A few weeks ago Mohsin wrote an article on how to get Netflix for £2, and, as the adulation has come pouring in, I thought I’d get in on the act too.
So here’s a top tip on how to add £200-500 onto your monthly pay with one simple credit card hack. Check out here for a recent discussion on whether credit cards are haram or halal.
Disclaimer: this only works if you work in a job that pays expenses. But the principals are more widely applicable to many household incomes.
Cash flow is the key
The key lies in understanding cash flow. Every month you’ll have your income come in on a certain day and various expenses going out at intervals until the next pay-day. Now if you use credit cards regularly (more on their sharia-compliance below) then you can effectively borrow interest-free every month as long as you clear your debts in full. It’s helpful to have an interest-free source of credit to smooth over spending on certain month when you would otherwise end up in overdraft.
But there’s also an additional benefit.
For jobs that pay expenses, you can actually increase your available cash using a clever hack. Just pay for your expense (e.g. £100 fuel) using credit card. You will get the cashback or points associated with the card (50p/£1). Additionally your company will then reimburse you that money within a week or so (this is the other assumption I am making).
What that means is, you get £100 in your bank account but only have to pay the credit card bill in a months’ time. Don’t get me wrong – that is money you will have to pay back of course, but the point is that if, every month you get paid back your expenses (up to ~£400 in certain professions) before you have to pay for the credit card, you have in effect increased your available cash at that point. Let me illustrate:
On any given day you have the following available spending resources:
- your salary (or what is left of it): e.g. £1000
- your credit card allowance: £2000
What happens when you get your expense of £400 back is this:
- your salary (or what is left of it)+expense payment: £1400
- your credit card allowance: £1600
That nets out over the course of a month of course when you pay the £400 back, as I mentioned above. But what it also means is that at any given point you have more cash in your account than you otherwise would. If you had paid by cash you’d only have £1000 in the account again after the reimbursement, whereas now you have £1400.
This is great because it means you’re less likely to go into overdraft, can even potentially invest that money into halal short term investments (e.g. Al Rayan’s savings account) and make a bit of extra cash. Then on top of that you get the cashback you wouldn’t otherwise have got if you had paid your expense in just cash.
But here’s the really important bit. If you always pay your expenses by credit card, and get paid the expense quickly every month, you have effectively created £400 extra cash liquidity for yourself on most days of the month. Remember, by the time you pay back the £400 to the credit card company, you may well have £400 more come in from another expense – so this £400 extra becomes a rolling thing.
Ultimately this month-to-month respite will come to an end – when you retire or leave your job – but until then make hay while the sun shines – and take advantage of all the cashback and short-term investment gains available!