Personal finance is one big optimization problem that I’m constantly running through my head in order to think up new tricks that can save or earn me more money. This is what I refer to as the “Money Metagame” which inspired the name of this blog. How much I spend is one of the components I have the most control over and there’s two ways I see to improve that part at any given time. First, I can cut out unnecessary expenses to eliminate some spending completely. This can be done by identifying wasteful spending or looking at alternatives, but those kinds of decisions are extremely personal and will vary pretty heavily from person to person. Secondly, I can just find ways to reduce the amount I spend on the exact same products and services I already use. If you can find these opportunities, it’s a no-brainer to take advantage of them most of the time because you don’t have to change your lifestyle in any way. Groceries is one spending category where there is a lot of room for optimization (via both ways mentioned above) and that’s how I’m tying all this together. We recently picked up an Amex Blue Cash Preferred to take advantage of the 6% back on grocery purchases, but have to use a small trick to make it actually work with our regular grocery spending. Read on to find out why the regular method of getting 6% back doesn’t work for us and what trick we use to actually get MORE than 6% back.
Our Grocery Spending Pattern
The best way to optimize your finances in my opinion is to work backwards. First, figure out where all of your money is currently going and then come up with ways to improve it, NOT the other way around. Trying to create a budget for yourself without taking a look at where you’re currently spending money is a sure-fire way to make a impossible budget to follow.
For most people, groceries is one of those line items you certainly can’t get rid of completely and it probably makes up a good percentage of your monthly spending. For us, we determined that we spend hundreds of dollars on groceries per month and more specifically split that spending pretty evenly between Fred Meyer (a Kroger brand) and Target.
Once we determined where our grocery spending was going, it was easy to come up with a few ways to improve it. First, we now do all of our Target spending through Target gift cards that I obtained for 10-20% off of face value online. That’s an easy $30+ we save each and every month without changing any of the products we buy or where we buy them.
For our Fred Meyer spending though, it’s not quite as easy.
Optimizing Grocery Spending with Credit Cards
For optimizing Fred Meyer spending, it’s not as easy as simply going online to buy discount gift cards because they simply aren’t available for the same kind of discount that Target is. At any given time, you might be able to save 2-3% on the gift cards, but that’s not as good as the ~5% you can get from grocery categories with various credit cards. We took advantage of the 5% back on groceries in the first quarter of the year via the Chase Freedom, but then decided to get another credit card to extend that kind of bonus year round.
Our strategy when applying for credit cards involves two different goals, earn huge travel rewards and help us save money on everyday expenses. This application fit into the second category and our choice was between the Sallie Mae Mastercard which gives 5% cash back on up to $250 in grocery spending per month with a $25 signup bonus and the Amex Blue Cash Preferred (BCP) which gives 6% cash back on up to $6,000 in grocery spending per year with a signup bonus of $150. (I did a write-up of Sallie Mae card here: The Sallie Mae Mastercard: The Best Everyday Spending Card You’ve Never Heard Of)
The BCP does have an annual fee of $75 (the Sallie Mae has no annual fee), but we decided to take advantage of the larger signup bonus plus higher spending cap and apply for it anyway. The annual fee is cancelled out by the signup bonus in the first year (+$75 profit), but if we decide to keep it for an additional year, the effective return on groceries drops to 4.75% if we’re using the card only for grocery spending.
Anyway, should be simple right? We just use the BCP for all of our Fred Meyer purchases and we’re now saving 6% on everything. Unfortunately, it turned out not to be that simple…
Why We Had to Get Creative
While Fred Meyer was categorized as a grocery store in the VISA card system and worked for our Chase Freedom in the first quarter, it is NOT categorized as a grocery store on the Amex network. Much like Target and Walmart, our specific store falls into the “Merchandise & Supplies – Wholesale Stores” category which does NOT work for the 6% back on grocery stores bonus. At first, I thought we had reached a dead end and I would have to simply maximize the 6% bonus for other activities (gift card reselling, MS, etc.) and probably just cancel it at the end of the year.
Luckily, an idea popped in my head a few weeks later that would allow me to still get the 6% back at the exact same Fred Meyer store if I just added one more step to the process. As Fred Meyer is a Kroger brand along with several other stores such as QFC, their gift cards work interchangeably across any of the stores. Assuming the local QFC stores (much smaller than the Fred Meyer if that has anything to do with it) count at a grocery store in Amex’s network, I can simply buy Kroger gift cards there at face value, get the 6% back, and then use the Kroger gift cards at the Fred Meyer we prefer to shop at.
I decided to try it out by making a small gift card purchase at QFC with the Blue Cash Preferred card to see what it would code as and used the gift card at Fred Meyer to make sure there wasn’t anything I was missing. Sure enough, the QFC purchase coded as a grocery store and rewarded the full 6% back and I had no problem using the purchased gift card at Fred Meyer. Success!
It Gets Even Better
Not only does the QFC purchased gift card work at Fred Meyer, it also earns the regular Fred Meyer rewards just like paying any other way would! That means in addition to the 6% rewards I get from the BCP credit card, I also get 1% back from Fred Meyer directly, AND earn fuel points towards gas at the same time. I actually wasn’t sure if the 1% back would still be valid when using gift cards, but was pleasantly surprised when the receipt showed that it worked. Now we’re saving a minimum of 7% on ALL of our grocery purchases and it doesn’t require much extra work on our part.
We constantly have a supply of Target gift cards that I purchase online and we now stop at QFC once every couple months to get a $500 gift card that we slowly drain with regular purchases at Fred Meyer.
Gift cards aren’t just for reselling, they can often be leveraged to significantly reduce the cost of your everyday spending.
How have your optimized your return on everyday grocery spending?