Do You Need a Costco Executive Membership? Answer This Simple Question to Find Out

Costco is known as being great for your budget thanks to its awesome deals. But those deals aren't available to just anyone. You need to be a Costco member to shop there.

There are two tiers of personal Costco membership:

• Gold Star: $60/year
• Executive: $120/year

If you don't have an Executive membership, you likely get asked about upgrading each time you check out. Even if you have a membership, you may get regular emails about how great it is to renew.

But do you really need an Executive membership? More importantly, is it worth the upgrade? The easiest way to get the answer to these questions is by answering a different one.

Is your average monthly Costco spend at least $250?

Other than some ambiguous "service discounts," the selling point of an Executive upgrade is that you'll get 2% back on your in-store purchases. This comes in the form of an annual Costco Reward that pays out once a year.

So, for the upgrade to make sense, you need to get at least $60 back from your Reward each year. Otherwise, what are you paying for?!

Here's what 2% back looks like in real terms:

You'd need to spend an average of $250 a month -- or $3,000 a year -- at Costco for you to break even on your Executive upgrade. If you can't meet that bottom limit, you're losing money. Unless you're going to increase your spending, you should downgrade your membership.

On the plus side, Costco should refund you the difference between your Reward and the cost of the upgrade when you downgrade to a Gold Star membership, or refund you the cost of membership (minus the Reward) if you cancel entirely.

If no: Are you saving at least $60 a year?

Folks who realize an Executive membership isn't worth the cost may have a second question to answer: Should you cancel altogether?

I'm definitely not saying you should cancel your Costco membership if you don't spend $250 a month. You can easily get back your $60 Gold Star membership fee back in savings spending far less than that.

However, you should crunch the numbers and make sure you are getting your fee back in savings. If you're giving more money to Costco than you're getting back in deals and discounts, you're playing the game wrong.

Ways people save money at Costco

Not sure how to decide if your membership is worth the cost? Here are a few ways you could be saving at Costco:

• Switching to Kirkland Signature: A big way a lot of folks save money at Costco is by switching from name brands to Costco's store brand. A lot of the Kirkland Signature products are still high quality, but you're paying much less per-unit than you would for name-brand packaging.
• Deals on name brands: Costco's house brand is great, but the warehouse club also offers tons of name brand products, including electronics, appliances, and clothing. Catching a good deal on a big-ticket item could easily make up for your membership fee.
• Discounted gift cards: Costco sells discounted gift cards for up to 25% off. You can save on popular retailers, restaurants, and even on travel.

And these are just the tip of the Costco savings iceberg. There's also Costco Travel, pharmacy discounts, the Tire Center, and so much more.

A Costco Executive membership is really for those folks who spend a ton at Costco every year. But you don't need to be a big spender for a regular Gold Star membership to make sense. Crunch your own numbers before joining and/or renewing to make sure you're investing wisely.