IRA at Charles
Schwab & Co®*. Every month I receive my cash back reward I
transfer it to my high interest checking account. From there, I immediately transfer the money
to my Roth IRA. Roth IRAs are funded
with after-tax dollars, grow tax-free and any future withdrawals are tax-free
as long as you follow the rules (which are easy to follow if you only use this
money for retirement as intended).
The result of this
strategy over 30 years if the investments earn 7% annually will be $68,012! Not bad considering all the funding for
this account came from cash back rewards paid by the credit card company.
I would advise against this strategy if you are not
disciplined enough to pay off your credit card each month. At 12% or higher annual interest rate, it
doesn’t take much for an ongoing credit card balance to charge more interest
than you are receiving in cash back rewards.
*This is not an
endorsement of the Citi® Double Cash credit card. Search around for the best credit card based
on your needs, or simply don’t use a credit card and stick to a budget to avoid
potential interest charges. This also is not an endorsement of Charles Schwab
& Co.®
