I made a decision today to not pursue a “free” 7.5% return on my credit card spending. It was a good decision. And it’s probably one that most people pursuing credit card rewards should make more often.
The situation
Staples is currently running a promotion on $200 Visa gift cards. These cards usually carry a $6.95 fee, but this week that fee is waived. My local Staples store will allow me to buy up to five of these cards per day. The nearest Staples store is a 10 minute drive away from my apartment.
Also this week, the flight school where I rent planes is offering a special where I can pre-load $1,000 to my account (using a credit card…or cards) and get 10% back in free flight credit.
For many people, this is a perfect credit card rewards opportunity… I have the ability to earn a high rate of return on my credit card spending by buying Visa gift cards and I have an immediate use for them.
So why would I turn this down? The short answer is that I wouldn’t make enough in credit card rewards to justify spending the time doing it.
You should have a dollar value for your time
Anyone can earn a significant amount of credit card rewards by just putting all of their spending on a 2% cash back card and calling it a day. The people who earn massive amounts of credit card rewards typically are doing something (like reselling or gift card trading) to generate miles, points and cash back. And these things take up time. If you’re going to do this, you should place a dollar value your time.
You might find it crass to put a dollar-value on your time. But I find that placing a dollar-value on my time helps me make better decisions about how to spend my time. I can calculate how much money I make in credit card rewards by (in this case) going to Staples and getting gift cards. And I can measure how much time it takes. If the amount of money I make per hour is more than my dollar-value of my time, then I get in the car and get the gift cards. If it isn’t, I pass.
How to figure out the dollar-value of your time
Putting a dollar-value on your time is more art than science, but here are a few things to think about as you work to come up with what your number is.
One metric to start with is how much you make per hour doing your day job. To get a quick and dirty estimate of this number, you can divide your salary (or your gross income if you freelance) by 2,000, the number of hours you would work if you worked 40 hours a week for 50 weeks a year. Would you work another half a day for that same rate? For most people, the answer is likely no. If that’s the case, then the amount of money you should make per hour generating credit card rewards should be higher than this number.
It’s important to remember what you’re giving up. Spending time with family. Getting your workout in. Traveling. Enjoying nature. Watching YouTube. Sleep. If I wanted to, I could continue earning miles, points and cash back (or do freelance writing or consulting) every minute of every hour that I could keep my eyes open. But at some point, what I’m giving up is more important than the money/miles/points coming in. Whatever your alternative is, understand that you are giving something up in order to generate miles, points or cash back. If it helps, ask yourself, “How much would I need to make to give up an hour of…” and then fill in the blank with your favorite leisure-time activity.
Probably the best way to come to this number is to consider how much you would need to earn to say “yes” to working in a job that looks like what you are doing to generate credit card rewards. Many people generate credit card rewards by making trips to grocery stores, so ask yourself, “How much would I need to make per hour to deliver groceries for Door Dash?” Some people resell items online or work with buyers groups. They might ask, “How much would I need to make per hour to deliver packages for Amazon?”
Regardless of how you get there, you should have a number.
Remember the alternatives
Now that you have a dollar-value for your time, you need to remember that you should measure the credit card rewards you earn against the alternatives. To show you what I mean, consider the following scenario:
Let’s say that you enter a contest and win $990. You are given the following options:
- You can take the $990 in the form of a check, with no further commitments or
- You can participate in a photo shoot to be used in a magazine ad. It would take 4 hours of your time next Wednesday, but they would increase your winnings to $1,000
Most people would wisely look at the above example and pass on the opportunity to do 4 hours of work for an extra $10. But many people don’t apply this same logic to credit card rewards. I know many people who collect miles, points and cash rewards pay annual fees for credit cards that earn 3x points on restaurants or travel. I know others who drive out of their way to get gift cards from gas stations for almost everything they purchase so that they can earn an effective 3% cash back. All of these people forget that their alternative is using a simple, no-annual-fee 2% cash back card. They look at the absolute number of rewards they earn, but don’t consider what their next-best alternative is.
In my case, my alternative to buying Visa gift cards and using them to pre-pay for plane time was to put the charge on my Bank of America credit card which earns 2.62% cash back because of my Platinum Honors status. From my $1,000 charge, I will earn $26.20 in cash back rewards. If I ran to Staples and burned up 45 minutes of my time, I would earn $75 in rewards if I could cash out my Ultimate Rewards points at 1.5 cents per point. I’d be up $48.80 over my alternative. That’s $65 an hour.
Add in risk factor
So, if everything goes right, I would earn $65 an hour by going to Staples, buying gift cards and using them to pay for my plane rental time. But that number doesn’t take into account that things might not go as planned.
In the Minneapolis area, there are people who go to office supply stores and steal the unactivated Visa and Mastercard gift cards. (They bring the cards in later to activate, no doubt because they are after credit card rewards.) This means that half the time I go to an office supply store for Visa or Mastercard gift cards, I’ll walk out of the store empty-handed, with only frustration at the greed of some of the people in the miles and points hobby. Factor in the risk of stock-outs and my expected return on my time is $32.50 an hour.
Finally, there is the chance that something could go really wrong. If someone has tampered with the gift cards on the shelf and I find that they have been drained of their value before I spend them, I might end up spending a lot of my time trying to get my money back. Or I could get robbed on my way to the car. Sure these are relatively remote possibilities, they are part of my risk calculation.
What I do (and recommend you do)
At the end of the day, I looked at what I expected to get in credit card rewards by running to Staples for Visa gift cards, considered how much time it would take and decided to pass on this opportunity to earn rewards.
If you are playing the rewards game, I’d encourage you to think similarly. Specifically, you should:
- Understand how much you are making from whatever activity you are doing to generate credit card rewards.
- Know how much time you are spending generating your credit card rewards.
- Consider your alternatives.
- Compare how much you expect to make per hour against a pre-determined dollar-value of your time.
At the end of the day, remember that shuffling gift cards around, buying and reselling stuff on Amazon and the myriad other creative ways that people generate credit cards rewards all take time. Make sure that you know both the value of the rewards you are getting and the value of what you are giving up.
