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The first of the Phippen Tax & Financial Services Accounts to Have for Fun is a rewards credit card that allows you to travel farther, dine better, or receive cash back for your purchases. Rewards credit cards usually come with a fee, but when you find one that provides valued benefits greater than the fee, the card can add joy to your life.
With a rewards credit card, you receive rewards for spending on your intentionally picked happiness spending goal. What could be better? As you accumulate rewards, this can either offset your normal expenses or open up new opportunities to you altogether.
Types of Rewards Cards
Rewards credit cards typically offer rewards in three mediums: points, miles, or cash back. Some also offer annual perks, like an annual travel credit for a flight booked on a specific airline or a stay booked at a specific hotel chain, and/or monthly credits like a small amount for Uber rides or DoorDash.
Each card has its own cluster of rewards, and the biggest names have more rewards options than you can probably use. While a particular card may have rewards ranging across a few areas of spending, most will have a particular focus.
For example, travel rewards cards may offer perks other than travel, like 2x the points on groceries, but their big benefits are travel-related. The large travel rewards cards provide 5x or 10x the points on travel purchases (flights, hotels, etc.), provide travel credits, refund your expenses to purchase Global Entry or Clear for faster travel, and provide you airport lounge access. Smaller travel rewards cards may focus on a specific airline or hotel chain and provide perks like priority boarding status, flight credits, a fifth night free, or an upgraded room.
Dining rewards cards often have some travel benefits but prioritize points for dining experiences or grocery purchases, and sometimes offer exclusive dining experiences in major cities. These cards cater to urban or suburban dwellers who prioritize exciting date nights or happy hours with friends and family. They also may offer Uber, Lyft, or DoorDash deals to transfer you to and from your date night or allow you to have a night at home.
While these are large areas that serve as examples, you can find credit cards that prioritize spending in just about any area. There are cards that offer cash back or points bonuses for gym memberships and qualified fitness purchases for fitness enthusiasts. Those that drive frequently can choose a card to get cash back for gas purchases. If you attend a lot of professional sporting events, you can receive cash back for ticket purchases from select cards. Whatever you are buying the most, there is a way to maximize points, miles, or cash back with a card.
Of note, the better rewards come with higher fees, so it is important to gauge whether the rewards will either help you save on purchases you already make or will provide an opportunity to buy something that you truly want to but just did not have the money. Do not choose a credit card with rewards that will increase your spending on areas that are not a priority for you. Instead, research the cards to find out which one best matches your happiness spending goals.
Is the Fee Worth It?
For Patrick and me, travel is a priority, so I have a Capital One Venture X card. It carries a hefty $395 annual fee. However, I receive a $300 travel credit each year for any travel booked through the Capital One Travel Portal and receive an “anniversary bonus” of 10,000 points each year, approximately a $100 value towards travel. So if I spend $400 on travel each year, a truly easy feat for me since travel is my largest spending category after retirement investments and my home, the card is already $5 net positive.
I view this as a no-brainer since the card is already positive before considering any other perks, but it sure does have other perks! These include 5x or 10x the points when booking travel, 2x the points when booking everything else, a $100 reimbursement for Global Entry/TSA Precheck, airport lounge access for myself and up to two guests (which is huge because it means we do not pay for food or drinks at the airport!), and cash back on a number of stores at which I almost never shop (but comes in handy when I need new shoes, sunglasses, or a Viator travel excursion).
Cards like this are easy: If you spend more than $400/year on travel, a Venture X is a net positive. For others, particularly when choosing a card for large amounts of cash back, the calculation is less obvious. You may have to consider what you would spend in a particular category with and without the card to determine whether it works out in your favor. Do the math! It is worth it. Go through the same process I did with the Venture X card above by comparing all rewards to the fee associated with the card. Rewards cards are supposed to offer rewards, not have you paying your credit card company.
Taking it Further
If you want to take rewards cards further, you can cobble together a few cards to maximize the majority of your spending and experience tons of free luxuries. We recommend getting used to using one rewards credit card first to make sure you are benefitting from the card before adding additional rewards cards to your wallet. Once you master the card (pun intended), adding more can be fun.
In I Will Teach You to Be Rich, Ramit Sethi outlines the cards he uses to maximize his spending. Since he lives an intentional but luxurious existence, he is a great example for targeted spending priorities. For up-to-date information on the newest cards or cards with the best offers of the year, blogs are the only answer: The Points Guy is my favorite for the latest deals and reviews on all kinds of cards (for example, best rewards cards for sports fans, fitness enthusiasts, and whatever else you can imagine), and ChooseFI has a special travel rewards guide that originated from their guide to take a nearly free family vacation to Disney World.
Rewards credit cards are an account to open to have fun, so if the rewards game stresses you out, there is no need to jump into it. However, if you can target a specific category where you spend most extravagantly, particularly if it is travel, entertainment events, or dining/food-related, these cards can add benefits to your financial life.
Enjoying Rewards
Thanks to our points and travel rewards, we are going to the Turkish Riviera for eight nights for almost free to kick off our summer. The flights were free. The hotel is free. The hotel is an all-inclusive, so all food we eat at the hotel is free. I have lounge access at the airports we are visiting, so our airport food and drinks will be free. While we will likely spend money to park our car at the airport and eat food away from our hotel while exploring Turkey, we could decide to spend only the cost of a metro trip to and from the airport and enjoy a Mediterranean beach vacation for less than $10 total.
With a rewards credit card, you can do the same.
About the Financial Accounts Series: The Financial Accounts Series is a four-part series discussing financial accounts that can improve the health of your finances. The Phippen Tax & Financial Services team will provide a deep dive on each of the accounts listed in Part 4, Accounts to Have for Fun, before releasing the bonus edition, Accounts Your Kids Need. If you missed Part 1, Accounts You Need First, Part 2, Accounts You Need Next, or Part 3, Accounts You Want, start there! If you would like to seek additional guidance about your personal finances or the specific organization and composition of your financial accounts, please contact Patrick Phippen or complete a new client form if you have not worked with Patrick in the past.
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