There’s an offer about to end for the 10x Ultimate Rewards on the Chase Freedom card, which includes Amazon this quarter. Until 12/31 spend up to $1500 should earn 10x ultimate rewards you’ll need a premium card like the CSP or Ink to make them transferable. Load up on credit here (I believe this link pays me some cash if you do). Hopefully, this post will help you decide if loading up is a good idea for you or not.
I realized that I hadn’t actually touched the Freedom limit, so I wondered if I should prepay some credit in order to lock in the ultimate rewards. Personally, I tend to use a calculator for such things, but figured it might be easier for you guys to have an excel sheet using the XNPV calculation.
What is XNPV?
The excel formula for NPV doesn’t work, but luckily the XPNV one does.
=XNPV(Rate, Values, Dates)
The purpose of this formula is to tell you if an investment is smart or not. It’s pretty straightforward, a positive cash value is good, a negative cash value is bad. The variables are as follows:
This is the interest rate you would otherwise earn. For example, if you wanted to buy $100 of Amazon credit, but wouldn’t plan to buy anything at Amazon for 4 months, you’ve just given a free loan of $100 to Bezos. The [Opportunity] Rate is what you could have earned otherwise. The rate is subjective. It could be 0.1% if you bank with a silly bank like Citi, or closer to 1% if with an online bank like Ally. It could be even higher perhaps 4% if you are getting that from a credit union or a prepaid card saving account.
Whatever it is, you plug in what you think is reasonable.
Values and Dates
There are two more variables in the formula, Values and Dates. That these work together in an array is critical to the math here. If you have a 12 month time horizon and give Bezos $100, but plan to spend that credit in January, it is very different from spending in December. The value and dates array factors this in, and shows you how much better (in dollar terms) based on the ‘when’ that you get your money back.
Understanding the result
If your XNPV result is a positive number, then your investment is (on a certain level) considered smart. There are some other things to think about before taking the plunge, but at the very least it means you are onto something that requires more investigation. One limitation to consider is that if you move money from liquid cash form into a more closed ecosystem, such as Amazon, its locked out of your float. This means that if you really might need that money for other things, including an emergency, you may wish to price that in, and further discount things.
How I did this for my Amazon equation
Firstly, I checked how much I spent at Amazon last year. You can download a report of your spend, but note that it doubles up. For example, I bought a $200 gift card, and then bought $200 in goods, and if I just added up the spend column it would reflect $400.
- Get your report here > but don’t forget to deduct gift cards (or just generally read it before you believe the number)
Try to figure out repeat purchases vs big purchases
I spent a fair amount last year at Amazon, mainly due to some bigger ticket items such as a paddleboard. I can’t see 2016 being the same. As an aside, I’ve noticed that I’m more likely to spend if I have credit.. its that trap that all credit is built on.. be mindful of it.
Here’s the excel sheet, i’ve left it unlocked so you can fork it.
- Value of Prepaying GC (EXCEL FILE)
You can use it for a number of other applications too, anything that involves an investment upfront, and a future return. Probably the most important thing to consider with it is the garbage in/garbage out mindset, where if you forget to discount properly, you’ll get a misleading result. Another example of that might be to consider if you are buying a resold giftcard there is a fraud risk discount. The Amazon Giftcard reloads don’t have that since the rebate is coming via the credit card, and the gift credit via Amazon.
I’m in for $400, if you do get your credit using my link, I promise to spend any of the commission it might pay fairly wisely.