This story is Jason Biddle’s, a 30-year-old freelance marketer and founder of a resource site for seniors, in Houston, Texas, as told to Marianne Hayes.
One game-changing thing I’ve learned about money over the years is this: You don’t have to limit your income to your full-time salary and side gig earnings — or even traditional passive income sources, like rental properties. My wife Brittany and I are living proof that you can earn thousands from something as simple as swiping a cash-back card.
I opened my first credit card as a college student, simply to build credit. But after graduating, and looking for ways to stretch an entry-level salary, I realized I was leaving money on the table by not taking advantage of all the perks available to rewards cardholders.
Here’s how I unlocked a steady passive income stream that requires virtually no work.
Our Cash-Back Strategy
We earn cash bonuses on two different cards, neither of which has an annual fee. The first is the Discover it Card*, which I’ve had since 2006. It pays 1 percent on all purchases, plus an extra 5 percent at certain places that rotate quarterly, like gas stations, wholesale clubs, grocery stores, restaurants, and Amazon.
Our other card is the Capital One Quicksilver, which I’ve had since 2010. This originally doled out 2 percent back on gas and groceries and 1 percent back on everything else, but now offers 1.5 percent across the board. Since groceries make up a big chunk of our household spending, I was disappointed when the terms unexpectedly changed — but I feel the card’s still worth it. (Without an annual fee, it’s all bonus.)
We prioritize the Discover card for purchases that fall into the 5-percent bonus category — a strategy that requires very little forethought beyond where we do our everyday shopping. For example, if the bonus category rewards Amazon purchases, we’ll shop there over our local grocery store whenever possible. Meanwhile, we swipe our Capital One card for everything else, and always pay both balances in full each month. So, essentially, we’re earning money off everyday purchases we’d make anyway.
Generally, this translates to an extra $60 in our pockets each month, though it varies. We likely won’t earn quite as much from July to September, when the Discover card’s bonus category is restaurants. Eating out is a small line item on our budget, but spending more for the sole purpose of earning cash back kind of negates the reward.
How We Spend the Free Money
We don’t factor our cash-back rewards into our regular spending plan; it’s more like the cherry on top. Even though we have a fully funded emergency fund, we often direct our bonuses to pop-up expenses — like a surprise $650 car repair — so we don’t have to dip into savings.
We’ve also made our Discover card the default payment on our Amazon account, which has turned into an unlikely money-saver. When we check out, our cash-back balance pops up, and we’re given the option to use it toward the purchase. If it’s a necessity, I’ll use the free money. But if, for instance, I want to splurge on something but can’t cover it with available rewards, I’ll wait till I’ve earned more before pulling the trigger. Surprisingly, this helps curb my overspending.
It also highlights the fact that earning a significant amount of cash back takes time. Over the past two and a half years, we’ve earned about $1,550 — so it’s a slow build. I’d estimate we’ve earned around $3,500 in total from cash-back cards over the years.
Before You Try This at Home…
Know that this strategy only makes sense because we pay our bill in full every month. Carrying a balance means getting slammed with interest, which accrues daily and can negate the benefits.
Plus, getting into a debt cycle is a red flag that you’re probably living beyond your means. Brittany and I stick to a budget that makes sense for our income and lifestyle — we just use free rewards cards instead of debit cards or cash to make the most of our purchases. It also helps preserve our killer credit scores since we’re continually using cards, paying them off and making on-time payments.
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