Back after a week of, I dunno, slacking, it’s Eddie.
I believe this will be PF groupthink assassination post number 3. This post will be a departure from the conventional wisdom in the PF community. This is not meant to be explicitly antagonistic, but I do not apologize for it if it is.
The community of the PF realm is indulged with endless posts about how to choose the right credit card. While I do have respect for a detailed analysis of an issue in general, examining your spending habits to the penny and the fine print of every card is akin to counting the number of grains of sand on a beach — a waste of time. Hyperbole aside, the principle is still valid.
From the cursory research I have done on the subject, a significant amount of PF bloggers advocate getting a no-fee credit card with a cashback feature. I infer that the rationale behind this approach is to avoid the fixed cost of an annual fee while sacrificing the additional incremental benefits of a card that provides a higher percentage of cashback rewards (2% with an annual fee vice 1% without an annual fee) or other more restrictive forms of rewards, such as those for travel. The security of avoiding the annual fee trumps any benefits that accrue from a higher rate of earnings. However, avoiding a certain but small fee is not worth sacrificing a probable but relatively much larger benefit. This is unnecessary risk-aversion.
The rule of thumb is this: $500 of monthly spending at 1% cashback is equal to an annual fee of $120.
Choosing a credit card should be almost intuitive and should not take more than 30 minutes. If it does, then you are overanalyzing the situation and not taking opportunity cost into account. To butcher my point using today’s social or business vernacular, this is one area of PF where you need to practice “satisficing” (and I need a figurative bar of soap). All you need to know is an approximate amount of how much you spend each month on your credit card. If you spend over $500 a month, a $100 annual fee is worth paying to get an additional percent on cashback. Even my rule of thumb calculation borders on overanalyzation.
You have much better things to do with your time than troll every major bank’s credit card benefits and read blog posts such as this one. (Ed. note: Uhhh…) Since changing banks for things like chequing account fees and credit cards is a horrendous waste of time because of the similarity in products, go to your bank’s website or suitable alternative and pick the best one credit card there. A credit card is not worth changing your bank. Choose a decent one and move on.
Here are some better things to do from a financial perspective:
- Read relevant and thought provoking books, such as The Art of Thinking Clearly, The Black Swan, or The E-Myth Revisited. Skip redundant books about index investing and budgeting (unless you’re a complete train wreck. In that case, re-take a high school lifeskills class)
- Increase your human capital – take a correspondence course or night class, have a discussion with a professional in a subject in which you would like to increase your knowledge, etc.
- Research your company’s industry or the functioning of your department – this proves to your employer that you don’t “mail it in” and may be worthy of more responsibilities, additional skills development, and a raise or promotion
- Understand yourself better to leverage your talents. An excellent resource is How Will You Measure Your Life?. What Color is Your Parachute is more practical, or you could check out any of the books on this fine list.
- Research an entrepreneurial opportunity or another cash flow source. For an adult, this does not include working a part-time job at a fast food joint to bump up your income or making things for the craft fair (unless that bestows therapeutic benefits, then it’s a leisure activity or hobby)
- Develop soft skills, such as negotiation and conflict resolution
- Research successful and morally upstanding individuals from history or speak with a senior citizen to learn from their life experience
People often complain that they do not have enough time to do what’s listed above. I vehemently disagree. They have plenty of time; they just waste it on researching credit cards and analyzing $2.00 bank fees. And going on any form of social media, but I digress.