No one likes large unexpected expenses. Recently I had two unexpected car repairs in a single month. One for $2,700 and the other for $500. Not fun. Pulling $3,200 out of thin air can be a problem on short notice.
I could have just taken money out of my emergency fund. I auto-deposit $100 a week into a savings account which has built up to about $3,000 for this type of thing. This felt like more of an inconvenience than an emergency so I put it on one of my credit cards.
Luckily I have good credit. My score is hovering around 730. I have access to about $25,000 in credit limits. The problem is these cards have high rates averaging near 18%. Putting this bill on the credit card means I have a month and change to come up with the money before I start incurring interest. Thus far I have paid all my credit cards in full each month and avoided any interest payments. This keeps my borrowing expenses low.
Instead of paying interest I created a system where my gig job doing deliveries unknowingly extends me an interest free loan. I came up with the idea after reading about how Warren Buffet uses float in his insurance businesses. Float is money that is paid in as premiums on insurance policies and is later paid out for claims. The company can do whatever they want with the money before it needs to pay claims. If they are smart they invest it.
My system is simple. I have a gig job where I deliver food. The company I deliver for has a unique feature where I as the driver pay for all the deliveries with a debit card issued by the company. I submit a picture of the receipt and the customer is charged for the item and a delivery fee.
Sometimes drivers lose their cards. So they added an option to pay with your own card. This feature allows the driver to pay for items themselves however they choose and the company turns around and pays out a cash reimbursement. I exploit this feature to generate cash flow to pay down my credit cards.
I like to think of it like a debt snake that is eating it's own tail. Once my credit card locks in an amount for the month, I can charge more money on that card which will not be locked in until the following month. Then I pay for all my customers purchases up to the amount of the outstanding balance. When the company issues me a cash reimbursement I turn around and pay off my current month's balance.
With this method I can extend the amount of time I can carry a balance indefinitely without paying interest. This does not reduce the balance, just the amount of time I now have to pay off my outstanding balance. As a bonus I get points on my card which I can also use to pay down the balance. Usually around $40 bucks a month so nothing to get excited about but still free money.
Now instead of scrambling to come up with the cash, I can pay off the repairs in a leisurely manner. I slowly shrink my debt snake over time using the income from doing deliveries. Each month I will need to charge a smaller amount of customer items to cover the remaining balance.
This system has a few potential pit falls. The cash flow I earn from deliveries and charging customer items will stop abruptly if my car needs another expensive repair. If my car goes down for an extended period I will be in a pinch. Also my credit score tends to drop when I happen to have a higher credit utilization rate than normal. My company could figure out what I'm doing and prevent me from doing it in the future for some reason. Other than that the whole thing feels pretty slick.
Unexpected expenses are a part of life. Access to credit and some savings cannot prevent bad things from happening but will certainly smooth out the impact. At least financially. There is a lot of freedom in not having to worry about money. By putting a few systems in place you can spend your valuable time on more important things.