How my credit card spending is helping me save for retirement
Don’t assume that credit cards will always hurt your finances.
- Many people believe that credit cards will hurt your financial future.
- My credit cards actually help me save for my retirement.
- I invest my credit card rewards in a brokerage account.
Credit cards have gotten a bad reputation and many people believe that charging their cards will doom them to a lifetime of debt. In reality, however, credit cards can be a great way to improve your finances if you use them wisely.
In my case, for example, every time I spend money on my credit cards, the purchase helps me save for a secure retirement. Here’s why that’s the case.
How my credit cards are helping me prepare for my future years
When I signed up for a credit card, I chose one that gave me cash back. The card issuer gives me the option of getting my money back as a statement credit or depositing it into a financial account. And I made the decision to have the cash back I earn deposited into an account with a brokerage firm that I use to save for my retirement.
Now, the account is not a tax-advantaged account, like a 401(k), because these types of accounts have an annual contribution limit. It’s a taxable account, but it’s the one I set aside to fund early retirement, as many tax-advantaged accounts require you to wait until age 59½ to start making withdrawals.
Every month when I spend on my credit cards, I earn money which is deposited in this brokerage account which I can then invest in ETFs, stocks or mutual funds. So the money I got for free from my card issuer for expenses I would have made anyway is starting to generate returns for me, which I can reinvest to take advantage of compound growth.
Since I spend a lot on my credit card, I earn tons of cash back every year, all of which can work for me for many years to come, so I’m going to end up with tens of thousands more in my account from placement because of it.
Should you invest your credit card rewards?
Investing my credit card rewards works well for me. But it’s not always the right option for everyone. If you don’t pay off your credit card balance in full each month, you may want to use your rewards to reduce your statement balance rather than investing for the future. The interest rate on credit cards is usually higher than the rate you would earn investing in the stock market, so you can get a better return on your investment by using your cash back to reduce the amount of debt on which you pay interest. In my case, it’s not a problem because I don’t have a balance anyway.
Some people also like to use their credit card rewards to help cover the cost of vacations. There’s nothing wrong with that as long as you invest elsewhere for your future. In fact, it may be a better option if you had to take a vacation no matter what and would otherwise have borrowed for it.
If you can make it happen, investing your credit card rewards is a great way to get the most out of them and allow you to use your card to improve your net worth over time.
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