All this talk of Manufactured Spend but what about spending on stuff you actually need? I personally find this a fascinating topic because the two subjects really do go hand in hand, and perhaps by understanding one more, we might learn about the other.
Let’s look at Vanilla Reloads first
A digression into MS for a moment. Vanilla Reloads are prepaid cards that can be loaded onto a reloadable card like Bluebird or Serve. They can be purchased from $20-500 per card, with a flat fee of $3.95. If you buy a $20 card and pay the total $23.95 with cash then load $20 and pay a bill, you just paid a surcharge of about 20% for the transaction. If you bought a $500 card and paid the total with cash your surchage drops to about 0.80% much more reasonable, but still not something one might elect to do unless they were unbanked. If we then compare a $500 card bought with a 2% cashback card then the surcharge remains 0.8% during the transaction, but it comes with a later rebate of 2%, making a net profit of around 1.2%. The game is afoot. How about we consider the rebate reduces our basis, so that we are able to acquire a product valued at $500 for about $494?
That’s about the essence of MS, reduce the basis on something to the point of profit. Some argue that it must always be 5% to be considered profit, I argue that the profit you generate must be greater than your arbitrary minimum wage, but that’s an argument for another day.
Real Spend and how it differs
I used Loyal 3 for Real Spend. Others used for for Manufactured Spend. The transaction was the same. Keep that in the back of your mind as we plod along.
Real Spend means you are actually buying something and not liquidating it within a reasonably narrow cycle. An example I used in the past was a fancy watch I bought. I dropped the price down by about $3K by using stacked techniques to drop the basis. It holds a resale value above that price so if I did ever sell it perhaps some could argue that it was manufactured spend.
Real spend lends itself to the couponing approach, and is often seen by the reseller crowd. What can you do to get the same product for a lower price I love stripping out the fat from such transactions, and they apply everywhere, from Brokers charging 50x the fee of an Index fund, to a deli charging 50% over the price for a Forever Stamp. The savings you can find when you go to the extreme are huge.
However, several unusual things happen at a certain point.
- You start realizing your discount costs money
- You enter the land of opportunity cost
The discount always costs money, if we are dealing with money then time and and hourly rate have to be factored in. Here’s an example of where you could trigger both of these events:
You want to buy a Stapler for $5 from Staples. It is in the same strip mall as a Costco that has those recycling machines – you get 5 cents for every bottle of beer (empty ones you heathen) that you feed into them. If you can find 100 bottles you get the Stapler for ‘free’. However, you just spent a ton of time collecting bottles and feeding the machine, What’s more, if you pay cash from the machine you lost out on credit card rewards. Being the savvy consumer you trot along to your local Chase branch and deposit the 100 Nickels, trot back to Staples and pay with your Ink Bold that you got from the advice of a blogger who confirmed recycling bottles was a valid business….
It’s all very subjective
As a Brit, we have servants who do these recycling gigs for us, and I wouldn’t lower myself to that. But I will take the time to print out a coupon or two, and pull some fast moves – here is an example of one I did this week:
- Signed up for a Lowes Movers Coupon (10% off $5000)
- Went through TopCashBack (I have an affiliate link somewhere, Jeeves will insert it later) to Raise.com (1% cashback) and bought $2000 of HomeDepot cards for 8.6% off
- Trotted over to HomeDepot and bought a clearance pallet of Bamboo flooring for $1.50 sqft cash price (orignally $3-4), got them to match the Lowes coupon (sadly only for a $50 discount) and paid with the eGift cards that arrived in my inbox shortly there after.
- Total savings: a bunch.
There was a time where I would work out the exact cash price that I paid after all the rebates (including the card I used on raise to pay) but these days I’m more of the mind to say, that was a chunk of savings right there. And who gives a chuff how much it was exactly?
Where does opportunity cost and time cost kick in?
That’s an interesting question – for me I reduced the cost of my purchase by ‘a bunch’ with what seemed like very little work. It took me a little research to find the lowest priced second hand giftcards, and a few minutes to check that TopCashBack paid out on it. All told, a few minutes. For savings of several hundred bucks (I guess) that is a no brainer. I guess the tipping point becomes when you save less than you could be earning elsewhere. Hence knowing your hourly rate is important.
Want to play a game?
I am holding my first cash prize competition this week. Over in the forum I asked the members what they could do to lower the price of the range I am buying for my new kitchen. The basis starts at $1699. Paying with a credit card could drop it by 2%, but how many more stacks are there, and how low can the price go? We have a number of interesting answers already,and I believe we are about 25% discounted already. If you want to try and beat them there is $100 in it for the winner on Friday, and if you just want to see how people think about real spend, head on over. You’ll never pay full price again.
“I guess the tipping point becomes when you save less than you could be earning elsewhere. Hence knowing your hourly rate is important.”
I have a full time job. If I’m spending time, outside of my job, figuring out ways to save money there is no other way that I would be making money during that time. So my “earning elsewhere” is essentially zero.
It’s interesting how you describe it as a ‘full time job’ – I have a couple of those 🙂 In fairness you could do something else with your free time that could create income or reduce costs – it is never a binary equation where you only earn from 9-5 and are earning nothing from 5-9.
Else, why aren’t you collecting bottles on the street in your free time?
Even if you can’t reduce the basis (e.g., rent) I view real spend as a commodity: say I want to generate $10,000 spend on some CC (to get a signup bonus, to get a certain amount of miles, to get a certain amount of cashback). If I anyway have to pay $2,000 for rent, I may as well MS only $8,000.
(oftentimes some additional ingredients are required to make the required spend payable by CC, but that’s another topic)
The recycling example combines two different transactions, which should be evaluated separately: 1. Get paid $5 for recycling 100 bottles; 2. Pay $5 for a stapler.
Combining the two reminds me of the people on SD who say “I had a $99 giftcard for this store, so I was able to buy this $100 phone for only $1”.
Yeah, I think that there is a component of opportunity value within real spend, I am reluctant to call it a commodity since that might encourage us to spend more. I agree with your second point about the SD folk, I was going to bring in that concept more (once earned it isn’t free money, it is still money you spend).
That solution emerges in the forum discussion where one person says ‘MS the full $1699’ or use statement credits for it – they miss that you could do that anyway, and it doesn’t make the purchase cheaper.
The fine line is finding where you optimize earning, and still gain product specific discounts that don’t cannibalize your non real spend channels. That’s the way I hope the conversation will develop into as people start thinking about this more.
About to do something similar due to allergies. Why bamboo flooring vs
engineered hardwood or solid hardwood?
Easy to install on your own?
Bamboo is more sustainable, often cheaper and often harder wearing. The stranded type I bought is one of the hardest wood type flooring that can be bought.
Interesting points guys
One of the easiest ways to save, for me, is to use sites like swagbucks. The payback for some activities is too small to make much, if any, difference. But the payback for buying products that are featured is much higher than going through a cashback portal, and can lead to some nice benefits.
From a combination of swagbucks, online surveys and a couple random activities, I have over $200, at the moment, in Amazon gift cards, loaded and ready to go on my account.
It may not be worth my hourly rate, but I had fun earning them, and fun matters.
It’s funny, I got into this whole hobby about 7 months ago. I’ve always been a credit card rewards guy, just never realized how much information is out there that really lets people take it to the next level.
I think a lot of folks lose site of the hidden costs of both MS and RS in their quest to get miles. Gas/mileage, time, and risk can all be hard to mentally quantify for many small transactions. However there’s also hidden benefits too. To some it’s a game that is enjoyable(like extreme couponing). So even if you’re not profitable, a lot of folks find it enjoyable and a reason to get out of the house(much like window shopping at a mall).
Like everything it’s highly subjective and all depends on the person, I just would caution people not to get to wrapped up in it to the point it actually detracts from their overall quality of life. Everything in moderation as they say.