How to handle cashback bonuses? Invest for FIRE or spend it?

[sizzlinkola]

I'm a CC churner and want to apply for a CC to get a $400 cashback bonus. I'm having a dilemma on how to treat this $400.

I'm planning to make a large purchase for a hobby of mine: crash pads for bouldering. At the same time, I want to maximize my Roth IRA or reduce my debt. Thus, I'm conflicted on the different options on how I could use this money:

• 2 pads for $310 (superior quality, long life). Invest leftover $90 into Roth.

• 1 $150 pad (average quality, short-medium life). Invest leftover $250 into Roth.

• Invest entire $400 into Roth. Buy either pad option with take-home pay.

If I didn't have the $400 bonus, I would feel bad about buying the $310 pads and may opt for the $150 pad instead (or 1 superior quality pad rather than 2). Thus, having the $400 bonus makes me feel less guilty to splurge.

My finances: Have a 6 mo EF. I maximize my 401(k), HSA and working on my Roth. I'm confident I'd be able to maximize my Roth without any cashback bonus. I have a student loan of $16k @ 3.4-3.8% and a auto loan $12k @ 2.2%.

 

[njhowie]

Your $400 bonus is really about $320 due to fed/state taxes on it.

 

[kaneohe]

Your $400 bonus is really about $320 due to fed/state taxes on it.

no tax on cc rewards.....considered a rebate lowering cost, not taxable inc.

 

[gerntz]

I don't understand the guilt thing of spending on a favorite ongoing activity.

 

[Chuckanut]

Money is fungible.

It doesn't matter.

 

[walkinwood]

Money is fungible.

It doesn't matter.

+1 Important concept to internalize.

 

[easysurfer]

I'm a bit of a cashback bonus hoarder. Letting the balances idle instead of spending.

 

[RunningBum]

I'm a bit of a cashback bonus hoarder. Letting the balances idle instead of spending.

Is that supposed to be advice, or a confession?

 

[OldShooter]

Money is fungible.

It doesn't matter.

+2

This is an example of what Richard Thaler calls "mental accounting." https://en.wikipedia.org/wiki/Mental_accounting We all do it to one degree or another, but your angst seems a bit excessive. There is no difference between the rebate and your take home pay.

Regarding retirement saving here is a quick multiple choice test that may help:

You are 75 years old, in good health, and reviewing your investments. Would you rather
(a) find that you are running out of money.
(b) find that you may have saved a little more than you need.
​

 

[Walt34]

Ditto on the "mental accounting".

However, before I ever heard the term when I came into a windfall, usually from working a holiday (overtime pay) or similar I'd split the difference and half went to whatever we wanted to splurge on and half went to savings.

 

[bingybear]

Money is fungible.

It doesn't matter.

what would you do if the money came from some other place? Extra earning?

 

[easysurfer]

Is that supposed to be advice, or a confession?

Confession. I treat cash back bonuses like saving gift cards for something worthy of a splurge.

 

[daylatedollarshort]

Personally, I have an annual budget that includes a hobby category and is more than I usually spend. I save the CC rewards or put the points towards expenses already in the budget, like Home Depot gift cards for home maintenance items or use the points for travel, but travel already in the budget, not anything unplanned. Having an annual budget by category for me means less decisions during the year. If I'm not over-budget, then I can spend what I want.

 

[athena53]

Mine go straight to the travel budget.

 

[pjigar]

Two words: mental accounting

 

[splitwdw]

How long have you been bouldering? You are probably going with other people, safety, right? No one else in the group has a crash pad? My buddy goes with several other people and they all chipped in for the crash pads. Use some to chip in on the "group" crash pad and use the rest on student loan.

 

[mrfeh]

• Invest entire $400 into Roth. Buy either pad option with take-home pay.

If I didn't have the $400 bonus, I would feel bad about buying the $310 pads and may opt for the $150 pad instead (or 1 superior quality pad rather than 2). Thus, having the $400 bonus makes me feel less guilty to splurge.

Money is fungible. Saying that the money for the pads is coming out of the CC bonus or income is just mental accounting.

Personally, I've never treated "found" money as something just to be spent.

 

[audreyh1]

Money is fungible. Saying that the money for the pads is coming out of the CC bonus or income is just mental accounting.

Personally, I've never treated "found" money as something just to be spent.

Well I think they just mean it’s extra income so they feel like they can spend it on something they really want.

If I got an unexpected bonus at work or money gift from family I’d certainly consider spending at least part of it on something that I really wanted but had been waiting to buy.

Not working now and I’m the one who gifts to family members. I’m always hoping they’ll spend it on something fun but each has their priorities.

 

[mrfeh]

Well I think they just mean it’s extra income so they feel like they can spend it on something they really want.

If I got an unexpected bonus at work or money gift from family I’d certainly consider spending at least part of it on something that I really wanted but had been waiting to buy.

Not working now and I’m the one who gifts to family members. I’m always hoping they’ll spend it on something fun but each has their priorities.

I don't disagree.

Personally, I treat gifts different from something like CC bonuses. If somebody gives me cash as a gift, I do try to spend it on something I'd like that I wouldn't ordinarily buy for myself.

On the other hand, anything I personally do to generate money (CC bonus, CC cash back, paycheck, bonus) is all considered "income". Anything left after usual life expenses will be saved/invested.

 

[NgineER]

Have a 6 mo EF. I maximize my 401(k), HSA and working on my Roth. I'm confident I'd be able to maximize my Roth without any cashback bonus. I have a student loan of $16k @ 3.4-3.8% and a auto loan $12k @ 2.2%.

Use the 6 month emergency fund to fund the Roth account over the next couple of years, you can always withdraw contributions if you need cash, not idea but at least you have fully funded your Roth account.

Buy a crash pad-have some fun along the way to FIRE, better yet share with others as suggested earlier.

Pay off student and car loan.

 

[Music Lover]

$400 is too little to agonize over and will have no effect on when you can retire.

 

[T-Minus]

For the ten years leading up to my retirement, I used the cashback awards as the start of that years Roth contribution. Now that I’m retired, it goes into my tax allocated budget category. Way back in 1984, I set up a budgeting system (at first, on grid paper, then later in Lotus 1-2-3, now in Excel) that looks amazingly like YNAB. I maintain rigid control over budget categories and treat each individually, making sure that the roll-up matches the total account balance. It’s worked great for us, and has forced us to live within budgetary means in all areas (travel, utility, auto, etc.). Money may be fungible, but a good budgeting system will help you focus your priorities (read:money) appropriately.

 

[mystang52]

It may be mental accounting, but there is a pleasing psychological aspect to dealing with "found money." OP is apparently prudent with his money, saving for retirement and paying down his debts.
The $400 won't substantially affect retirement savings, or the outstanding debt. I have no idea what bouldering is, but it's a hobby. Spend the $400 on that hobby. One has to enjoy life on the way to retirement, and here's a way to spend some money "mentally" guilt-free.