Manufactured spending is the holy grail of the points earning world. After all, who wouldn’t want free points in exchange for a little time spent? With a little (sometimes A LOT) of effort, you too could find yourself sitting in First Class enjoying the nice things in life. Despite what others may claim, MS isn’t without its risks and costs. It’s usually not free with real out of pocket and opportunity costs.
It can still be extremely worthwhile…
In this post, I’m going to share with you the best practices I’ve developed after years of manufactured spending and millions of points earned.
- Your credit conversion cycle
- Risk management
- Beware opportunity costs
- Juice your margins
- Payment management
- Scaling up
- Time management
Let’s dive in.
Your credit conversion cycle
I think of every process in travel churning in terms of discrete steps. This allows me to troubleshoot and manage my risk/rewards as applicable.
As you can see from the diagram, I’ve split up MS into four distinct steps.
- Buying a product or service
- Converting it into cash
- Depositing that cash into the bank
- Paying off my credit card
I call this my credit conversion cycle. I measure my credit conversion cycle in terms of how many days it takes to complete steps 1 through 4.
Your goal when MSing is to maximize the velocity of the cycle so that ideally, you aren’t floating money to MS. Extremely advanced MSers can actually use the float to invest and earn a little extra from their activities.
I constantly worry about risk. This is the section to pay attention to if nothing else. You should understand the risks that you take on and have appropriate mitigation strategies in place before you need them.
Step 1: Purchasing
This step is the least likely to cause problems in most situations. The major gotcha here is to watch for how things are coded. They can change overnight. When this happens with your pending transactions, you can find yourself on the hook for hundreds of dollars of fees when transactions that were previously coded as purchases are suddenly treated as cash advances.
Examples of this happening:
- Gambling sites
- AC Conversion (MBNA, Rogers Bank)
- Cryptocurrency sites
- Start small to check transaction codes.
- If you’re extremely risk adverse, wait for transactions to post fully to your credit card before repeating.
- Have a good cover story for purchasing large quantities of X.
Step 2: Cash conversion
This is the bane of every single MSer’s existence. All MS falls into three basic categories: fintech (e.g. apps or websites that act similar to Paypal or brokerage sites), financial instruments (e.g. mint coins, AC conversion) and products (e.g. reselling).
- Card skimmers
- People watching you too closely
- Understanding what machines should look like.
- Never wearing headphones and being aware of your surroundings.
- Not doing things in the middle of the night. Instead, find out the slow times during the day and act accordingly.
When it comes to reselling, you need to have a very good understanding of:
- How much something product is worth (i.e. how much will someone pay for it)
- Counterparty risk (i.e. how much you trust the buyer)
Ignoring either will result in you losing money, the product or both.
- If selling a physical product locally, meet at the police station.
- If selling online to a company, do real due diligence. Call them up. Check their WHOIS records on their domain. Put their address into Google maps to see if the office actually exists.
- If selling online to a person, check ebay, heatware, RFD feedback. If something seems off, then you’re best to trust your gut.
Step 3: Bank deposits
This is where it gets tricky. MS at any scale will result in you making deposits of more than $10,000 at a time. This is the magic number where banks must complete a large cash transactions report to send to FINTRAC within 15 days. FINTRAC is the regulatory body that takes on activities associated with money laundering and terrorism funding.
Unfortunately for an MSer, these large cash deposits look exactly like money laundering.
The single worst piece of advice I ever read was a suggestion to split transactions so to fall under that limit.
Never do that.
The rule is actually $10,000 or smaller transactions totaling to $10,000 within a 24 hour period so depositing in the morning and then in the evening will make no difference. Additionally, it’s called structuring and could trigger an investigation that you just don’t want.
I’ve spent a long time researching this specific step because it’s the most risky. The worst that will happen is that your bank will shut down your bank account and give you your money back.
- Keep a separate bank account just for MS. It keeps your books cleaner and it’ll be far less annoying to switch should you face a shutdown.
Financial companies are required by law to KYC (know your client). They’ll usually be quite happy to allow you to deposit your money, but withdrawals usually result in holds while they verify your identify.
This can sometimes result in enormous amounts of money being tied up for months.
- Pre-emptively verify your identify by sending in documentation
- Check that your bank linkages work for small amounts before scaling up
Beware opportunity costs
It’s easy when MSing to get caught up in all the points you’re earning, but I think it’s important to take a step back to think about the opportunity costs both in terms of your time and the capital you have tied up.
For a period between July 2016 and January 2017, I was spending an average of an hour a day standing in front of ATMs withdrawing $16,000 in cash thanks to 8 AC Conversion cards. I questioned my life choices every… single… day.
I still had to do the math to justify it to myself. $16,000 @ 2% cashback earned me $320 a day for an hour of work. When I used my Alaska card, I earned a round-trip business class flight to Asia every 10 days.
Let me tell you about a time where it didn’t work out.
I was burned recently when I decided that I had nothing to worry about when it came to a particular MS method I was using to get cashback at typical credit card cash back rates (e.g. 1-2%). Instead, I had a very large sum of money tied up for almost 4 months.
Had I dumped the money into the S&P500 instead, I would have earned almost 5 times the money, saved almost 30 hours of time and maybe even have a little more hair.
Juice your margins
If you have a reliable way of converting credit card purchases into cash, you effectively have a 0% loan from when your purchase is made to the time that your payment is due on your credit card.
The best case scenario happens when you make a purchase immediately after your statement posts. You’ll then owe no interest for the time equal to your billing cycle plus your grace period for payments.
Put that money into investments that are suitable to your risk tolerance level and you’re now earning money using other people’s money.
One of the most annoying parts of MS is the administrative burden that it entails. Yes, you can absolutely MS without tracking your ins and outs, but you miscount or lose track and suddenly you’re out hundreds or even thousands of dollars.
Watch out for timing differences that happen between when a charge is pending and when it’s posted. Purchases will often disappear and then reappear.
Similar delays occur with payment processing. This wrecks havoc with your ability to get a true understanding of your financial situation. You need to keep good records especially if you are juicing your margins as I described.
At scale, you’ll need to make several payments of the same amount to your credit card. It’s hard to see when your payments have posted especially if you’re cycling your limits each day.
My good friend Jayce @ Pointsnerd.ca thought of a brilliant solution to that problem. Simply change the cents in your payment to represent the day you made the payment.
For example, if you needed to make regular payments of 2000 between the 1st and 16th, you’d make payments as follows:
At the end of the month, add up all the cents and subtract it from your final payment.
It’s almost always in your best interests to scale up as quickly as feasible. Opportunities can rise and die within a matter of days.
For example, did you know that when PayTM first launched, there was a couple day period where they allowed you to fund a brokerage account with your Amex? Payments were capped on a per account basis.
Some questions you might want to ask yourself when scaling up might include:
What are the limits? How can I bypass them?
Approach things with the mindset that someone out there probably made a mistake. It’s your job to try to break things.
Do I have any friends and family that are willing to help out?
I’m vehemently opposed to signing up for things without people’s knowledge so please don’t do that. It is however perfectly ok to bribe people.
Can I spread out the purchases out over multiple credit cards?
If you suddenly begin spending thousands of dollars on a credit card that you previously didn’t use, it’s highly likely you’ll trip fraud detection systems.
The other thing that I’d be especially wary of is cycling your credit limits where you spend more in a given billing cycle than your credit limit.
For example, let’s pretend you have a card with a $10,000 limit. You spend $10,000, pay off your card and then spend it again.
You’ve now cycled your limit 2x.
Card companies frown on that because it increases default risk. You’re assigned a credit limit based on what they think you can conceivably support with your limits. Some companies are more sensitive to this than others so it’s another factor to watch for.
I’ve cycled my limits up to 30x, but did so with an understanding that it significantly increased my risk and relationship with the company.
What’s my time commitment going to be?
I had the opportunity to scale up to 12 AC Conversion cards at one point, each with allowable limits of $2,000/day. I didn’t because visiting an ATM every day and withdrawing from 8 cards already tested my sanity.
If you haven’t already, figure out what your time is worth and compare it to what you’re earning from MS. Also, no nonsense valuations. You may redeem your points at $0.20/point or some other similarly ridiculous valuation, but the maximum value of a point is what it costs to buy it. No one ever has a problem setting a minimum value.
What’s my capital at risk?
Everything works great in a best case scenario when you can pay your credit cards before your payments are due. What happens if something catastrophic happens and you need to float the money for a couple of months? It’s taken me up to 6 months in certain cases to see my money.
As I’ve hopefully made abundantly clear by now, doing large amounts of MS takes time. Lots of it. I have three time management principles: automation, batching and scheduling.
Automate whenever possible. This applies to more than MS. Your goal is to have as many things in your life that you can just set and forget. Break processes down and look for automation solutions. This works best with computer based MS techniques… and vacuum cleaners.
Don’t make trips specifically for MS. Attempt to incorporate it into your daily routine as much as possible. It’s psychologically easier and you’re far more willing to stick with it.
It’s easy to spend hours getting sucked into collecting points. Schedules force you into a routine and minimizes the time you waste quintuple-checking things when you just don’t need to.
In 2018, if you’re not using a password manager for you logins, you are asking to get hacked. Please use a password manager and use different passwords for each login.
- Keepass – This is my choice. It’s open source and easy enough to use.
- Lastpass – One of the most popular and convenient options as well.
xkcd has a wonderful explanation of password security.
I’m also a strong believer in having different PINs for each of my cards. A simple system would be to use your CVV code and add a digit.
As you progress in your MS journey, I encourage you to continually evaluate the reward/risk+cost ratio. There will come a day where you’ll realize that the costs and risks just aren’t worth it. I’ll leave you with some additional tips that I may expand upon in the future:
- Be nice to people. Limits are usually policy enforced, not system enforced.
- Things come and go. Watch for the return of products in different forms.
- Know your story. Have prepared responses for questions you might get asked.
- Watch for real costs. It’s tempting to watch your points balances rise, but understand that most MS techniques have real out of pocket costs associated with them. These can add up to thousands of dollars.
Have any tips that I haven’t covered? I’d love to hear them!