The majority of personal finance advice boils to this: Save as much money as possible and spend as little as possible.
This is the easiest way to build wealth, invest income and become financially independent.
This is not the case when it comes to travel reward points, which are the points and miles you earn through hotel, airline and credit card programs. Although saving a million miles may sound appealing, it is generally a bad financial decision.
Tiffany Funk, cofounder and president, Point.me travel rewards booking tool, stated in an email, “I hear all of the time from business travellers who’saved’ their miles for retirement and are devastated to discover that the purchasing power isn’t the same as it would have been five, ten, or fifteen years ago.”
“Programs have made loyalty currencies so valuable that people often hesitate to use them, because they fear they will lose too much value.”
There are many reasons why hoarding travel reward points isn’t a good idea.
Points lose value over time.
They’re un-investable. Travel rewards are not like dollars which can be invested over time to reap the benefits of compound interest.
Some miles and points can expire , and companies that offer them cannot guarantee their value.
However, it can be difficult to break the saving habits despite all these facts. Particularly for people with a tendency to maximize .”
Can’t get no satisfaction
Inveterate miles and points hoarders can face analysis paralysis, which is one of the most difficult challenges. It is not easy to decide whether or not to spend the rewards you have accumulated over the pandemic. Spending them is quite another.
Funk stated that “Airline revenue systems can be deliberately opaque.” Funk stated that even though your credit card allows you to transfer points to partners it doesn’t give you the tools to help you decide which partner is best for a trip, what the expected price should be, or how to book flights with the program span>
This opaqueness freezes many would be spenders, making it difficult for them to determine if a redemption is the best value.
A bias towards getting the best value can lead to comparison shopping and waiting for redemption.
Adam Nubern is a certified public accountant and digital nomad specialist.
Don’t get too caught up in the maximising redemption value rat race. You will also need to keep up with program changes and all the rest. How many hours have you spent researching this? Are you looking for a part-time job to be a points maximizer span>
This “maximizer” mentality can lead to hoarding and make you unhappy.
A 2018 study conducted by the Department of Psychology at Chengdu University in China showed that maximizers score lower on overall well-being scores than those who accept “good enough” choices.
This means that those who obsess over the best purchase were less satisfied with the result than those who chose a more relaxed approach (so-called satisficers).
The term “satisficing” is a combination “satisfy”, “suffice” and “satisfy.” It’s a process of making a decision that requires enough information to make an acceptable decision. This is a great way of overcoming travel reward overaccumulation.
Take control of your points
The best travel rewards blogs have always praised redemptions that provide the highest value.
For example, a first-class flight from the United States to Asia might be worth 5 cents per miles, while an economy flight within America could only yield 1 or 2 cents per kilometer. This gives you an incentive to redeem miles for the most luxurious and extravagant options.
Think of it this way: High-end redemptions offer more value than the cash equivalent.
Round-trip flights to Asia can easily run up to $10,000 if you pay cash. This makes points and miles seem like a great deal, but only in comparison.
Instead of sitting on a bunch of points, travelers should just keep it simple.
To visit relatives, why not take a flight? Use airline miles. Are you looking for a hotel on a road trip and need to book it? You can use hotel points or credit cards. Although these redemptions may not be popular on Instagram, they will burn through the quickly depreciating rewards.
Be sure to not choose redemptions that offer less than the baseline value. To compare the benefits of paying cash or using rewards, you can use an online calculator.
If in doubt, use these points.
Nubern states, “I think, “Well, dang! I don’t need to use actual cash, so let’s get,” I try to not get too caught up in the decision fatigue. To my mind, I don’t use a dollar so any redemption is great and I just go for .”
This article is by NerdWallet. It was originally published in The Associated Press.
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