Most personal finance advice boils down to:
It’s the easiest way to accumulate wealth, increase your investment income, and achieve financial independence (although it’s actually not that simple).
But when it comes to travel rewards (points and miles earned with airlines, hotels, and credit card programs), this convention is turned upside down. Saving a million miles may sound great, but it’s generally a bad financial decision.
“We hear a lot about business travelers who ‘spent miles for retirement’ and are devastated that the purchasing power of miles is nowhere near what it was five, 10, 15 years ago.” says Tiffany Funk. The co-founder and president of travel reward booking search tool Point.me said in her email:
“The program is so successful in making loyalty currency feel so valuable that people are often hesitant to use it for fear of giving up too much value.”
There are several factors that explain why hoarding travel perks isn’t a good idea.
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Points depreciate in value over time. 2022 was a rare exception, Get more points Cash fares are relatively costly, so rewards typically lose value over time.
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They are non-investable. Unlike dollars that can be invested for compounded returns over time, the rewards of travel are just there.
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some points expire And the program can go haywire at any moment. The value of Points and Miles cannot be guaranteed by anyone other than the company that provides them.
But despite these facts, it can be hard to get back into the habit of saving. Especially for those who have a psychological bias against “maximize”.
no satisfaction
Analysis paralysis can be one of the biggest challenges for avid points and mile savers. Making the decision to spend the piles of rewards amassed during the pandemic is one thing. Actually using them is another.
“Airline revenue systems are intentionally opaque,” says Funk. “So even if your credit card offers the ability to transfer points to partners, your bank will literally have no idea which partners are suitable for a particular trip and what the expected rates should be. , or even how to book a flight, there is no mechanism in that program.”
This opacity has frozen many potential consumers in their tracks, making them second-guess whether a particular redemption offers the best value.
This prejudice of trying to get the most value, while positive on the surface, can lead to a spiral of comparison shopping and waiting for full redemption.
Adam Nubern, a chartered accountant who specializes in serving digital nomads, said:
“Don’t get caught up in the race to maximize redemption value. Then you have to keep up with program changes and all that.
Not only does this “maximizer” mentality lead to more hoarding, it can also make you unhappy.
a 2018 survey According to the Department of Psychology at Chengdu University in China, Maximizers tended to have lower overall happiness scores than those who accepted the “good enough” option.
In other words, those who stuck to their best buys were less satisfied with their results than those who took a more relaxed approach, the so-called satisfied.
The term ‘satisfied’ is a combination of ‘satisfied’ and ‘satisfied’ and is a decision-making process that involves gathering enough information to make an acceptable choice. This is a great way to overcome over-accumulation of travel rewards.
manage points
Travel rewards bloggers have long touted these redemptions that offer the absolute best value.
For example, a first class flight to Asia is worth 5 cents per mile, but an economy flight within the US only gets you 1-2 cents per mile. This creates an incentive to spend miles on the most luxurious and luxurious options.
But think of it this way. With cash equivalents so high, these high-end redemptions only offer more value.
A round trip ticket to Asia can easily cost $10,000 in cash. So while redeeming points for miles seems like a great value, it’s only a comparison.
Instead, travelers sitting on points cash should keep it simple.
Flying to visit family? Use airline miles. Looking for a hotel during your road trip? Please use a credit card or hotel points. These redemptions may not get you many “likes” on Instagram, but they do deplete your rapidly depreciating rewards.
Make sure your chosen redemption does not offer value significantly below your baseline.use the online calculator Compare the value of using rewards or the value of paying cash.
But when in doubt, use these points.
“Well, we don’t have to spend real money, so let’s go,” Nubern says. “I try not to get caught up in that decision fatigue. In my opinion, I’m not using dollars, so any kind of redemption would be great, and that’s what I’m after.”
This article was written by NerdWallet and originally published by The Associated Press.
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