Friday, January 17, 2014

How to Become a (Points/Miles) Millionaire

Earlier this week, I wrote a post about the New York Times' 2014 Places to Go which also included a high-level and brief overview of utilizing credit card sign-up bonuses to amass hundreds of thousands of points quickly.

Since I'm relatively new to all this as well having only seriously gotten into the points/miles game in 2011, I thought that it'd be helpful to create a how-to guide of things that helped me when first getting started along with other pointers that I've picked up along the way.

1. Take a step back and figure out what kind of traveler you are

Before just diving head-first into everything, it's worth taking a step back and thinking about what sort of traveler you are. And not just in terms of how you've been traveling, but also in the context of how you want to be traveling.

For some people, they would prefer taking 2 trips in economy vs. 1 in business or first class, and similarly would prefer staying 2-3 nights at an average hotel vs. 1 night in a luxury hotel. Or some people may only care about amassing frequent flier miles for free flights, since they prefer to stay at hostels or take cruises which generally do not belong to any loyalty programs.

So do you want points/miles primarily to get free flights and hotels to travel more frequently?
Or do you want them to get aspirational travel in first class cabins and luxury hotels that you otherwise would never pay for?
Do you care more about the quantity of trips you can take, or increasing the comfort for each trip?
What's on your bucket list, mostly domestic or international destinations?
Would you prefer taking 3 short 1-week trips or one mega 3-week trip?
How would you spend a week of vacation- 7 cities in 7 days or hunker down and stay in 1 city for 7 days?

These are all important questions to ask yourself, because it will help to pick the optimal programs into which you should collect points/miles. For me, the biggest constraint on my ability to travel was time - so the most important aspect of points/miles for me was to enhance the comfort of each trip, as opposed to taking more trips. So I would consider myself an aspirational traveler, where I use my points to get access to $15,000 first class airfare tickets and stay in $1,000 per night hotel rooms that I would never otherwise pay for.

The reason some of the other questions are important is that each frequent flier and hotel program has a sweet spot for redeeming points/miles, and it's not always the same. For example, if Europe or Australia is next on your bucket list then I'd recommend the Star Alliance (*A) whereas for Africa I'd recommend Alaska Airlines.  For mid-range vs. luxury hotels, the best program also varies, and different programs are even better for solo vs. traveling with multiple people together as for example both Korean Air and British Airways allow you to create household accounts that can pool points across multiple accounts.

So do take some time and treat this decision as you would with a large purchase - do some research beforehand and figure out which program is best for your specific travel goals and destinations. 

2. Where do you want to go next?

The points/miles game can be intimidating, and the hardest part is just getting started. But everyone who's thinking about getting into this game more than likely enjoys travel, and probably even has a bucket list of top places they've been dying to visit.  And by narrowing down your focus to a singular goal, which for me was "how can I plan a trip to the Maldives using points/miles?", it allows you to start accumulating toward that specific goal instead of just collecting points/miles randomly and hoping that you'll someday achieve that goal. For others, it may be getting a free trip to Mexico or Hawaii, or something even more practical such as for those away at school, getting free flights back home several times a year which can save a lot of money, especially since those flights generally come during holidays.

If you use a shotgun or spray-and-pray method to accumulating points, you'll end up with a lot of points spread over a lot of different programs, which essentially become useless. Having 10,000 points in 10 programs is absolutely not the same as having 100,000 points in 1 program. Figure out what program and how many points you need, and accumulate points only in those programs. You'll have plenty of time to diversify later on, but you need critical mass in your top programs first in order to be able to do anything.

3. Get Organized

If you invest in the stock market, you wouldn't have records of each stock you own in different places with nothing in place to track performance. Points and miles should be treated the same way.

I recommend signing up for AwardWallet which is a free tool that allows you to track all of your programs in one place.  For programs where you already have membership and points, input those in. You can even input programs for multiple people, which is helpful for really tracking everything in one place.  And for programs that you think you'll be needing, signup for membership accounts directly through that program's website, then link back to your AwardWallet account.

4. Using credit card sign-up bonuses to get points quickly

Before I touch on this in more detail, if you have any upcoming plans that require financing (mortgage, re-financing, new car purchase) in the next 12 months, stop right now. More important than free travel is being able to get the best interest rate on those purchases, and you need your credit score in tip-top shape to do so. As I mentioned before, credit card applications will hit your score in the short-term (6-12 months) by an average of 3-5 points each, so just hold off until you've finished before proceeding with the credit card game.

Here are some other quick hit tips on credit cards:
  • Before getting into this game, make sure you're ready to handle the financial responsibility of paying your balances on time across several cards and bank. When you have credit cards across all the major banks (Chase, Citi, Amex, Barclays, BofA) it can be a lot of work just making sure you are keeping track of when bills are due from each and getting them paid on time
  • There's a sweet spot in the number of credit cards you want to have - not too many, but also not too few. So what that means, is STOP applying for credit cards that don't earn you points/miles. That's cool that Banana Republic wants to give you 10% off the purchase of a sweater, but don't do it. It's not worth wasting a precious line of credit to save $10 when you could be getting $1,000 in free travel from that same line of credit
  • Almost every airline and hotel has its own branded card, and you can apply for these based on your programs of choice.  Here are a few examples from a blogger that I like to read, and in general I'd recommend Boarding Area as a great source of travel-related information
  • Additionally, a few programs offer that offer the ability to transfer points/miles are Chase Ultimate Rewards (recommend the Chase Sapphire card), American Express Membership Rewards (recommend the Premier Rewards Gold card), and Starwood Hotels loyalty program
  • Most of the good cards require an annual fee, but most also waive that annual fee for the first year. Even if they don't, generally the sign-up bonuses (depending on how you value them) can be worth $500 - $1,000 in free travel, so still provide great value even if paying a $65-$95 annual fee
  • Most cards require a "minimum spend" to get the sign-up bonus, which is an amount of spend in a specified period (e.g. $5,000 spend in 3 months). Especially if you're getting multiple cards at once, track all this carefully so you know exactly how much you need to spend on each to get the bonus. 

    But don't be afraid to sign-up for multiple cards at once because minimum spend requirements are easy to meet through creative ways which are often referred to as "manufactured spend".  For example, if I sign up for 5 cards at once, each with a $5,000 spend required in 3 months, that essentially means I need to spend $25,000 across these cards in the next 3 months.  Of course there's no way that I spend that much typically, but let's say that I'd normally spend about $5,000 during those 3 months.  I can easily manufacture $20,000 in spend across the cards, which boils down to spending money on a credit card, but essentially getting that money back in cash in order to pay off the credit card bill. More on this topic some other time
  • Do not, I repeat do not, cancel the card within 6 months of opening it.  Typically, I will keep the card for 10-11 months before cancelling.  If you cancel right away, more than likely your sign-up bonus will be retracted. Whether you got hit with an annual fee or not, there is no downside to keeping the card for 11 months before cancelling
  • After cancelling the card, don't apply for the same one in hopes of getting the bonus again. You likely won't, as most cards require at least 12-24 months before you can get another bonus. Move on to other cards in the mean time, as there as plenty out there to choose from
5. Accrue points in all other aspects of your daily life

There are so, so many ways that you're probably foregoing earning points in your daily life right now, here are just a few examples:
  • Unless you absolutely have to, avoid using cash and pay with your credit card, and under no circumstance should you be using a debit card for purchases
  • Make sure that you're earning points on all travel (flights, hotels, rental cars, etc.) by having your membership number entered, and again as a rule of thumb don't accue flight points in multiple programs within the same alliance
  • Use the appropriate credit card in each situation - for example the Chase Sapphire card earns 2x points on all dining and travel such as airfare/hotels, and travel is even loosely defined to  include taxis/Uber, parking garage fees, etc. The Amex PRG offers 2x points on gas and groceries, and Chase Ink card earns 5x points on utilities such as cell phone and cable/internet as well as office supply stores like Office Depot and Staples
  • Sign-up all your credit cards for a dining program such as United's Mileage Plus Dining or American Airlines' AAdvantage Dining. You can link these to your frequent flier program/credit cards and automatically get points for eating at restaurants. I typically don't seek out these restaurants, but since all my credit cards are linked then it's more that I'll get an unexpected surprise of some bonus points each time I visit a participating restaurant or bar
  • The majority of my shopping is now done online, and everytime you shop online it should be done through a shopping portal.  Here's a nice summary of how that works, but essentially you are getting bonus points (often 5+ bonus points per $ spend) on items that you were planning to buy anyways and for the same price, just by first entering the site through a shopping portal
  • Keep an eye out for other miscellaneous ways to earn points, such as:
    • Up to 50,000 bonus points annually by using Fidelity
    • Using BankDirect for your checking account or CD 
    • Getting miles for Netflix subscriptions
    • Retention bonuses for credit cards where you call in each year and threaten to cancel, even if you don't really want to cancel
    • And even getting points/miles for delays, cancellations, and even complaints. In fact, we just got 100,000 British Airways miles because our recent BA flight had an older version of the first class seats than what is available on other BA planes, and I wrote in to complain after hearing that others had done the same
6. Earning points is the easy part, now how to spend them

Finally, I tell people this all the time, but earning points is really the easy part. The hard part which requires even more skill and knowledge is how to best use them.  As an example, I've been able to take the same number of miles someone was planning to spend on trip, and at no additional cost get 2 additional free flights added to the itinerary, one of which was even on a future trip that they were already planning to take.  Each program has different ticketing rules, and it takes a lot of time and research to learn how to maximize your miles within the confines of those rules.  That's another topic for another day, but I'm more than happy to give people pointers in the mean time.

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