Gift Cards: Your Secret to Early Retirement

There’s a wealth of ideas in the early retirement blogging community to accelerate the onset of financial independence. Usually, each blogger has a set of core ideas that he or she pushes at most aggressively–either because of their resident expertise or particular passion. For instance:

Mr. Money Mustache is a huge fan of bikes

FI Fighter stresses the importance of rental income

Jason at Dividend Mantra is king of Dividend Growth Investing, he even wrote a book on it

Paula at Afford Anything seems to have a knack for AirBnB

Justin at Root of Good loves to avoid taxes

That isn’t to say these blogs don’t talk about a lot of other things–they do, they’re all awesome–it’s just that every blogger seems to find an untapped or underserved idea that deserves more spotlight.

I’d like to believe I do this as well. I’ve hopefully set a decent stage for dividend growth investing, defined the concept of passive expense optimization, and finally (in today’s post) the use of gift cards.

Gift Cards–No Longer Just For Your Kitchen Drawer

Most of us have a love/hate relationship with gift cards. We love buying them as gifts for departing coworkers and expectant mothers, and we hate receiving them.

In 2014, 80% of holiday shoppers bought at least one gift card, for a total outlay of some $118 Billion. More staggering, though, is the redemption rate. CardHub estimates that some $44 Billion of gift cards across America are clogging up center consoles and wedged in back pockets of winter khakis. That amounts to $150 in unused cards for every man, woman, and infant baby in the U.S. of A.

Somewhere between the childhood obesity epidemic and our collective obsession with Bruce Jenner’s gender status is our problem of gift carding. If you ask me, I’d rather have the cash. But despite these pleas, gift cards will likely continue to be a last-minute, thoughtless gift for wives and graduates that screams “I Bought This For You At The Gas Station On My Way Over Here”.

Rather than fight the trend, let’s instead find a way to capitalize on this God-forsaken economy. If you can’t beat ’em, join ’em!

First off, let’s first get one thing straight. There’s no better gift card than the old “100% Off” gift card of foregoing the purchase altogether. That’s valid, however, in life, some expenses are unavoidable. Also, some expenses you want to have. Yes, there are good expenses.

Such as:

• Home Depot/Lowes expenses for doing your own home maintenance and repair
• Reasonable travel expenses to see the world
• Grocery expenses in lieu of dining out
• Autozone or Advanced Auto Parts for doing your own vehicle maintenance
• Home Depot/Lowes (again) for energy efficientizing your residence
• …and much more!

You can’t avoid all expenses. Even when I get down to my own brass tacks retirement budget, I’ll still be somewhere between $1.5-2k in non-housing expenses. My ability to cut this number down even farther, without cutting out toilet paper altogether, is going to be dependent on some creativity.

Enter: Gift Cards

Say you’re at the Home Depot. Why? Because, you can do it, and they can help. You’ve clipped the coupons. You’ve budgeted and planned to perfection. You’ve even got an eBay coupon for 10% off your purchase. From what you can tell, your cart of $300 in merchandise is essential to whatever project you’re about to undertake. Time to pull out the credit card and pay $300, then? Heck no, ya loser! Bust out that $300 gift card you got at Cardpool for $274.50 and walk outta there $25.50 richer than you would’ve been.

After Home Depot, you drive to Wal-Mart to do your weekly grocery shopping. You cook all your meals at home, of course, and you’ve already made sure you buy a lot of store brands and enough bananas to clog the Hoover Dam. You look as frugal as you are, and your cart is chockablock with only the essentials. You check out and the cheerful Wal-Mart cashier says, “That will be $100 even, Sir. How will you be paying on this fine evening?”

Your old self would meekly hand her your credit card like a true sucka….no longer. With the suave coolness of Teddy Pendergrass, you flick a gift card you got from Raise at the cashier, “Put it on the gift card, baby” just as Cutie Pie starts playing over the loudspeaker and you slide effortlessly from the store. A trio of employees in your tow haul your $100 in groceries, which of course only cost $97 in gift cards.

Is this all a dream? Is this heaven? No, it’s gift cards.

Now That’s Some Real Savings

So, how do you hack the gift card game? It’s really just a few easy steps:

1. Determine where you expect you’ll be making purchases over the next month or two. For me, that’s usually Drug Stores/Pharmacies, Grocery Stores, Home Improvement Stores, maybe some Arts & Crafts stores, and usually one or two of our favorite restaurants (Bahama Breeze or Carrabba’s).

2. Go to Raise.com or Cardpool.com and buy a gift card for those merchants. (Want an extra 2% savings? Start at TopCashback and navigate from there to those same sites).

3. Shop as if you were paying in cash. Seek out deals, special offers, coupons, and whatever else, except you’ll swipe the gift card at checkout rather than your credit card. Instant Savings!

Now, the rate of savings that you’ll see at gift card resellers varies by the type of merchant.

• Grocery Stores (Wal-Mart, Target, Whole Foods): 2-4%
• Sit-Down Restaurants: 10-20%
• Fast-Food Restaurants: 5-15%
• Home Improvement Centers: 5-10%
• Arts/Crafts Stores: 15-25%

As you can start to see, the rate of savings is similar to the rate of retailer markup. You won’t get a 20% discount on gift cards to low margin businesses like grocers, but such a discount is easy at specialty retailers.

The savings adds up, too. If, monthly, I spend $500 on groceries (3% discount), $150 on dining ($15% discount),  and $100 on home improvement (8% discount), that’s $45/month in savings, or $540/year–for doing literally nothing other than having the foresight to buy some gift cards. If you think about the “retirement formula” of needing 25x your yearly expenses in a nestegg, the use of giftcards means that I’ll need $13.5k less in my nestegg due to my reduced expenses. Although, it’s probably a lot more significant that just this, see below.

Some important notes:

• Don’t buy a gift card to generate spending. If you weren’t planning on going to Crate & Barrel, don’t go simply to buy and use a gift card. You’re usually better off not spending the money in the first place.
• Understand that these gift card resellers can take a week or so to send the card to you. Planning is essential.
• You won’t find gift cards for every retailer. I sure wish my utility company (or Wells Fargo mortgages) offered gift cards, but they don’t.
• Remember that you’ll still earn reward points on your credit card purchase at these gift reseller websites. This is a great way to “manufacture” spending for credit card bonuses and rewards.
• Lastly, the use of gift cards can be greatly expanded on big, one-off purchases. I saved over $300 on our cruise this month by buying gift cards on eBay. I saved almost $400 on our living room set from Macy’s. If you ever come upon a large, one-time purchase, expand your gift card search beyond the three sites above, and check out eBay and Craigslist.

I know we’re not talking about big bucks here. A couple $20 bills per month might seem meaningless, but it adds up. And if you consider that buying a gift card that saves you $20 takes about 1 minute (let’s see, 20 times 60, carry the one…)–well, that’s a pretty decent hourly rate of work.

Just an idea, until next time

Eric