I have blogged about Air Miles a few times. I am seriously thinking about getting rid of Air Miles once we use up our remaining miles. We tried to use up half of them for some upcoming flights but once again, they did not have flights that worked for our schedule. We even called over 3 months ahead of time. This is the third or fourth time this has happened. This just makes me detest “Rewards Programs” even more. Some of the other tricks they do include making the flights worth more per mile than the non-travel items (such as gift cards and other merchandise). This makes it psychologically difficult to go after the non-travel items since they are valued at half the cost per mile compared to flights (sometimes worse). Seriously, on my last statement from Air Miles I got like 100 miles. Their statements are sent quarterly and 100 miles is worth like $10-20 depending on what valuation you use. So that’s like less than $10 a month. Are you f$cking kidding me? The only way to get serious miles is to rack up seriously huge credit card statements or shop like crazy at Air Miles retailers, which we are never going to do. So they pay me less than $10 a month so I can go through this hassle of calling Air Miles every time I want to fly to see if they have any flights I want (which they never do), carry an extra card in my wallet, receive an extra statement, and waste my time writing a blog article about it. No thanks.
Rather than just bash Rob Carrick’s advice for young people, I’ll offer up my own advice:
- Start investing as early as you can. The earlier the better.
- As soon as you have some money, invest some of it. If you have a paper-route or a part-time job, invest 10-20% of it for the long term. Get in the habit. Invest monthly. You won’t miss that money.
- If you are babysitting for cash, tutoring for cash, earning tips, basically if you earning ANY employment income, file a tax return and declare all your income to build up RRSP contribution room.
- If you have RRSP contribution room, start an RRSP and contribute to it. Find a company that will not charge you any annual RRSP fee. I recommend something like TD’s Mutual Fund Account. Set up an automatic monthly contribution if you have steady income. Max out your available contribution room every year.
- Set up one or more ING Direct Savings accounts or one ore more savings accounts at your bank. If there is anything big that you want to save up for, use that to save up for it.
- Don’t get a credit card unless you have to. Keep your credit card limit low. Pay off your balance every month. Don’t be dazzled by rewards plans.
- When you get a large chunk of money from a birthday, a scholarship/bursary, a tax refund, don’t put it in your chequing account or convert it to cash. Deposit it into a savings account. Sit on it for a bit. Don’t make an impulsive purchase.
Think any of my advice is bad? Think I am missing something? Let me know.
Rewards programs, especially cash-back credit cards, seem to be all the rage these days especially on personal finance blogs. I think I mentioned on my blog a while back how a fellow employee of mine charges everything to his credit card because he gets 1% cash back for every dollar of purchases. Does he actually think he is getting ahead? People invariably think that they can make themselves richer by using a cashback credit card, than if they did not have a credit card at all. This boggles the mind but it is something that is not surprising. The 1% cash-back, the Air Miles points, the HBC Rewards Club Points are all easy to measure. Determining how much more you spend by using a credit card vs. cash is something that for most people is impossible to quantify.
I just read one common misconception a few days ago: “Hunting for rewards is worthwhile only if the entire credit card balance is paid in full every month.” While technically correct (in my opinion) for a small minority of the population, as the Wealthy Barber says, “many people who pay off their balance each month are still hurt by their use of credit cards.” Just because one pays of his/her credit card bill every month does not mean that the credit is just acting like a convenient replacement for cash. In fact most people spend more using a credit card without even realizing it, even those who pay it off every month. And if you accept this fact, than hunting for rewards programs is not worthwhile. Which brings me to one of the best blog posts I have read in a long time about cash-back credit cards.
Okay, the hottest thing going today, in the financial realm, is the “Cash Back” credit card. Almost every major credit card issuer is offering one of these “wonderful” things, promising you cash back for the purchases you make. Some promise cash back for groceries, gas, or everyday purchases. You can get bonus miles, bonus cash, and bonus gift cards. Wow! These things are wonderful…
Get real. These things are CRAP.
I strongly recommend everyone to read this article in full. He lists several counter-arguments to his position:
Now, there are several arguments against my position. I will list a few here, so that you don’t have to:
But ncnblog, I’m responsible with my credit and I pay off my balance each month.
But ncnblog, I was going to buy these things anyway, so I might as well get some cash back.
But ncnblog, I know how to handle my money, and I always make all my payments on time, and I am never going to be late or miss a payment. Relax.
But ncnblog, Credit cards are “safe” and they provide protection for me when I buy a product.
But ncnblog, Etc. Etc. Etc.
and then refutes them all . . .
One more thing, there may actually be one case where rewards programs are useful For people who are absolutely incapable of saving money, rewards programs are a forced savings programs. I am sure some people are incapable of saving up for a flight, for example. To them, earning more Air Miles by spending more money on groceries is not “spending more” than they normally would because this hypothetical person spends all their disposable cash anyways. They can then redeem a flight every 5 years or whatever, a flight that this hypothetical person would have never been capable of saving up for if their life depended on it. Although such a person would probably also have a tough time saving up their Air Miles for a flight anyways . . . So, on second though, rewards programs are in fact never useful.
Of course we all need credit cards at some point, for example, many online purchases require a credit card. So since at least one credit card is needed for these situations (when I use it for these purchases I pay it off instantly), you might as well get a rewards card rather than a plain jane card. On the other hand, the advantage to getting a plain jane credit card is that you never be tempted again to use a credit card for the rewards.