After a minimalist introduction, we’re going to launch right into it.
Here’s the deal: depending on how you spend your dollars, they can be worth far more to you than just $1.00. We’re not talking about what dollars mean to rich people instead of poor people– we’re talking about how you can maximize the distance your dollars go. In some cases, a dollar is literally worth $1.02. In others, more abstractly, it’s worth $50. Really.
If you spend a dollar that’s only worth a dollar, you’re probably doing something wrong.
We know that’s not very clear. Let’s just begin, shall we?
Credit Card Points
Any credit card worth its salt has some sort of points-per-dollar-spent rewards program. So, each dollar you spend on these cards is worth the item you get in return ($1 per $1) plus the value of the points you get back (minimum of $0.01/point). Here are a few easy examples:
What one dollar is worth when spent with the…
- Debit card or cash: $1.00 (boring)
- Citi Double Cash: $1.02 (always)
- Chase Amazon Rewards: $1.03 (on Amazon)
- AmEx Blue Cash Preferred: $1.06 (at US supermarkets)
If you spend money on the card each month and never carry a balance, Bank of America will pay you $25 every three months. They’ll pay $30 if you also bank with them. So, if you auto-bill your Netflix to this card ($10/month) and bank with BoA, your $120 spent gets you one year of Netflix (worth $120) plus $120 in cash back. Each dollar is worth two dollars. Whoa.
Credit Card Sign-Up Bonuses
Let’s go a little further here. Credit cards don’t just offer points-per-dollar-spent. They often offer enormous sign-up bonuses to new cardholders. Chase’s current offer is: earn 50,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening | Earn 5,000 bonus points after you add the first authorized user who makes a purchase in the first 3 months from account opening.
So, on the Chase Saphire Preferred, a dollar is worth a lot. Let’s say you take full advantage of the promotion, authorized user and all. You earn the following points:
- Spend $4k on the card in three months: 50,000 bonus points
- Authorized user makes purchase (included in $4k to simplify math): 5,000 bonus points
Remember, you also earn the regular points-per-dollar rewards.
- $3k of that spending earns you one point-per-dollar: 3,000 points
- $1k of that spending is on travel and dining, earning you two points-per-dollar: 2,000 points
Total earned: 60,000 points
What one dollar is worth when spent on the Chase Sapphire Preferred (sign-up bonus)…
- Points redeemed for a statement credit (a.k.a cashback): $1.15
60,000 points = $600. $4,600/4,000 = $1.15
- Points redeemed through the Ultimate Rewards portal: $1.19
Ultimate Rewards give you a 25% boost. So, 60k points = $750. $4,750/4,000 = $1.19
- Points exchanged one-to-one for United Airlines miles. Fly roundtrip USA – Europe: $1.30!
A typical United Airlines transatlantic round trip starts at $1,200, in our experience, but its award price is fixed at 60,000 miles. We’ll value your flight at $1,200. So, $5,200/4,000 = $1.30. (In the current, inexpensive, transatlantic flight environment, you could actually buy the entire flight through the portal and have points left over, but we want this article to stand the test of time.)
Invested in the Stock Market
Assumptions: You’ll earn 8%/year by investing in a low-cost, broadly diversified portfolio of index funds. Inflation will be 3%/year. Returns are compounded monthly. (Want to invest? Head over to Betterment or Wealthfront. Don’t know how? Click Wonder on any page of the site, and we’ll teach you for free in less than an hour!)
What one dollar is worth if you invest it for…
- 5 years: $1.49 – Adjusted for inflation? $1.28
- 10 years: $2.22 – Adjusted for inflation? $1.65
- 25 years: $7.34 – Adjusted for inflation? $3.48
- 50 years: $53.88 – Adjusted for inflation? $12.12
Feel like counting calories?
Here’s some cherry-picked info from this holy grail of a spreadsheet.
One dollar buys…
- 2,148 calories of plain oats.
- 1,470 calories of whole wheat pasta.
- 923 calories of olive oil.
- 900 calories of whole milk.
- 596 calories of potatoes.
- 179 calories of bacon.
- 13 calories of raspberries.
What’s the point of all of this information?
We tend to overexplain, so here’s your concise answer: a little bit of research leads to a lotta-bit of wealth-building. If you determine that your dollar will be worth $3.50 after inflation in 25 years, your $5 order of coffee + pastry at Starbucks today actually costs $17.50. Can you afford to pay $17.50 for decent ambiance, mediocre coffee, and a crumbly muffin?
If you’re about to buy a $1,000 plane ticket and realize that, for a purchase so big, each dollar could be worth $1.30, wouldn’t you use the Chase Sapphire Preferred card? You’d be getting a $300 discount! Finally, if you’re about to sign up for Netflix, for Pete’s sake (and please, share these valuable insights with Pete), you could get it for free! Just use the BankAmericard Better Balance Rewards card!
All we’ve really done in this article is expound a realistic sample of a few obvious and common opportunity costs. We already said that money flows from faucets all around the world, you just have to hold out your hat. It’s true! For crying out loud, financial institutions are desperate to give you automatic 2%, 3%, 6%, discounts on everything that you buy! All you have to do is pay off your card in full each month and you’ll never pay a cent of interest. Free money. Free money. Free money.
We love it when Chase, Capital One, Bank of America, and Citibank pay for our Netflix subscriptions, groceries, plane tickets, and hotel rooms. Thanks, enormous financial institutions! We love you. (Is this ending on a strange note? It’s starting to seem like it.) Look out for an upcoming post describing how the author of this article will be flying round-trip, NYC – Amsterdam, for free!
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And if there’s something we said here that you want to know more about or don’t understand, comment or send us an email. We’re very, very nice. So nice. Ask anyone. We’ll talk to you. We love to talk to you. Mmkay?