First and foremost, thank you for your support.
What I am about to present to you below is a simple engineered hack (you can call it Finance Engineering) to see the cash back that you have earned from credit cards grow and grow over the years. It’s more like a long term time game.
However, if you do not have 6 months in savings in order to survive in the event of an unforeseen circumstance, I strongly recommend that you instead click here and read my article titled Prepare For Tomorrow So That You Can Sleep Soundly. I am not joking, no point wasting your time reading the rest of this article. Instead it should be a top priority of yours to start planning what actions are required so that you achieve the goal of having 6 months cash reserve to pay for your essential expenses so that you do not resort to crime during a recession.
Do you remember that I mentioned in the above said article – “the secret to being rich is not how much you earn but how you can save“?
For those of you who have 6 months cash reserve for survival in case of a recession or “shit happens” situation, you may continue reading.
Why do I term the cash back you get from your credit cards as earned and not saved?
When you save money from a particular purchase, what it means is that you pay less. For example, you purchase a RM100 Petronas Gift Card from Lazada for RM93. This means you saved RM7 or 7%. However, you still need to pay RM93 when your debit card or credit card payment is due. You get nothing from anybody, i.e. you do not earn anything.
However, if you use a cash back credit card that offers you cash back for the same Petronas Gift Card mentioned above, your credit card statement still shows that RM93 was charged. However, in return for your “service/work”, the bank actually gives you money by crediting it into your account! Therefore you did earn some money.
In respect of the above paragraph, what usually happens is that you guys will use the FREE money you have earned and straight away burn it away by offsetting your credit card bill. Therefore, you will never ever see the money that you have earned from your cash back credit cards ever again!!! So basically you will never ever see how much you have earned over the years with your cash back credit cards (or how much more you will earn with compound interest if you have saved the money you earned from cash back credit cards).
For this hack to be meaningful, where you can see your wealth gained from cash back credit cards actually increases with time, there are a few rules to follow:
Rule No.1 – You already have 6 Months Cash Reserve. IF not, that should be your priority.
Rule No.2 – You must pay your credit cards’ bills in full prior to the Due Date and never be imposed any interest. If you are being charged interest, effectively you are getting poorer and if you adopt the hack I’m about to present to you, you are just kidding yourself.
Rule No.3 – No 0% Balance Transfer Plan or 0% Installment Plan. This is because both the Balance Transfer Plans and Installment Plans are debts instruments (i.e. you are in the shit hole of debt) regardless of whether you are opting for 0% or 100% interest rate. I tell you, this 0% loan thingy will give you false impression that you have more money than you actually have because all of you will conveniently forget that you are still owing the bank money and most probably will result in you overspending unnecessary (more than what you can earn from cash back credit cards). And when shit happens, it does believe me, you will imposed 18% interest because of your own doing.
Rule No.4 – Open a NEW Savings Account with a bank where you currently do not have an account with. I suggest Affin Bank if you have yet to open an account with them. Deposit RM600 – assume that is what you have earned from previous years.
Rule No.5 – Immediately place RM500 into 2 months ONLINE Fixed Deposit (Affin Bank allows you to place 2 months FD with a mere RM500 and I am assuming you can place FD online with Affin Bank). This will ensure that you get better interest compared to savings account. Therefore, you still have RM100 in your Savings Account.
Rule No.6 – Based on your cash back credit card statement, transfer the amount you have earned to the nearest Ringgit to your NEW Savings Account. For example:
You earned RM45.30 cash back with your Maybank 2 Cards, transfer RM45 to the Affin Savings Account; and
You earned RM30 cash back with the Public Bank Quantum MasterCard, transfer RM30 to the Affin Savings Account.
Therefore, come end of the month you will have RM100 (from initial deposit) + RM45 (from Maybank 2 Cards AMEX cash back) + RM30 (from Public Bank Quantum Cash Back) = RM175.
Do the same for the next month where you once again transfer your cash back earned from your Maybank 2 Cards AMEX (say this time only RM32) and Public Bank Quantum (you hit the max cap again of RM30).
So by the end of the second month you would have RM237 in your Savings Account. RM175 (from the first month) + RM62 (from the second month)
Rule No.7 – Top Up your 2 months FD with cash back earned.
When your RM500 initial FD placement matures in 2 months time, top up RM137 from Rule No.6 and place it for another 2 months, i.e. New 2 months FD for RM637+interest earned earlier from the 2 months FD.
RM100 shall still remain in the Savings Account.
Rule No.8 – You continue to transfer any cash back you have earned from all your cash back credit cards to the New Savings Account and every 2 months you will renew you FD by topping up as mentioned in Rule No.7 leaving RM100 in the Savings Account.
Rules No.9 – The moment your 2 months FD reaches a total of RM1K, split them up. Say you now have RM1,053 after 6 months. What you should do is, place RM553 into 12 months FD to earn higher interest rate and the balance RM500 into 2 months FD and repeat above again. FYI, Affin Bank offers the highest FD Board Rates with PIDM, click here to see them.
Objective is to have a 12 months tenure Fixed Deposit Due Monthly (one due every calendar month of the year) so that you can top it up with the cash back earned from your credit cards with highest possible FB Board Interest Rate (this is why I chose Affin Bank).
Rule No.10 – This is the most important rule of all. You must follow all the rules above without exception. You cannot withdraw a single sen from the above Fixed Deposit Placements (you may have several after 2 or 3 years) and Savings Account.
Rules No.11 – You can only withdraw the money once you reach age of 60 and not a day sooner. The only time you are allowed to withdraw all the money in the above said FDs and Savings Account is when someone starts a nuclear war (some stupid country fires a nuclear missile) or we are being attacked by aliens or Godzilla. If war happens, immediately withdraw all the money in the above said accounts and go buy loose GOLD – 1gm!
That’s it folks. There you have my really simple engineered hack to see the cash back that you have earned from credit cards grow from year to year.
If you continue to offset the cash back that has been credited into your credit card account, you will never get to “feel” the money, i.e. the amount is too small to be of any significance. However, with the above hack, you will definitely shiok sendiri seeing your money grow and grow from RMxxx to RMx,xxx to RMxx,xxx. And best of all, the money is FREE 🙂
Another Personal Financial Tutorial by GenX