In our last article we discussed how to build free travel assets using credit card bonus offers. The credit card bonus offers are a large part of gathering free travel assets but the use of credit cards to get free travel has a very important second element.
I like to think of this second element of building reward points as “spending power”. Every one that spends money on items like groceries, gas, restaurants, cloths or any other item that you can buy with a credit card has “spending power”. I you spend a dollar on groceries and don’t us a travel credit card on that purchase you have lost “spending power.” The trick Geezer Travel exploits is taking that dollar you had to spend anyway and turning it into the maximum amount of “spending power” in order to maximize the free travel from that dollar of “spend”.
All travel credit card give you rewards for the money or “spend” you make with their card. Some offer very little rewards and some offer huge rewards the trick is to get the most bang for your buck with the money you spend every day.
The first thing you have to know is that every dollar you spend is not created equal in the eyes of most credit cards. When you look at adds for credit cards you will see notations like X3 points for groceries or X2 points for gas. These notations mean that if you use this card for groceries you will get 3 points for every dollar you send on groceries or 2 points for every dollar you spend on gas. The multiplier that your card offers for certain types of spending is a critical part of the cards ability to be to tool for you to use in generating free travel.
The second thing you need to know is that every point is not equal. American air miles are generally valued between 1.7 and 1.5 cents per mile. This value can change when ever American changes its policies that control how their miles can be redeemed. United and Delta miles are almost always valued less than American miles. I have seen American Express Miles I value at ~2 cents based on the common way I use these points. My point is when you’re calculating which cards give you the most bang for your buck you need to not only consider what the card offers for a multiplier on different spend but also the value of their miles. I know a lot to digest.
To help explain how credit card “spend” works I’ll start with the a simple example the Barclay Arrival Plus card offers X2 points on every purchase. Their multiplier is X2 for everything you buy with the card. Because, the Barclay Arrival Plus card uses the “statement credit” system of redemption and values each point as a penny taken off your Barclay Arrival Plus statement the value of any dollar of “spend” put on the card is 2 cents. So if you spend $2000 dollars a month and only use the Barclay Arrival Plus card you will receive 4000 (4 X $2000 spent on card) points a month worth $40 dollars (4000 points X 1 cent value of the points) in free travel.
To add a little bit to our discussion I want to now talk about a second card the American Express Every Day Preferred credit card. This card offers X3 points for groceries and X2 points for gas and X1 points for everything else. This card also gives the card holder an additional 50% point bonus for making 30 or more purchases on the card in a billing cycle (1 month). So with the 50% bonus I get X4.5 multiplier for my grocery purchases and because I value American Express points at 2 cents per point the value of any dollar of “spend” put on the American Express Every Day Preferred card is 9 cents. So if you spend $500 dollars a month on groceries and only use the American Express Every Day Preferred card for your grocery purchases you will receive 2250 ( 500 X 4.5) points a month worth $90 dollars in free travel assets (2250 points X 2 cent point value) in free travel. A $200 a month gas budget paid by the same card would net you another $12 ( $200 spend X2 multiplier X 50% bonus X 2cent value per point = $12)
As you can see the American Express Every Day Preferred card will do a good job of maximizing your free travel for every day items like groceries (9 cents per dollar) and gas (6 cents per dollar) but what about other expenses? Because we travel so much a big part of our budget is travel and restaurants. For these budget items we have had to turn to a third card the Chase Saphire Reserve. This card offers a X3 multiplier on travel costs and dinning out. The Chase Ultimate Rewards points I value at 2 cents per point so our return for dollar of “spend” on travel and restaurants is 6 cents. I we may budget $1000 a month for restaurants and travel that $1000 of “spend” is worth $60 in free travel assets each month because I used the Chase Saphire Reserve card to make those purchases.
So let’s do a quick recap, if we spend $1000 a month on travel and restaurants, $500 on groceries, $200 on gas and $2000 on every thing else you would build $202 dollars in travel assets every month just with your monthly normal spend. That’s over $2400 a year in free travel assets.
In the last two articles on the credit card travel tool we have discussed credit card bonus’s and credit card “spend”. If these two tools are maximized they alone can generate a lot of free travel in THE TRAVEL CREDIT CARD PART – 8 MORE stacking we will discuss tools like Dining Clubs, and Shopping Portals that can significantly increase the value of your every day “spend”.
Stay with the Geezers and we will explore how even though you’re on a fixed retired budget you an enjoy the adventure of travel!