11 Sept 2021

Using credit card rewards to increase emergency corpus

I am scared of inflation. Not just ‘aware’ of inflation and plan with inflation in mind. I am really scared of purchasing power eroding due to inflation. This fear influences all my financial plans.

I have set aside some liquid investment as my emergency fund, to manage unexpected expenses. Because I am always afraid of inflation, I have set a goal of increasing the emergency corpus by 10% every year. While having a growing corpus is reassuring, it’s not easy to add to your corpus every year. I don’t have a plan for how to fund this increase.

I got an idea last week. I use cash back credit cards that give me some cash regularly. The reward shows up as credit on the card statement, but it’s cash nonetheless. From this month on, I am going to move that money into my emergency corpus. That will not be sufficient for the target increase of 10%, but every little bit helps.

In a way, credit card cash rewards encourage spending. The more we spend, the larger the size of the rewards are. Credit cards give me free money every month. I’ll consciously moving this free money over to my emergency corpus. I somehow feel like this is a better habit than unconsciously spending the cash back rewards.

No comments:

Post a Comment