How to categorize cash back in a credit card account?

I have a credit card that gives cash back on purchases. How do I categorize this transaction so that it doesn't look like a payment?

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  • Hi Alice Blue Inspector !

    If you're applying those cashback rewards to your credit card balance, you should categorize the transactions as Inflow: To be Budgeted. 

    When you do that, the inflow will only reduce the balance of the credit card. This accurately reflects what happens in your account as well. The credit is applied, and your account balance is reduced.

    Once your account balance is reduced, be sure to double check the Credit Card Payment category for that particular account. You might find that you now have more money than you need in the Payment column. If you find this is the case, you can safely move money from that category to any other category.

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  • That doesn't seem right. Because it is not Inflow, as in, it isn't money to spend. It should just reduce the amount of debt on the credit card. 

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 2 yrs ago
      • 2
      • Reported - view

      Alice Blue Inspector That's exactly what it does. Yet is is money you have to spend, because you then will pay less toward your credit card payment. So what do you do with the extra money in your bank account that is no longer needed for the credit card payment?

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      • bret
      • bret
      • 2 yrs ago
      • Reported - view

      Alice Blue Inspector 

      Perhaps it seems wrong to you because YNAB classifies "Inflow: To Be Budgeted" transactions as "Income" (in the Income v Expense report), and cash-back credits don't feel like "income."  I agree.  They're more like a refund for past purchases.

      For example, if I spend $100 on gas using a 5% rewards card, I'll (eventually) get $5 back from my card issuer. An accurate report should probably reflect that I spent a net total of $95 on gas.  It seems incorrect to say I spent $100 on gas and earned $5 of income.

      If you wanted to do a hyper-accurate accounting of your cash-back credits, you'd probably break them down into a massive split transaction with line-item "Inflow: Gas", "Inflow: Restaurants", etc.  (Cash-back rewards are like a lump-sum refund for all your qualifying purchases in the previous statement period.)  Your reports would be more accurate, but it probably wouldn't be worth the effort.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 2 yrs ago
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      bret I don't think it would be more accurate. The amount of money you spend in a category is based on how much money you spend. The cashback reward is dependent on the method of payment and is a credit toward paying back the amount owed.

      The reality is not that 100 spent with 5 cash reward = 95 spent. Rather the reality is you spent 100 and now you have 5 that you don't have to use paying back the credit card. If you got the cashback as a direct deposit to your bank account instead of as a statement credit, you would see how you have 5 in new money in the bank and still owe 100 to the credit card from money in the bank.

      You didn't magically buy less gas because you got a cashback reward from the credit card company. Accurate reporting tells you how much you actually spend in a particular category.

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      • bret
      • bret
      • 2 yrs ago
      • Reported - view

      nolesrule 

      Disagree, but it's probably just semantics / perspective.

      When I spend with my Amazon Prime rewards card, I often make the mental  calculation: "This $100 product will  only costs $95 after the 5% rewards discount."  And I base my discretionary purchase decision on that $95 cost.  In my mind,  rewards are very similar to mail-in rebates (just a helluva lot more convenient!)

      Maybe my brain is wired differently, but that's how I see it.  I think of rewards as spending offsets, not "income."  I'd prefer the reports to reflect that.  (And it doesn't matter to me whether the reward is a statement credit, direct-deposit to checking, or straight-up cash. This is YNAB - location doesn't matter 🙂)

      But I certainly don't feel strongly enough about it to go through the effort of  categorizing my rewards transactions that way.  
       

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 2 yrs ago
      • Reported - view

      bret The money is gone at the time of purchase. Not at the time of the credit card payment. 😉

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      • bret
      • bret
      • 2 yrs ago
      • 1
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      nolesrule 

      Ouch, touché.

      However, that same reasoning is used to defend the broken reimbursements handling.  (YNAB wants me to temporarily budget for my work travel because "the money is gone at the time of purchase", even though I know I'll be reimbursed shortly.)  You going to defend YNAB on that one, too??? :)

      It's all academic though; I don't actually breakdown my reward credits into dozens of mini-refunds because that'd take too long. And unlike the reimbursement scenario, I do budget for the full (pre-reward) cost of my purchases.  But I can't shake my mental-model of rewards-as-rebates; I just wish they were instant rebates, but that'll never happen.

      Like 1
  • bret said:
    I just wish they were instant rebates, but that'll never happen.

     Target Redcard. 5% off at the register. That's the one time I actually reduce my expenses using the credit card perk. And in this case it's accurate because it also affects the return value of the purchase.

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      • bret
      • bret
      • 2 yrs ago
      • Reported - view

      nolesrule 

      Cool.  I may look into that someday! Not sure the discount would be enough incentive to boost my Target spending past Costco and Amazon (Prime) though. 

      Getting off topic here, but you mention that the Redcard 5% discount "affects the return value." I've never given it much thought or read the fine print, but I assume my Citi rewards do the same thing (in a more roundabout way)?  That is, if I earn and redeem rewards on a purchase, and then many moons later the merchant gives me a refund, wouldn't Citi somehow subtract from my rewards balance?  (Negative rewards?)  Or is this a loophole in the cardholder agreement in my favor?  (Which I seriously doubt...)

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 2 yrs ago
      • Reported - view

      bret Our Target has groceries and is closer than the nearest grocery store, so we are there 2-3 times a week, even if it's just for milk or half and half.

      The interesting thing about the credit card reward and returns is that you can redeem the reward, then make the return, and your "points" or whatever the redeemable currency is go negative. I've had that happen several times because of timing on returns. And then the CC company is floating you an interest free loan until you accumulate enough points to get back into positive.

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      • jenmas
      • jenmas
      • 2 yrs ago
      • Reported - view

      bret Yes and no. The rewards you have right now are reduced by the amount you "over-earned" in the past. Your rewards are calculated at the end of the statement cycle. So say in the cycle that closed on August 21 you earned 3,000 points/miles/etc on $3,000 and you immediately cashed them out for a $30 statement credit. Then in the cycle that ended September 21 you made $5,000 in new purchases but on September 10 you returned $1000 worth of stuff that you bought on August 15, when the September 21 statement closes and they add your points, they aren't going to add 5,000 points to your rewards account, they'll only add 4,000 because that's what your balance was on the day the cycle closed.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 2 yrs ago
      • Reported - view

      jenmas I have a couple cards where the points post almost immediately and can be redeemed at any time, subject to minimum balance. Capital One Venture (2%) and PNC Visa (4% gas, 3% restaurants).

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