My Favorite Frugal Life Hack

Last week, I introduced the financial truth of frugality and asserted that for the average American, living frugal is necessary to build wealth. I want to stay on the topic of being frugal this week but offer a tactic that can take some of the cheap feeling out of frugality.

Fair warning (and I’ll say this a few more times through the blog) this tactic takes incredible diligence and discipline to implement. It is certainly not for everyone. But it has worked out well for us and is one of my absolutely favorite life hacks. Most importantly, this method for managing daily expenses helps make swallowing the pill of the frugal life a little easier.

Chances are you’ve heard of this tactic before but maybe didn’t think much about it.  Hopefully this blog will offer something to consider. What is it you ask?   Pay daily living expenses on a rewards credit card and pay the balance every month!

To earn your business, many credit cards offer some type of rewards in the form of cash back or are partnered with hotel / airline travel point programs. This creates an opportunity for a life hack that when managed properly, results in extra “savings” in the form of free travel benefits or cash for investing.

After some trial and error, we went with a major hotel chain for our personal card. The program offers very generous points for purchases and several bonus opportunities based on spending. Additionally, when we signed up there was a large bonus point offer after the first few purchases. Be sure to look for sign up offers when considering a rewards card!

While there are a lot of enticing benefits with rewards cards, important to remember many include an annual fee. This must also be taken into consideration when doing the math to determine which rewards card is best for you.

Let’s say monthly expenses equal $2000 per month and the cardholder receives 1.5 hotel points for every dollar in purchases.  That would equal 36,000 points in a year! For the hotel chain we use, this equates to about four or five nights in a tourist class hotel or maybe two nights in a luxury beachfront hotel. As I mentioned, the points program may also throw in a free bonus night (or two) every year based on the program rules and spending levels.

Hotels were the best fit for us but cash back (sometimes up to 3%) may be better for some. Vacations don’t always figure in to the budget minded, frugal lifestyle so that is why we went with the travel option. Having some free hotel nights or air fare can help make a periodic vacation a reality on a frugal budget.

Above all, do the research and determine where you can get the most rewards, literally for your money. We have taken many nice family vacations with free lodging over the years thanks to this tip. The featured pic for this blog is from one of our “free” family vacations a few years back.

We put every single purchase on our credit card and then pay it off every month. When I say every single purchase, I mean every single purchase. From a pack of gum, to utility bill payments, groceries, gas, property taxes, anything that a vendor will let us charge on a card. I will often pay the convenience fees for some purchases if reasonable. Check carefully for a vendor’s convenience fees for using credit card payment, sometimes they can be a bit ridiculous.  As a result, our rewards points (and free hotel nights) stack up quickly.

I said it upfront and I will say it again, using credit cards for daily expenses comes with risk. Most financial experts state, and I wholeheartedly agree, it is easier to spend when using plastic rather than cold hard cash. If you have a problem managing credit card spending, this approach might not be for you.

Performing a needs vs. wants assessment before every purchase (remember last week’s blog) is a critical step to implementing this tactic. Using credit cards to pay daily expenses requires conditioning to fully understand every autopay, swipe or tap of the card equals a very real bill coming due soon.

Using credit cards for daily expenses also requires very good budgeting discipline. One advantage to using a credit card for purchases is many cards include a 30 day grace period before the bill is due.

If there is $1000 in monthly expenses for the billing cycle running from the 1st of August to the 1st of September, that bill won’t be due until the 1st of October. This is a nice feature. However, one must budget correctly in order to ensure the $1000 is on hand and ready to pay off the bill in its entirety on 1 October. If not, the often exorbitant interest on the unpaid portion will be applied to the balance and the credit card will get out of control very quickly.

A few more points of clarification. When I say rewards card, I mean one card. This is the only credit card we use. Applying for retail cards to get the 10% off on a first purchase is just plain dumb and damages credit. Having multiple cards, especially with a balance, will destroy credit scores. Do extensive research and pick one good card with the rewards that are right for your lifestyle and stick with it for the long haul.

If executed correctly, this financial tactic is a fun little life hack that could pay you back every year either in travel benefits or cash. Also, paying off the card balance in its entirety every month reflects well on credit scores over time. I can’t stress enough, if managing credit card spending is a struggle, paying every day expenses with a card might not be for you.

But if you are already living the frugal life, chances are you’ve got a fair amount of discipline and budget sense. Certainly worth exploring the options to see if this life hack is a good fit. It’s been one of our favorites!

The commentary provided in this blog is for informational purposes only and is not intended to be a source of financial or investing advice.

Next week I’ll dive into my absolute favorite financial truth, real estate investing.

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