Matt has written a bit about risk and float for a while now, you can follow his latest mostly on the Saverocity Forum. One of the sticking points in manufactured spending is float.
From Matt:
Your float number
The float number should be the amount of money you can afford to lose for a considerable amount of time. I would suggest that the float timeline you should use should be the greater of the amount of time to liquidate traditionally, or 90 days. For example, if you buy $5,000 of gift cards, how long would it take you to liquidate them if all avenues closed? If you used them for your groceries etc and drained them the old fashioned way. Remember that you will be receiving a bill from your credit card company within 1-2 months of your purchases, and they do not care if your funds are locked up.
My Current Stance:The float number should be the amount of money you can afford to lose for a considerable amount of time. I would suggest that the float timeline you should use should be the greater of the amount of time to liquidate traditionally, or 90 days. For example, if you buy $5,000 of gift cards, how long would it take you to liquidate them if all avenues closed? If you used them for your groceries etc and drained them the old fashioned way. Remember that you will be receiving a bill from your credit card company within 1-2 months of your purchases, and they do not care if your funds are locked up.
For me, I don’t float much because I do not feel comfortable left hanging. The horrors of people left with thousands on the Home Improvement Gift Card where they seemingly couldn’t use it anywhere is my nightmare scenario. I don’t play and float in the thousands because it crushes my working capital to manufacture spend. On the flip side, if you are able to float thousands upon thousands and become highly leveraged, you can scale up quickly.
What I Have Been Thinking:
The last few weeks I have been putting more thought into floating. There are so many limited time offers for a day or 3 for the bonuses. The idea is to float a few thousand in American Express gift cards and merchant gift cards. And when the right offer comes up, I would spring on the deal like a lion springs on a wild zebra. Those limited time bonuses are incredibly generous and the AMEX gift cards would push down the cost per point. Some times, this could mean a gift card churn would be $.017/point to $.007/point.
Floating money comes with risk, as Matt has noted, if an avenue shuts down, what next? AMEX gift cards are more difficult to liquidate than the Visa or Mastercards.
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