Find Extra Cash by Rotating Your Credit Cards
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I once took an accounting course taught by the owner of a retail toy store. It was a challenging course, but I have to say, it did impart some pearls of financial wisdom that I still remember and try to apply when managing my own finances. One was, "A dollar in your pocket today is worth more than a dollar a year from now." This was his favorite — and for good reason. A toy store lives or dies based on how effectively its cash flow is managed because over 50% of annual sales often occur during a two-month holiday shopping season. So it has to survive the other 10 months of the year on a cash flow diet.
The idea seems obvious. After all, a dollar in hand today could be deposited into a savings account or invested. The main point, though, is that having the dollar now gives you greater control.
Maximizing Cash Flow
The concept applies to receiving payments from others (accounts receivable, in accounting speak) as soon as possible and also to postponing payments to others (accounts payable) as long as possible. Basically, you're trying to hang onto your cash for as long as you can, and then use that cash to improve your financial situation.
Time Your Credit Card Billing Periods to Find More Cash
Here's an example of how to stretch your credit card accounts payable by at least a month and as much as a month and a half, without incurring a late payment penalty. This will require having and using two credit cards.
Most credit card companies allow you to pick the end date of the billing cycle, so be sure your card company gives you that choice for each card. Now simply pick an end date of the 15th of the month for credit card #1 and the 30th of the month for card #2.
Card #1
Use card #1 only for purchases between the 16th and 30th of every month. The credit card company will close off the billing cycle for card #1 on the 15th of the following month, at which time they will issue you a bill, but give you another two weeks or so to pay it. Voila! You have 30–45 days of "float," or extra time to pay.
Card #2
For card #2, pick the 30th of the month as the end date of its billing cycle. Then after the 30th and before the 15th of the next month, use only card #2. By doing so, you will stretch out the float period for all of your credit card purchases to at least one month, and as much as a month and a half.
I admit, this can be a lot to remember, so to make it easier I just write "Use 16th-30th" on the back of card #1, and "Use 30th-15th" on card #2.
It should go without saying that you benefit from this system only if you pay your card balances in full when they are due — otherwise interest will set you back much more than anything gained.
Here's What You Gain
Alright, so you now have 30–45 days of float at your disposal. That's enough time to receive an extra paycheck or two. How will you put this freed up cash flow to good use? You could keep the money in your checking account. But would that help you get ahead? Unlikely.
Alternatively, you could use it in a way that provides some return. That's probably what a good toy store owner would do. For example, it might allow you to make an extra principal-only payment on a loan, such as a car loan or your mortgage. Or maybe make an additional retirement account contribution (a good example of the "pay yourself first" principle).
Granted, this is a one-time cash flow bonus, and the benefit might seem small. Don't be fooled. Eliminating even a single monthly mortgage payment or trimming your balance on a car loan is meaningful progress toward your financial goals. But what’s really important is that this system reinforces a mindset — a mindset in which you’re always thinking of ways to stretch out or delay expenditures to free up cash. That cash can be put to use in positive ways that get you ahead. Over time, with each success you will gain a little more control. That's what it's all about — taking greater control of your finances, until you reach financial independence. Then you'll have complete control.
What tips do you have to stretch out your cash? How do you use that freed-up cash?
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I've been doing this for years. It's especially useful when you need to purchase a big-ticket item, such as a large home appliance.
Do your research, then, on the day after the billing date, go purchase your item. Double-bonus if the card you use is giving extra cash back for that category of purchase.
I recently purchased furniture, the day after the billing date, on a new card that also offered $200 bonus for spending a certain amount in the first three months you have the card. So I had nearly two months to pay, plus I got that bonus.