How to Use The Apple Credit Card To Build Wealth

The Apple Credit Card launched earlier this month. As with most things Apple, I was an early adopter. I’ve been using the card for over a week now, and I must say, it lives up to the hype.

To be perfectly honest, it’s not THE best cash back credit card. It is, however, very good. And it offers some features that no other card can match. We’ll get to those in a minute. First, let’s consider what might seem like a ridiculous question.

Can a cash back credit card like Apple’s new card help you build wealth and speed up your time to retirement?

Credit cards and building wealth

Retirement, whether early, on time, or even late, is a tall order for many. Saving hundreds of thousands or even millions of dollars can feel like an impossible task, regardless of how much time you have. And it gets worse. Our mind plays tricks on us when it comes to building wealth.

First, we convince ourselves that small amounts of money don’t matter. What good is saving a few bucks a day when retirement requires a million dollars or more? Second, we convince ourselves that saving real money requires sacrifice. Both of these are lies. In truth, even small changes in our daily habits can go a long way to building wealth without sacrifice.

It’s one of the reasons I just published the book, Retire Before Mom and Dad. While the book isn’t about credit cards, per se, it does talk about how small changes in our daily habits can help propel us toward financial independence.

Let me show you how.

Let’s imagine an individual or family who spends $5,000 a month. Now let’s introduce a cash back credit card into the mix. Let’s assume they can charge half of their monthly expenses to the card, or $2,500. The best cash back cards pay at least 2% on every purchase (the Apple card pays 2% on purchases using Apple Pay). These rewards would generate $50 a month, hardly enough to get excited about, right?

Investing this seemingly small amount of money, however, has surprising results. If we assume an after-inflation return consistent with historical averages, $50 a month invested during our working years turns into more than $150,000 at retirement.

Keep in mind that this is just from credit card rewards. We haven’t factored in retirement savings, company 401(k) matches, or penny-pinching.

Level Up

Some of the best cash back cards pay more than 2% on certain purchases. The Capital One Savor card, for example, pays 4% on dining and entertainment. The Blue Cash Preferred by American Express pays 6% cash back at grocery stores (with a $6,000 annual spending cap). The Citi Costco card pays 4% cash back on gas ($7,000 annual spending cap). And the Amazon Prime Rewards Visa pays 5% cash back on purchases from Amazon and Whole Foods.

So with a little work, let’s imagine we can boost our cash back rewards from 2% to 2.5%. That generates $75 a month instead of $50. And in turn, that increases our nest egg from $150,000 to over $225,000. And if we can stretch the rewards to an average of 3%, or $100 a month, we grow our wealth by more than $300,000.

Credit cards and FIRE (financial independence, retire early)

In Retire Before Mom and Dad, we spend some time looking at the math behind retirement, including early retirement. What I’ve found is that for those just starting out, early retirement in your 50’s becomes a reality when your saving rate reaches at least 20% of income. Getting your saving rate to 30% enables early retirement in your 40s.

Of course, all of this depends on actual market returns and inflation. What the future holds nobody knows (although it seems everybody has an opinion on it). What is clear is that credit card rewards, if invested, can shave a year or two off your time to retirement. For those looking at 40 or more years to retirement, a year or two difference may offer little comfort. Of course, we are considering only credit card rewards.

Apple Credit Card App

So far, we haven’t considered cutting back to increase savings. This is one area where the Apple Credit Card stands out. Having used the card and the app, I can say that the money management features are excellent.

The app shows you your most recent transactions in an elegant way. Each transaction includes the amount, retailer, and even the physical location of the establishment. And perhaps most important to our discussion, it reflects your cash back rewards. Because I use the card only where Apple Pay is accepted, the transactions reflect a 2% reward rate.

Beyond transaction level details, the app also organizes your purchases by category. I can see, for example, that I’ve spent $84.98 on entertainment in the month of August. (Clearly, I need a more exciting life.) The app then enables you to drill down on each category to see the underlying transactions. In my case, some of those transactions were for Apple services, which netted me 3% cash back.

The app provides guidance on paying your credit card bill. It makes paying the bill as easy as a couple of taps on your phone. The app also makes it easy to see how much you need to pay to avoid interest charges. It’s as consumer-friendly a credit card as I’ve seen.

Chasing credit card rewards isn’t for everybody. For those who do not pay off their cards in full each month, interest charges can erase the benefit of cash back and other rewards. For those who do pay their balances in full, however, the cash back rewards can generate significant retirement savings if invested wisely.

The wealth cash back rewards can generate offers an important lesson. Relatively small amounts of money, saved and invested over time, turn into a pile of cash.