Who can resist the allure of “free travel”? Just sign up for a credit card or two and you can set off across the world for pennies on the dollar! To someone who has never applied for a credit card with a big bonus before, that last line probably sounds exaggerated at best and outright fraud at worst. What some of you reading know is that it’s not only possible, but you might not even have to pay those pennies if you do it just right!
The problem is that so many people seem to take this wonderful opportunity and do it all wrong! It’s an extremely rare day that I can make it through all the blogs I follow on feedly or the comments in reddit’s churning community without an absurd value proposition being thrown around. For every one person that truly seems to be maximizing the utility of points and miles, there seem to be a dozen chasing the juicy carrot at the end of the stick. This isn’t some unique problem to travel hacking, but rather a reflection of “deals” that every other corporation with a product to sell has used for decades and a ton of people seem to be falling for it!
Let’s explore how most people are terrible at saving in general, how to avoid the same old corporate tricks that take your money, and find the light at the end of the tunnel where you might be able to actually use travel hacking to improve your financial standing.
What Doesn’t Count As Saving Money
Everyone probably has their own definition of “saving money”, but what most people end up doing in the name of “saving money” is either delaying or maximizing their spending. Neither of which I consider to be truly saving at all.
First, let’s look at delaying spending. This is when you’re “saving up” for a down payment, or a new car, or your next vacation. The money you put away each paycheck builds up in your checking or savings account, but eventually the thing you were saving for comes around and you’re right back to where you started. There’s no longer any “savings” to speak of.
Second, there is maximizing spending. This is when someone “saved $50” on a pair of jeans or “saved $500” on a flight by using miles instead of cash and everything in between. The problem with this mentality is that the amount you “saved” probably never existed in the first place. If you walked into the department store with $50 to buy a pair of jeans and found a $100 pair at 50% off, you didn’t actually save $50. If you believe the sticker price (ha!), then you managed to turn $50 into $100 worth of product and maximized your spending, but there isn’t another $50 that you can do anything with! It didn’t exist in the first place and you’re once again back to where you started.
To extend the last example, let’s say you actually did walk in the store with $100 to spend and managed to get what you wanted for $50. What did you do with the extra money in this hypothetical scenario? Be honest with yourself here because I think a lot of people might have taken the opportunity to buy a second pair of jeans, or a nice pair of shoes to go with it, or just blow it all on Auntie Anne’s pretzels on the way out. If this is what you do with your “savings”, then you’re really just maximizing spending again.
So What Do I Consider To Be Saving Money?
Saving money in it’s purest form is putting it away to not be touched for decades or even longer. We’re talking pure net worth here, money in the bank that you don’t pull out for emergencies (because that’s what your emergency fund is for), your next vacation, or all of the stuff you “deserve” because you work really hard. This is money that you just tuck away quietly and completely block out of your memory (if you must) to avoid the temptation to spend it. Retirement accounts are perfect for this because they penalize you for early withdraws (unless you’re a crafty early retiree of course) and they let you invest the money to grow.
Having your money turn itself into more money is the end-game here, we’re not just building a Scrooge McDuck pile of money to swim in later, we want these savings to eventually buy our freedom. We can’t reach this ideal state of financial independence that doesn’t require working a 9-5 if we continue to empty out our bank accounts (or the savings never existed to begin with!).
A simple example of actually saving money is walking into the store with $100 to buy jeans, finding a pair for $50, and then putting the extra $50 in a Roth IRA. Boom, that’s actually saving money!
Corporations Know Exactly What They Are Doing
Getting back to my original point though, I see numerous people every day talking about the “savings” on their latest travel hacking trip. Don’t get me wrong, I’m guilty of the same thing, but I try not to put too much emphasis on the face value, especially when it’s much larger than I can ever see myself paying cash for.
Whether it’s Kohl’s or American Airlines, all of the big companies that are selling a product have become extremely good at it over the years. Those who weren’t as good at it have died off and the companies remaining have nailed the perfect psychological feeling of excitement that comes with making the customer think they got a great deal. A big store once tried to give credit to the intelligence of it’s customers by getting rid of discounts and putting real prices on it’s products, but unfortunately it failed miserably. Nobody wants to pay $50 for a pair of jeans unless they’re told they are “actually worth” way more than that.
The same thing applies to all of the flights and hotels everyone is booking with miles and points. This becomes especially true when you consider whether or not it’s a good deal to buy miles and points. Nothing bugs me more in this hobby than the consistent posts about every airline’s latest “sale” on miles. Sure, there might be someone who frequently travels the world (and would continue to do so if miles and points ceased to exist) that can reduce their expenses by buying miles, but for every one of those people, there’s probably one hundred who fall into the spending trap.
There is a reason loyalty programs are such a big part of the travel industry and that reason is that they are crazy profitable. Everyone probably thinks they are pulling one over on the company by thinking outside the box to maximize their rewards, but at the end of the day, each company is probably getting more money out of you than they would have otherwise.
In a world without loyalty programs, if you would have stayed at the hotel next door, or flown the other airline, then you might be coming out ahead personally, but only if you would have taken the trip without points and miles in the first place.
Ideally, Start With Your Desires and Work Backwards
In a perfect world, everyone would first figure out what they needed or wanted and then seek out the best or cheapest way to make it happen. Unfortunately, this is damn near impossible in the world we live in today. Advertising is the main driver behind making it hard to avoid outside information influencing your day to day choices, but even friends and family will have a significant impact on where you end up spending your money.
Let’s go to an imaginary place where you know nothing about credit cards and frequent flyer programs (this might be hard for some of you). One day you decide that you want to travel to Paris because it looked pretty awesome in a movie you saw. After talking to some friends who traveled there last year, you discover it will probably cost ~$2,000 to get you and your significant other there and back plus a place to stay.
Being the responsible, financially minded individual that you are, you started saving money away and a little while later, you have $2,000 in the bank (plus some extra for food and fun) and are ready to book your trip. At this point, you stumble across the wide world of “travel hacking” and discover you can actually get flights via a couple new credit cards and $150! Not only that, but you can sign up for another couple credit cards and cover all of your hotel nights for a week! What!?!? Sounds crazy, but with a little time and organization it’s certainly possible.
You now have an important choice to make. What do you do with the extra $1,850 in the bank that is no longer absolutely necessary for your trip? Do you start planning additional stops on the trip or even additional trips? Do you increase the quality of restaurant you eat at while there because you can afford it now? Maybe you book an extra excursion or tour that didn’t seem vital when you were originally planning the trip?
All of those will certainly increase the kind of experience you have on the trip, but there’s another choice that your future self might thank you for. Just leave it in the bank or throw it into a retirement or investment account! Simply having money (unexpected or otherwise) is no reason to spend money, it’s important to take a step back and see if you’re actually getting long term value out of each dollar you spend.
Challenge: Actually “Save Money” On Your Next Trip
There is no shortage of people talking about how great their latest flight or hotel redemption was compared to the face value, so I’m putting out a challenge to anyone brave enough to give it a shot:
The next time you book an amazing trip with miles and points (that only cost you a fraction of the face value), save some money away in a retirement account or invest it for the long term.
The problem with a lot of the amazing redemptions is that the “money saved” on the trip never existed in the first place. Many of these trips never would have taken place without the existence of miles and points, so we’re once again back to maximizing the value of our limited spending, not actually saving money. Especially when we’re talking about first class redemptions that may retail for tens of thousands of dollars.
I’m not saying you have to take the actual face value of your redemption and save it away, but I think there is a significant amount of value in doing so. Maybe give yourself an honest assessment of what you might have spent on the trip if you had to pay cash. With cash, maybe you would have flown economy and stayed in the 3-star hotel. That’s fine! Just take that total minus the amount you actually spent redeeming the flights and save it away in an index fund that will grow over the next several decades.
If even that seems beyond your reach, just start small. Every time you book a flight for $11.20, round up to $50 and put the extra $38.80 in a savings account or investment that you won’t touch for a long time. How about for every hotel night you book with points, just save a consistent amount like $20?
Let’s try to turn this crazy hobby of trying to maximize cents per point into something that actually helps pad our net worth for the rest of our lives.
Don’t Worry, I’ll Go First
This entire post kind of spun off of me questioning whether or not our own miles and points obsession was actually benefiting us financially. Our overall travel spending from before we signed up for our first rewards credit card to now doesn’t seem to have changed much which is pretty eye-opening. Don’t get me wrong, the $1,000 we spent to get home a couple years ago can now get us to Europe in business class with hotels, but at the end of the day we’re still spending the full $1,000! Our savings, net worth, and retirement progress have remained relatively unchanged!
I think this is perfectly fine if we take a step back and decide spending this money on amazing travel experiences outweighs the benefit of saving it away for the future (the jury is still out), but it’s been extremely easy to inflate our travel lifestyle to match our newly found ability to travel for cheap.
Once you see the possibilities that miles and points can award you, it’s hard not to seek them all out and optimize everything in the name of travel hacking. I think the sweet spot for most people lies somewhere in between saving away every penny that “would have” gone towards travel and maximizing travel spend value by keeping your overall spending the same.
A happy medium would be if you previously spent $5,000 on one big trip a year, maybe spend $4,000 on 3 big trips thanks to travel hacking and put the extra $1,000 away for the future.
I try my best to stay conscious of all the money leaving my pocket in the name of “free travel” and I hope you do to. The next time (and maybe every time) I book a flight with miles, I plan on immediately taking the face value of the ticket and immediately moving it to my Vanguard account. We already save a high percentage of our income, but this will be a great incentive to save more while still satisfying our desire to travel.
Don’t forget, it’s possible to start moving your retirement date up just $100 at a time. If you do it just right, you can eventually become the “Man (or Woman) With Savings” that this 1969 newspaper ad describes:
Great article. Thank you so much for addressing this. It bothers me too the way people throw around redemption values that don’t correlate with what they would have spent, or worse, they plan a big reward trip and throw in a few $400 cash nights because they couldn’t cover it with points. Kind of defeats the point. When I calculate my redemption value, I take the lowest available $ price I would have spent otherwise on any airline or hotel, not the one I’m redeeming on. I would hope this is common sense to everyone.
That said, and like you said, I think it’s great if people want to splurge on a vacation with points and add in more real spending to make it really special – just know that you aren’t saving anything then. I also usually evaluate what a marginal increase in spending would get me.
At the end of the day, I’m certainly guilty of not saving much when using miles because I treat it as a $0 deduction from my planned travel budget, thus “freeing” up that money to do other things. Only reason I’m ok with this is I travel for fun ~60% of the year (I work remotely), so it’s very hard to stay in budget, especially when I want to do cool activities. Part of the $350 I “saved” flying to Europe with miles a few weeks ago can now potentially go to scuba diving in Iceland for instance, something out of my budget otherwise but an experience that I really want to have. I’m very thrifty (much to my girlfriend’s disappointment :p) so I feel like I’ll never commit to fun activity spending if it’s expensive if I don’t “offset” it somehow.
When traveling 60% of the year, I’m kind of surprised you have an actual “Travel” budget at all. I guess it just has to be a rather large percentage compared to the average person, but I’m sure miles and points helps a ton in that regard.
I think you nailed it though, my main point was to just be conscious while you’re spending money in conjunction with miles and points. If you determine it’s worth it to you, then by all means spend away, but don’t just spend for the sake of spending.
Some really good thoughts here, welcome to the next TBB Buzz post…
Always appreciate the links George 🙂
Good work! One way I always think about miles and points is picturing the amount I could have realistically sold them for. So your 50k United miles are ACTUALLY $625. This puts things in perspective.
Great point! This is especially true when you’re redeeming something like Chase UR points that quite literally could be cashed out. That business class trip may have only cost 125,000 UR, but you gave up having $1,250 in your pocket in order to do so. Even if you are earning them for very little cost, I think it’s important to keep the direct opportunity cost in mind.
I came here to make this EXACT comment, but you’ve already done so 🙂 Your advice is spot on–and I try to think of Chase UR in the same way. It’s hard, but you have to always remind yourself about the threat of lifestyle inflation when it comes to points. You’ve given a great example–it would be much better to fly coach (still use the UR if you have to) and then cash out what the difference would have been between coach and first class. That’s a chunk of tax-free income you could throw in a retirement account. Or, you could probably redeem 1-2 more coach flights for that same amount. Same is true with hotels. I’ve been writing about the Hyatt Card this week and lots of folks are complaining about the bonus change. It’s a valid complaint, but the bonus is actually going from only two nights (granted to any Hyatt in the world) to an amount of points that could be redeemed for eight nights. As a frugal person, you might view the new bonus as actually being four times better. TLDR, you’re so spot on in this article–try to be as frugal with your points as you are with cash and then you’re winning.
Thanks Thomas!
I’ve been guilty of spending UR a little liberally considering the opportunity cost of cashing them out myself. It’s definitely important to make sure your travel hacking “spending” stays mostly in line with the other spending habits in your life, especially if you’re pursuing FI or any other big financial goal.
It drives me crazy when I hear people say they got trips for free because of travel hacking because there are so many opportunity costs involved like the UR one mentioned above. When people ask me about my upcoming trip, I tell them I got two roundtrip tickets to Japan for $288 each. Really I spent 57,600 Altitude Reserve points at 1.5 cents each value, but I gave up the opportunity to cash those in for $576 so that’s my real expenditure. It definitely wasn’t “free” because I used points.
It’s this point you made below that describes what really happens when people travel hack:
“In reality, you’ve found a way to boost your income through manipulating credit cards and you’ve decided to spend that on travel.”
There’s also the opportunity cost of having these high points balances instead of cash. If I cashed out my 200k UR, I could invest that $2000 and guarantee at least a 1.5% return. Instead, these UR and all my other points and miles balances are sitting there losing value because the awards programs continue to devalue their points.
That’s why I’ve started focusing my churning and MS on cash back instead of points and miles. Then, that cash can sit in an investment until I find a good “cash redemption” like the $250 roundtrip to Iceland we took on WOW last year or the $70 per night luxury penthouse apartment in Athens, possible because there was a no strings attached booking.com discount floating around.
Great post. Love the idea of taking the “savings” from one year and setting it aside for the future. And not the future vacation but the actual future. 🙂
Real travel saving can be done if people are looking at the entire trip as a whole vs just parts. Just because someone was able to save on the flights and maybe hotels, doesn’t mean their entire trip was travel hacked.
Plus you have to look at the mentality of the person. Some people are frugal by nature (hand in the air), others are not.
Our goal is to spend as little money as possible when traveling including flights, hotel, car, food, activities, etc. Sometimes it’s possible, sometimes it isn’t. We spent a week in Kauai during the summer for a little over $400, for a family of four. And a week in Sydney for just under $600 (just the two of us).
That’s fantastic, it sounds like you’ve found a great balance of getting flights and hotels for cheap, but not deciding to spend more on the rest as a result.
I see that you advertise points sales on your website. At least you mention it’s an affiliate link, but it’s hard to believe any of your readers would come out ahead when buying SPG points for 2.6 cents each though…
This is a great post that aligns with my thoughts around the community. I tend to think that people are actually spending more with this hobby and the reason is because meeting minimum spend for CC signup bonuses. I think there’s a nonchalant attitude about spending when you have to meet that minimum spend and for myself I try to prevent myself from saying “Oh, I’ll buy this because I need to meet the minimum spend on my SPG anyway.”
I completely agree, ideally you shouldn’t change your spending habits just because you have a minimum spend to meet. Funnily enough, I find myself delaying purchases to make sure I can put it towards a minimum spend. I realize we need to buy something for a few hundred dollars that we need and I ask whether or not we can wait to make the purchase to sign up for another card in the meantime.
This is a great reminder and applies beyond the travel hacking game. My wife always “feels bad” spending extra money, say, on groceries at Whole Foods or something. Which is great but I always counter with “what are we gonna do with the money you save if we go to Market Basket?” It takes a lot of discipline though to manually put money into your retirement or investment account, at least for me, so I automate a lot of it to make sure some gets in, and then every few months take a look to see if I need to put more in. It’s not ideal, obviously, but just reality at the moment!
That’s awesome you’re putting away money at all, puts you one step up on a lot of people. I’ve been trying to find a good system for automating away savings as well. We max our IRAs at the beginning of each year and the 401k is automated, but it’s tough to perform that small extra step to save away more consistently. Our current pattern is let the money build up in our checking accounts until we realize, “We probably have too much cash right now”, and then we make the transfer to the brokerage account. Luckily we’re both fairly frugal, so letting it sit in a checking account doesn’t tempt us to spend more. If we had that problem, I’d be much more anxious to automate it away quicker, but our current system seems to be working alright.
That’s exactly what we do with the checking account! Haha. My wife’s paycheck is split so that half of it goes straight into a brokerage account. Probably could adjust that up come to think of it…
I use SmartyPig for automating savings goals – for some vacations, and other things, including IRA contributions for next year.
Interesting angle on this subject. I had listened to Mad Fientist’s podcast about Travel Hacking, and got very excited about the possibilities. But then, on a recent trip to visit family, I noticed all the extras that really start to add up: The airport parking, the food, the rental car, etc. Miles to cover airfare and hotels are great, but what about all those extras? It’s something to think about.
oh man, you hit the bulls eye on this one.
I’ve always told my friends who ask me about miles is they won’t save much. They will just get more or better travel with the same amount.
If I look at my experience, I’ve spent more on travel after getting into the travel hacking game. Yes. I’ve traveled a lot but in the end the airlines and hotels have won. It’s not that easy to beat them at their game.
This is EXACTLY right – points/miles let us travel MORE and BETTER, but we sure aren’t actually SAVING money doing it.
That said, we know this is the case – we didn’t start working on these things thinking “Oh, look how we can travel for FREEEEE!!!!” (unlike what most blogs will try to sell you) as that simply isn’t realistic.
I basically agree with all of this. If you’re not saving money for the future, then travel hacking really isn’t helping you save anything.
We use rewards to get better experiences and maximize our travel budget. With rewards, we can go further from home, usually stay longer, and stay in nicer places. But we planned to spend that money on travel anyway, and can afford it. We are location independent in our business and can travel around once per month fairly easily, but points and miles help us stretch our budget for sure. It helps to be realistic and honest with yourself.
Well said, miles and points are very effective at increasing the quality of any given trip such as staying at nicer places.
I’m jealous of the location independence, one day we’ll get there ourselves! As long as you have a good handle on your finances and travel fits into your overall goals, then go crazy with it!
I loved this article. Let me have a little fun with a part of it…
“At this point, you stumble across the wide world of “travel hacking” and discover you can actually get flights via a couple new credit cards and $150! Not only that, but you can sign up for another couple credit cards and cover all of your hotel nights for a week!”
In truth, you are sacrificing more than $150. First off, the flight you will probably need to take will take place at a weird hour, through a weird connection, or on a day you don’t really want—all because you need to spend it with the alliance you have points with.
Same goes for the hotel— would we actually stay at the chain hotel we picked (i.e., the chain we have points with) rather than the one that is better located, more charming, etc. I know of one blogger that make their travel plans based on what IHG pointbreaks are out there! Cart before the horse!
Anyways, fun read! I like your perspective.
Not to mention the “fun” of MSing, keeping track of the points, HUCAing with CSRs, blah, blah, blah.
I have to disagree with you about the flights. Fixed award values make any connection or date/time available. There is award space on nearly every long haul flight by major carriers, and if you fly economy, almost always available award seats. For instance, with 30k AA miles I can choose literally any US-Europe flight and fly economy.
Hotels are a different story. I’m not a fan of big chain hotels either, and during popular seasons or in popular locations they are ridiculously expensive with points. Like you said, I’d almost always rather stay in a sweet Airbnb. Still, there are plenty of deals and it can be great in less developed parts of the world (e.g. 3-star SPG in India for 4k/night). But that’s why it’s called travel hacking, it’s not easy.
“With 30k AA miles I can choose literally any US-Europe flight and fly economy.”
Possibly *you* can do it with AA, but it’s very difficult for me. Certainly not “literally any” flight.
Why the difference? I live on the west coast, where I must catch a feeder flight to ORD (or maybe PHL or DFW or other). Also, I don’t like to pay fuel surcharges so that eliminates BA.
Also, maybe you can do this because you book when the booking window opens, rather than 3 – 5 months out. Or maybe you are booking for off season travel. Or are willing to do many connections.
These are the kinds of compromises that some of us have to make using when using points. (For comparison, if I just brought up Google Flights, I can usually find a cheap flight to Europe from my city on the day I want, but on an “non-points” airline like “WOW”)
Hmm that’s true that the west coast adds a huge hassle. Probably have to use a domestic airline to the East coast to really maximize your award travel.
I don’t book anything more than a month out and haven’t had a problem yet with availability. I guess I’ve had easy, popular routes (e.g. United, AA) and whenever I’ve looked there has been tons of economy availability +- 3 weeks around my date (peak season too).
As far as non-points airlines, yea I’ve flown quite a few of those because it’s not worth spending 30k pts for a $200 flight on XL Airways for instance. And I don’t know why people tout BA miles for inter-Europe flights. I have yet to find one where the taxes & fees aren’t the same as a whole flight on an airline like Transavia and WOW. I’m in Europe now, beginning of peak season, and most flights are well under $100 one way.
I agree with this. Sure I could have spent one thousand for a round trip one stop flight to Europe. But horrible schedule. The nonstop is three thousand, but both options are same with points. So I saved one thousand cash dollars with points AND avoided a huge hassle. How do you value hassle avoidance? It’s something.
In my example, I suppose I was trying to compare the exact same flights to make my point. As far as weird hour flights with layovers and connections, the price discrepancy exists with cash as well. As some others commented, miles might make booking those better times/layovers for the same price possible.
Convenience is a huge factor in travel though and usually comes with some kind of price tag. It’s tough to place a value on something like a nonstop versus a layover, but I know some people are certainly willing to pay a premium for the convenience the nonstop flight.
Convenience only goes UP in importance the older and wealthier you get too.
It’s even worse than you say it is. You don’t travel to be holed up in a hotel room, so you pay more for the experiences: tours, taxis, museums, etc. And you need to eat too. It’s not impossible to “hack” some free food, but you will probably want to experience more than just food at a hotel lounge. And then, there are souvenirs. Useless stupid freaking trinkets you buy just because people expect you to bring them something…
So, it’s really an expensive habit even if flights and hotels are free. I’m a travel junkie, so I did pay real money for that even before I knew about miles and points, but anyone who’s doing it just because it’s “free” is delusional.
And I actually love your idea about tacking your “savings” away. Could be extended to us, junkies, too. Took a trip — pay up. Put some money into your IRA. Cool idea!
Agreed, travel costs can really add up quick if you want to get the “full experience” at any new place you visit. If you’re going to take the trip with or without miles/points, might as well earn the miles to make it cheaper! As a travel junkie, your costs at the actual location probably won’t differ much depending on how much you paid for the flight because I assume you’ve established some kind of baseline you can stick to.
I think it’s much harder for people that don’t travel very often because some will tend to pour all of their money into the trip in order to make it the once in a lifetime experience they’ve been dreaming about since they got the idea to take it. Saving money on one part just means more money will be put towards something else on the same trip.
Thanks for reading!
I agree and definitely think “saving” money is an inaccurate term to describe the results of travel hacking. I’ve never seen it as such… I’ve always looked at travel hacking as a way to get more TRAVEL than I typically would without having travel hacked. Not saving money, just getting more for the same amount of money. This is something I’m completely satisfied with as I am spending the same amount I’ve always budgeted for travel.
I agree with most of your points, but don’t personally relate much. I just got ino this game a couple of years ago. Before I stumbled upon travel hacking, I traveled very lttle, and when I did I just went to the same places over and over.
What this hobby has done for me is to:
-enable me to say goodbye to economy seating:
-give me a way to experience super luxury flying and hotel suites;
-made me consider destinations I would never have otherwise entertained.
I have plenty of retirement, and will continue to max that out, but my problem was that I had money but never considered using it for travel. I DO buy miles and points on sale for two reasons. First and foremost, if I have the points, I’ll plan the trip–otherwise it’s never going to happen (I’ll just never make it a priority). Secondly, while I would never pay 15k for that airplane seat, I WOULD pay $2800,, and that’s what I spend for those miles on sale (I always do the math before I make the purchase, and yes, I am one who is super-pissed at Alaska, as I’d been saving for that Emirates flight!).
I think I’m different from the typical hacker. I’m a single, mid fifties workaholic who actually has a lot of friends who DO regularly pay rack rates at top hotels, and haven’t seen the back of the plane since grad school. They pay the sticker price, and can’t be bothered to comparison shop. So, in my world, my “trick” is to travel first class, more than I otherwise would, and still put aside the max for that early retirement.
But, I do worry about some of the under 35 types I see on these blogs. My first thought, which you are squarely addressing, is “how’s your IRA?”
Travel is a luxury, and when you are 65 you WILL want be free of financial worries. As long as you’re on a path to financial security, travel hacking can improve both the quality and quantity of your travel.
Thanks for the unique take, everyone has their own preferred travel habits and travel hacking is usually a way to reduce them. If you’re set up well financially to meet your eventual goals, then go crazy with it, no need to worry about whether every flight booked with points caused a little extra money to leave your pocket.
“I have plenty of retirement, and will continue to max that out,”
I just want to point out that, with how you travel, this is obviously not something you are doing. What you are probably doing is maxing out your IRAs and 401ks. And you are 67 (I think) as your “normal” retirement age (which is what the SSA tells us it is.) And why not consider retiring before 67, or even 65? Neither is really “early”, IMO.
If it were me in your shoes, I would be saving more than just what the government helps us with (with the IRAs, etc.). What’s stopping you from saving 20% more right now? (So what if it’s not tax free?) And every time I flew in the back of the plane, I would think about how I would retire another month earlier than I originally planned. 🙂
Just saying all this to challenge your way of thinking about things, (and not you, personally). Someone challenged me like this when I was in my 30s. ( I retired at 50 and still fly in the back.)
“And you are 67″—>”And you are using 67”
No, I’m 56. My goal is to retire at 62 or 63 (but I’ll work til 70 if it means staying out of economy –to each his own, but I hate no leg room more than I hate working). My current plan is to not retire until I have 1.5M, which should not be a problem if I keep up my current pace. I currently save 33% toward retirement (a great deal of which is in non qualified accounts).
From your comments, I’d say you and I would agree in most respects, but thst you are mis-reading my situation. I am one who was doing nothing BUT saving, and was doing too little LIVING. Travel hacking has inspired me to get out and have some fun, which most who know me were relieved to see.
” I hate no leg room more than I hate working”. Ha! Okay… there is this thing in coach called “exit aisle seating”… 🙂
Good for you for having a “target number” and a plan to get there. And a 33% savings rate is awesome!
As for “doing too little living” because you were doing nothing but saving, and then doing first class travel when you can…well, I’d just say that, if I rode the bus for years because I had no car, and I finally got the money to buy a car, I’d be really happy just to have a cheap car, or ANY car. (The delta between nothing and something is far bigger than the one between something and more something. How’s that for nerding out?!…)
I get that not everyone thinks like me on this, though!
We are in our 60’s and like MBH until a few years ago we were saving like crazy and never traveled because I was not willing to spend thousands on a trip rather than save the money. However, I found the travel hacking world a few years ago. We are spending some of our savings now to travel because it is not free, especially with long term travel there is no way to pay for three months of hotels and flights with points. After all these years of saving, it is still difficult to actually spend the money!
I’m just curious. Are you saving like crazy in your 60’s because of a low savings rate in your 20’s or 30’s? Or because of a desire to meet a certain number for your retirement?
Throughout our lives until now our vacations were low budget like camping. We took the kids once to Oahu and that was the only time we ever flew for a family trip. We saved mostly in our 40s and 50s (we had kids early by current standards). We are no longer saving from monthly cash flow, but holding steady on spending what we earn, except for travel where we are dipping into savings. What is the point of saving in the early years if you are not willing to spend it in later years?
Going against conventional financial planning, even if we run out of money in our late 80’s and have to live on Social Security and food stamps, for us it is worth it to be able to travel now while we still can.
That’s so funny, because while I don’t want to get TOO good at letting go of savings when I retire, I am worried that it will be so hard to part with my hard earned money once I no longer have new money coming in! I hope that, like you seem to have done, I can find that sweet spot.
Such great advice. So important to always put money away when you’ve “saved”.
Points are great as long as someone else is paying for them.
That’s the entire point of the game. Like so many this in life, if everyone acted rationally and smartly, there would be no points/miles credit card deals. They do make money from us, but not enough to equal the points they give us. We benefit from the people that carry balances and make banks the big $.
Gen Y has been really good about living hedonic adaptation when it comes to owning “stuff” (probably a refutation of their parents’ example), but quickly abandon that mindset in the name of “experiences”. Thanks for grounding the game a bit. Hope you follow-up with a future discussion on affiliate links!
Thanks for reading! I’ve also noticed that experiences have become the new “stuff”, but they seem to avoid some of the same criticisms for some reason.
I don’t have any strong opinions on affiliate links, they don’t seems to be any worse in the miles/points space than the personal finance, or mommy blog, or any other segment of the internet I loosely follow. I’d only advocate people click responsibly and try to give your favorite websites your affiliate traffic (if you want to give to anyone at all).
Fantastic article! It’s true that many people refer to saving as paying less – travel hacking or otherwise. Even Franklin says this (although I’m pretty sure he would have specified it was for essential purchases). Many people today aren’t actually saving money.
However, it is possible to make those points worth something. I’m actually spending the summer in Costa Rica living for a fraction of the cost I would be in US – and I got here thanks to points! However, this isn’t what most people are doing.
Great read – thanks for the provocative thoughts…
Agreed, lots of people say they “save money” without having anything to show for it! Points can certainly offer a great value if earned cheaply and redeemed well, but I think people use up those great opportunities and start going out of their way to earn more (MS inefficiently, buy points, etc.) which ends up costing them a good % of what paying cash for the trip would have cost.
Thanks for reading!
This post makes a great point about the concept of spending more to save more, and spending so much time on trying to save that the time could be better spent elsewhere. It’s fun to save on travel hacking, but for goodness sake, don’t make it your mission!
I’ve got a different angle to the “travel for free” genre in a post I wrote. Just ask. And while you’re at it, start a business, and be established so they can’t ignore you.
I’m in Paris after a week in Prague, Vienna, and Budapest. I just asked for some free nights and benefits, and got a couple. In Paris, I didn’t ask to stay at this hotel called La Reserve for 7 nights. My friend, who has this 60 nights a year vacation membership insisted I use them. That is truly free! And I best get him some French Open gear to say thanks at least!
Best,
Sam
I’ve seen that post on “free travel” before and it’s definitely worth considering if you are interesting in spinning up a business (or already have one). Despite traveling a lot of places though, I don’t really enjoy writing trip reports or reviewing my specific airline, hotel, etc. experiences, seems to take some of the fun out of the trip itself, but to each his own!
That Paris trip sounds like fun, thanks for reading!
Well, my wife and I are currently doing medical tourism internationally. Our flights were covered (other than $22 or so in fees) with Southwest Points. We are using Airbnb for our stay (Barclay Arrival points there) and Marriott Points for the remainder (self explanatory).
We were doing some repairs and renovations to our home, knowing that we had this trip coming this year, so we applied for the cards we would need and worked backwards. This trip would have cost us thousands, but instead we are paying hundreds, food mostly for the three weeks we are in country.
It is very possible, as long as you start with a goal.
Great article! There is one part that I wanted to give my opinion on, and that relates to your two different kinds of savings. I agree with your point that you aren’t really saving anything if the perceived savings forces you to spend where you wouldn’t have typically. I always tell my mom about this, because she loves buying things at the grocery store because they are on sale at a good price. However, if it isn’t something she needs, she isn’t saving anything. It is just less of a cash outflow.
The one thing I am not necessarily on board with is your example of saving just to delay spending. Saving doesn’t just have to be a long term thing with a focus on building up a dollar amount in the bank. I think you can have short and long term savings goals that you save towards. If you are trying to save for a down payment X number of years down the road, you are still saving in my opinion. Technically, if you are saving for retirement down 30 years down the road, then you are saving just to kick your spending down the road. So for me, I don’t see the problem in saving money for a short term or a long term goal. But if I am missing your point on this one, please let me know!
To bring this full circle and to the original point of the article, the corporations and travel companies/websites win if their “savings” or discounts cause you to buy a plane ticket and take a vacation that you weren’t going to originally take. The minute you talk yourself into taking an extra trip because of a perceived good deal, then you have lost! However, you can save a lot of money using travel hacks if you are planning on taking a vacation and search for the best deal out there. Then you can win and take advantage of the system!
Wow I typed a lot, thanks for the great article here that evoked such a response! Take care.
Bert, one of the Dividend Diplomats.
Hey Bert, thanks for sharing your thoughts.
I agree that saving more short term for something like a down payment on a house IS saving because that should actually translate to increased net worth and long term benefits. Saving up for a vacation or a new TV on the other hand I still wouldn’t count as actual “savings”. Whether you buy a TV with 0% interest and make 12 $100 monthly payments or simply bank $100 per month and spend all $1,200 at the end of the year at once, I would count both of these as spending rather than saving. Something like saving up for a car is more debatable as it does count as some kind of asset with resale value, but it’s a depreciating one that makes a poor investment, so I’ll let you decide that one for yourself.
I don’t want to argue on the true definition of “saving”, but I think you understood the angle I was taking at it. It doesn’t always come down to net worth, so everyone should continue trying to maximize happiness now and for the long term using their dollars in the way that makes the most sense to them!
Completely agree with taking extra trips being potentially costly or eating up any other money you “saved” on other trips (we’re in the latter boat recently). It’s best to start with a trip you would take at full price, then start looking for the cheapest way to make it work as you mentioned.
Some people do win (I consider myself ahead at this point), but unfortunately the average person does not. If they did, these “deals” would disappear real quick.
Cheers!
Thanks for the reply Noah! Definitely clears up my point. I understand where you are coming from now with the saving versus not savings debate. You are right, no need to argue it haha
Looking forward to stopping by in the future!
Bert
Noah, Hi. We retired in November 2015 with 50K pension, 2+ M 401ks, paid house & delay of SS to FRA or 70. We saved maximum in 401k from 1981 to 2015. even during Med school & 4 year residency, lots of OT. Married in 1979 and invested in our flow your bliss educations. Wife BA, BS, MS, MD, private practice and Steve AAS, BA, MA Chemist 35 years electric company.
Started travel hacking in June 2015 with Brad & Alexi travel 101 and million mile secrets. We received 1.5 milion points/miles in 6 months prior to completing endless summer November 2015 to April 2016.
Four weeks in Grand Cayman redoing scuba certifications thru PADI advanced open water diver. Free flight to GC with points United and AA. Condo airbnb put on Barclay arrival+, then cancel charges with points.
Four weeks at Terra vista FLA to try out retirement community, lap swim, yoga, explore area. Mom 86 joined to enjoy FLA sunshine. Condo VRBO charge to (B&V) Barclay or Venture to cancel other travel charges.
Free Hawaii flights United and HA. Three weeks in Hilo airbnb rain forest chalet, scuba diving , snorkel tide pools, study quantum touch & theta healing and sight seeing. One week Kona airbnb cancel charges with points B & V. Three weeks Molokai VRBO condo car included, scuba dive with humpbacks and turtles, snorkel, enjoy relaxed island life, study Lomi Lomi Hawaiian massage.
Four weeks Waikoloa condo , scuba dive with divebluewilderness.com, snorkel, yoga, sight see and work out in 25 yard heated salt water pool. Diving & other tours logged as travel on Barclay cancel charges over next 90-120 days. Brother & wife joined for 10 days to enjoy their first trip to Hawaii after funding 5+ college educations in 12 years.
Next two graduations at Virginia tech, Hilton $300 per night 3 night min. due to grad week. However Hilton diamond allowed reserve of two rooms for two nights or $300 X 4 =$1200 plus 12 free breakfast X $10 =$120. Benefit $1320. Hilton diamond was free by reading MMS. Allowed booking rooms one week in advance 3 diamond rooms always available in hotel.
We are now planning endless summer 16/17 starting with two months FLA and more scuba adventures Roatan, Hawaii, Cayman…. This summer some road trips in USA.
Noah I agree save for the future, follow your bliss profession and enjoy the points/miles rewarded from normal purchases.
Travel is the only thing we buy that makes us richer, but our real wealth is our health.
KEEP SMILING STEVE ENDLESS SUMMER SteveO
Sounds like you both are having an awesome post-retirement endless vacation, thanks for sharing some of the great benefits travel hacking has allowed you.
Thanks for reading!
I absolutely agree. The only time saving occurs when you buy something is if the thing is an asset. You may consider vacation memories an asset, which is fine, but spending money should count as spending.
Feeling like I got a good deal is wonderful. And I’ll continue seeking them out. But I think we all need to be careful with our words.
There are certain blogs that concentrate so much on deals or promotions by the various hotel chains (“Stay 2 nights this quarter, get a $25 credit or N points”) and they continually blast you with so many spending opportunities that I had to stop reading them routinely. I appreciate what the blogs are doing, but in a lot of cases they really just come down to a lot more advertising, which I already get plenty of. I really became uncomfortable reading a couple of them because they were so adamant about stating how much future value I could accumulate by spending more on hotels now. I don’t travel that much for work where I can allocate a lot of chain hotel nights and I don’t have any interest in doing mattress runs to get status. So for me it really started to look like, “Sell, sell, sell!” and I had to step away.
Agreed on many of the bigger blogs pushing a lot of spending opportunities to “save” a little on travel. The posts encouraging you to actually buy points because they’re slightly on sale drive me crazy!
I also stopped following most of the bigger players for the same reason.
I used to do this this frequently before they tightened the rules,i redeemd them properly ,it worked for us better ,now i am redeeming them all ,i dont have a travel plans
travel hacking allow me to visit places that i would have never been able to visit previously. i am already over 100 countries and still going strong, by using a combination of paid and award tickets. i spent a fair amount of tickets in business class. did one RTW for 6500 USD last year and am in a middle of another one for 4060 round the world in business class. Consider the amount of miles I earned, my second ticket earns almost 140000 miles and keep my airline status. I think it is a steal. At the same time, I am homeless and I sleep in my car, and my spending is very very little except airfare (which are a good deal.) my focus is to get deals instead of spending as little as possible. eventually, people will have more than sufficient amount of money and the next goal (beside maximizing saving) is maximizing the value of the money spent.
Thanks for sharing Alan.
Deals are good so long as you actually value what’s coming out of them which it looks like you do. Saving and maximizing value go hand in hand if you do it right. Paying attention to what spending actually improves your happiness will help you cut out a lot of the mindless consumerism that people waste money on.
Wow, this was an amazing article. I have a disdain for credit cards from a psychological point of view in that almost always you end up spending more for the sake of rewards than if you acted like they never existed. The travel hacking space has always been a place where I was extremely skeptical, but interested to see how it works. I knew that travel companies were winning somehow, but just didn’t know the details. This really clears it up. It’s kinda like the whole couponing thing where people often end up spending the same amount of money on groceries, but just have a TON of extra food. People end up spending the same amount of money on average with travel hacking but just end up to more places and better experiences. Human psychology is just relentless. In theory it is possible to actually save money, as you define it, with travel hacking but in practice it is much more difficult. Who wants to put your travel budget money in a boring retirement account when you could be hitting up Bora Bora! Not to say that saving money is everything or that the benefits of extra travel doesn’t bring more happiness, but from a pure financial perspective you still are generating profit for the companies who run the program and not necessarily reaching your goals any faster. Not that companies making money is a bad thing. Actually if they are making money then it might be better for the pure hackers out there since there is a relative security in that they will continue to run the programs. Anyways love the post. Probably going to write one for my own site here soon, so definitely will be linking to this. Thanks!
Thanks for the kind words!
Human psychology is a huge part of it and I think you nailed it with the coupon analogy. There’s many ways to get more for the same cost with a little work in many different aspects of spending, but at the end of the day you’re pretty much just as well off as you started. Standard behavior seems to prioritize getting more at the same cost rather than getting the same at less cost for some reason.
I’m looking forward to hearing your own take on the subject
This old analytical mind (chemist) wants to remind all the younger folks on the blog to enjoy your life. Money is a means of exchange. Perhaps read the FIRE folks for contrarian ideas on living life. Thank you SteveO
I’ve noticed a few links back to this post. It’s a great one. Sorry I’m late to the party.
Short answer – yes, we are saving money.
How do I know? Well, before any of this travel hacking stuff, I had a barely good enough travel budget of $300/mo. I accrued that to a separate savings account every month for what we felt was minimal necessary travel to see family just barely enough.
Every taxi, flight, hotel room,annual fee, car rental etc comes from that.
Over the last 7 years, we’veincreased travel frequency and quality while reducing budget to $225/mo. Meanwhile, here’s the kicker, we also periodically scrape excesses from the account that are quite meaningful and which prop up iras, debt reduction, etc.
I’m a firm believer in segregating all the complicated stuff (e.g. gift card fees, donated fruit and nuts for miles/deductions, etc) so it doesn’t creep into being a driver of costs without notice.
Now… If I had to account for time, that might be the undoing. I regard that aspect as a hobby that happens to also be pretty lucrative.
That’s awesome that you stay on top of all of your spending and track it through the monthly budget. Sounds like you are actually saving money through travel hacking and that’s great! $75/month in savings can add up pretty fast over time.
Can you elaborate on what you mean by “segregating all of the complicated stuff”?
If you are counting various costs to earning miles such as the annual fees, gift card fees, etc. against the $2,700/year budget, does that mean you’re also counting cash back rewards as an addition to the budget?
I think the way you do the accounting is important because in a system where a bunch of cash back goes in and a bunch of travel expenses go out, the fixed amount budgeted from each paycheck no longer reflects what you’re actually spending on travel. In reality, you’ve found a way to boost your income through manipulating credit cards and you’ve decided to spend that on travel. This is fine and it isn’t to say you aren’t saving money, because it does appear that more money per paycheck is going to savings.
I’ve personally split our expense tracking into three categories. Churning Expenses (annual fees, etc.), Churning Income (cash back, cash bonuses, airline credits, etc.), and Travel Expenses (out-of-pocket for airfare, hotels, transportation, and everything else). I’m not sure this is the best way to track it, but I’ve found it works really well for seeing how much we’re really spending on travel.
Hopefully that made sense and isn’t overwhelming, I’ve been thinking a lot lately about how we track our own travel expenses with and without credit card benefits.
It evolved over time so I just have one travel bucket that is withdrawn from or funded up at month end reconciliation. All cash benefits reconcile to funding of the account. For example, I trigger airline fee credits wo actual spending (dl plat status helps) causing $200 to $300 to flow in. Or I generate 5 to 10% back in a gift card purchase and that flows in to thee account. Or a portal rebate or some discover/dividend/boa travel rewards cash all go in.
All expenses get reconciled back out of the account as well. And I mean all. It’s tedious but important to me. Buy a $500 gc for $506 and i record an asset of $500 but a $6 travel expense. Later, I pay est taxes with the card and incur. $3 expense to travel but when the credit card rebate value comes back, I credit that to travel.
In total, we could go to $0 travel budget. Periodically scraping what I call our travel budget for excess every 6 mos to a year is significantly more.
All this said, it’s a lot of time and we are in a relatively rare position of very, very high cash flows due to businesses and thus spend even more time optimizing the ROR on than even sign ups… though we did do megachurn earlier this year with 29 approvals of 30 apps in 60 days as a last hurrah while we wait for amex, chase, and Citi to decide they like us again.
Thanks for clarifying! Sounds like we keep our books in a very similar manner when it comes to travel, I also make sure to reconcile every dollar spent earning miles back against the benefits we’re getting. Definitely seems like you’re coming out ahead, especially if you’re ending up with a surplus every year.
That megachurn sounds insane, 29 approvals in 2 months is well beyond what we’ve ever tried for ourselves. But as they say, strike while the iron is hot!
I think this is a good idea to explore… My entire life I had been an amateur travel hacker to the tune of saving $1,500-$2,000/year mostly on flights (just by doing the easy thing and running all my work and personal expenses through 1 credit card) and I never felt like I was tempted to spend more just because the flights cost me just the taxes. I’m about to retire (less than 30 days!) and so I embarked on a more hard core travel hacking experiment with my husband starting last September with the ultimate goal of accumulating 1 million points or more to subsidize travel in retirement. It’s actually quite easy to accumulate the points and we haven’t done any crazy gift card or manufactured spends or anything like that and have paid some fees here and there. I’m hoping that having free lodging on our vacations going forward certainly doesn’t encourage me to spend more elsewhere. Reading this article certainly has made me mindful of it but given that I am going to be retired, I have this idea that I’m going to be much more watchful of any ancillary expenses.
WishIcouldsurf, Check out VRBO monthly rates. Enjoy the boogie boarding and body surfing. We started travel hacking at retirement in 2015 and got 2 million pts quickly. We use the airline miles for free flights to Hawaii and other islands for skin and scuba diving. We leverage the new card sign up requirements by paying VRBO rental fees and enjoy 3 months in FLA and 3 months in Hawaii each year. The hotel pts are used for 1 or 2 week family visiting or seminar travel. Now planning USA trip by car. Europe is to questionable. Also looking at OZ, NZ and Canada travel because exchange rates are good.
Yes, I found it quite easy to accumulate over a million points in 8 months without really trying that hard. I have a younger kiddo (3rd grader) so no 3 month vacations coming up but we will use them on a road trip this summer and probably have the next 3 years of ski season lodging covered. We try to spend a lot of time in the mountains during the winter and in retirement, this is my plan to subsidize that luxurious habit.
Thanks for the tips!
Do you guys do anything with your own home when you spend 3 months away? I’d certainly be tempted to rent it out myself on AirBNB or VRBO to offset even more of the travel costs.
Sounds like you guys have a pretty awesome travel schedule, I’m jealous 🙂
Noah Hi, We do not rent our house. We set the heat at 68, turn off the well water, turn off the hot water heater and go. We put everything on auto pay and enjoy the freedom & fun. We drive our car to FLA, rent a house at Terra Vista for $2000/month and enjoy the community. Vista Waikoloa Hawaii condos are great with excellent skin & scuba diving and lifestyle. The second largest reef Cozumel, Belize and Roatan are our next areas to explore in Spring of 2018. Another way to leverage the VRBO costs is to invite our family & friends for free vacations. Three months in Hawaii included visits from Sister & Husband for 2 weeks, Niece for 1 week and Sister and 2 Nephews for 1 week or 8 weeks vacation for others.
Comparison is the thief of joy. Theodore Roosevelt
Keep Smiling Letro Endless Summer
Sounds like you guys have a good system set up, thanks for sharing!
Sounds like you’re playing the game correctly, leverage the points and miles to reduce the price of travel you were going to take anyway and invest the difference. It’s mostly the people who use this new found travel hack to expand their travel frequency and style that end up missing out on any savings.
Congrats on the upcoming retirement, that’s awesome!
Hey Noah…I love, love, love the thought process of this article. I recently heard your podcast episode on ChooseFI. I actually jumped on our site to find out how you and your wife went to Fiji. That’s one of our (my wife and I) bucket-list trips. But, I’m down the rabbit hole of your great content. Thanks for putting this stuff out there!
Hey Audrick, thanks for chiming in! I appreciate the feedback and hopefully you found something here that can help you and your wife get to Fiji.
Cheers,
Noah