I've Got a Lump

Recently there have been about 4 or 5 "patients" presenting with a similar complaint - they had a large lumpy spend on the way and they wanted to know what if anything should be done about it. Just like medicine, while there might be a good first line intervention for the average person, the optimal "treatment plan" needs to be selected based on their individual situation and their priorities.

In this article I'll be going over an approach to the lumpy spend "problem" and then in the next article we will apply it to a couple of cases. Disclaimers and referral links at the bottom, as always if you want personalized advice, reach out for a consult.

Why Do We Care About Lumps?

Large lump sum expenses aren't the most fun from a budgeting and cashflow perspective, but many people realize that these have the opportunity to be used to unlock significant travel or cash back rewards if performed properly. Typically the approach is to direct these large expenses towards the largest multipliers and sign up bonuses. Unfortunately for the inexperienced it can feel overwhelming to canvas the dozens of available cards with different bonuses, fees, conditions, and benefits. Ultimately they may decide to just use one of the cards they already have, but they could be leaving significant money on the table.

So how do we sort out the best "treatment" for the lump?

Characterize the Spend

Similar to taking a history of presenting illness, we need to consider factors related to this spend.

How large is the spend? The larger it is, particularly as a function of your typical spending, the greater of an opportunity it presents and the more you could be willing to employ an more complex strategy to maximize it. Further, if its large, can it be divided into separate amounts allowing it to be spread across multiple cards/accounts. If it is smaller or recurring, a simpler strategy could make a lot more sense.

What currency is it in? Any non Canadian expense adds the consideration of foreign exchange and whether or not a no forex card makes sense. But USD expenses specifically add another consideration as Canadians have the ability to obtain US credit credit cards with moderate effort, consult me to find out more. We also have the Rogers World Elite Mastercard to consider which notably earns a higher rewards rate on USD expenses.

In addition to the drag that forex fees may create, we need to consider if there any associated transaction fees. This could look like a contractor that will take a credit card for payment but charges 2/2.5/3%, or perhaps a large tax bill that we could pay using Paysimply or Chexy for example.

What is the purchase? Is it a durable good or travel that may benefit from credit card insurances such as a new TV or computer? Would it be part of an enhanced earning category? This could be the increased spending associated with a trip which could have food, hotels, car rentals, and flights for example.

Consider the "Patient"

We also must consider all of the pertinent information about your personal context as it influences what options are available to us.

What are your current cards and do any of them have an as of yet unmet minimum spend? What cards have you already received a sign up bonus for (SUB), or have blocked as a result of family rules? An example of family rules, if you have previously received the Amex Personal Platinum SUB you can no longer receive the Amex Personal Gold SUB, but you can receive the business gold or business platinum SUBs. Similarly if you've already received the TD AP VIP you aren't eligible for other Personal Premium Aeroplan sign up bonuses like the CIBC AP VIP or the Amex Personal AP Reserve. Also, consider your spouse and what cards they may have access to as this opens the possibility of getting the same bonus twice for the household.

What are your treatment goals? Are there specific rewards points you do or don't value? Are you looking for the simplest approach (a single card for the whole lump), the most aggressive approach (multiple optimally selected cards), or a middle ground (typically 1 card just for its SUB and another for the rest). It may seem intuitive to some to create an objective function that considers all the costs and benefits in a cash value and to maximize them no matter what... But sometimes the marginal utility of such a complex treatment regime is not worth it for the miniscule improvement in outcome.

Evaluate the Treatment

Finally we evaluate the cards themselves, what are their bonuses and spend requirements and how can we piece those together to comfortably cover the lump sum in question.

Is there a card who's minimum spend requirement would otherwise be unobtainable for you? This could be your opportunity to pick it up without risking missing the SUB or feeling forced to manufacture additional spending.

Are there any cards you were considering getting anyways and potentially holding long term as Keeper Cards?

Do any cards provide special perks that you value and could take advantage of, even if just for a year before dropping them, such as the Amex Platinum's lounge access? Conversely, are there any who's perks would be "wasted" on you? For example you may feel that there is limited benefit to having both an Amex Platinum and an Amex Business Platinum at the same time, particularly if you have no family members to share the lounge access with.

What annual fee is associated with the card and is there a first year or ongoing rebate/exemption? A number of the big Canadian banks do this for certain account types and professionals so it is worth considering, and as of writing the TD AP VI has a first year fee waiver to all applicants.

Finally, what is the benchmark against which you are measuring the success of your strategy? What would you do if you didn't make any change? You need this to help determine if the magnitude of the optimization is worth it.

Conclusion

In the next article we will go over a couple of real world case studies from people I have recently helped with this issue. This will help demonstrate the range of options to consider when tailoring an individual plan, showing that in some cases a card with an exchange fee may be the optimal choice even for a foreign currency purchase, or that accepting a smaller amount of rewards could be worth it to secure key card perks. At risk of spoiling too much, many of these optimizations lead to savings/earnings in the $500-$2000 range with a simple or hybrid style approach.

For someone not interested in the bespoke approach, my current first line treatment recommendation is the TD AP VI with its first year fee waiver to all applicants provided you have not yet held a similar personal core tier Aeroplan card. Otherwise check out my Sub Hunting article for the highest effective earn rates.

For very large lump sums often a one card approach of a Business Platinum (reach out to discuss the best offers). For large foreign currency expenses with no transaction fee, I would often select the no forex Scotia Passport VI for the remainder of the cost. If it was in Canadian dollars but did have a transaction fee of up to 2% or less (higher if a business expense) then I would select one of the cards outlined in my tax payment article for their high effective earn rates on uncategorized spend. If there was both forex and transaction fees (or very high transaction fees) you are likely best served unlocking as many SUBs as you are planning to, then covering the rest in cash as the ongoing earn rates above the SUBs will fall behind the combined drag. Note that sometimes Chexy can bypass a vendors transaction fee by allowing you to pay them via etransfer for Chexy's fee of 1.75%.

Referrals

Lump sum's can be particularly complex to optimize with constantly changing offers and multi card strategies to consider. Reach out for a free chat about how to proceed.

To see the access the best public offers for different Amex card such as the Business Gold, or Platinum click here. If you're a business owner considering your first business card, we would be happy to hop on a call to help you sort out the best card for you as there are more options to consider.

You're going to need somewhere to stay after all of these free flights. The Amex Bonvoy or the Business Bonvoy card will earn you free hotel stays and can be combined with the Aeroplan eStore for some incredible double dipped rewards.

If you're on the fence, or wondering about other cards reach out to me for a free consult, and if you sign up for a card through my link, let me know and I will walk you through advanced tricks and personalized advice to help you get the maximum benefit both from earning and redeeming points - getting your travel journey going faster than you ever thought possible.

Disclaimers

This should not be taken as financial advice and details are subject to change. I have made good intentioned efforts to be accurate but ultimately consult card terms and conditions