I earn thousands yearly from credit card rewards: should I count them as income in my budget?

"A credit card reward is a discount on money you already spent. It works differently from a side hustle or a dividend payment, which generate new income. A paycheck arrives whether or not you go shopping. Rewards only show up because you went shopping. Treating them as income flips the causality and quietly nudges you to spend more to "earn" more, which is exactly backward."

"One of the hosts mentioned earning a $1,000 bonus on Capital One's Business Spark Cash Card by spending $10,000 on his coffee bar project, including an expensive Italian espresso machine. That is a real reward on real spending he was going to do anyway. The bonus functioned as a 10% rebate on a planned purchase. Perfect use of a card."

"Now imagine the inverse. You see a 2% cashback promo and tell yourself you will "earn" $2 back on a $100 purchase. If you did not need the $100 item, you just wasted $98 to earn $2. The math does not become friendlier as the numbers scale. 2% back on a $1,000 impulse buy is $980 you set on fire."

Credit card rewards function as discounts on money already spent through purchases made for other reasons. Rewards arrive only because spending occurred, unlike wages or dividends that generate income regardless of shopping. Budgeting rewards as income reverses cause and effect and can lead to spending more while believing it is financially justified. A signup bonus can be a rebate on planned purchases, such as earning $1,000 after spending $10,000, effectively reducing the cost of that spending. Treating cashback promos as guaranteed earnings on unnecessary purchases can waste most of the purchase amount, making the net result negative when the item was not needed.

Read at 24/7 Wall St.