Hello folks! How are you doing today?! From the maker of the FIRE-Prowess Gauge to measure proficiency to reaching financial independence, I now bring you the Travel Hacking Prowess gauge! The travel hacking prowess gauge was designed to measure your proficiency in both earning bonus travel reward miles AND redeeming travel reward miles.
What do I mean by bonus travel reward miles and travel hacking? I’m referring to taking advantage of the common credit card offers of spending “X” amount to receiving “Y” amount of bonus miles, whether the bonus being airline miles, hotel points, or the proprietary credit card company’s reward points. Often it is spending $3K to $5K within the first three to four months of opening the card and receiving anywhere from 50K to 100K of travel rewards.
First a couple reminders for folks who may be just getting into the travel hacking game: 1) don’t buy stuff for the sole sake of earning travel rewards, only buy what you need and would normally spend, 2) always pay off your credit card in full each month on the due date, 3) when you open a card set up the auto pay right away so you don’t forget, and 4) I’d recommend closing the card after getting the reward to ensure you do incur annual fees, if applicable.
One tip, track your card opening, closing, and bonus reward activity with a simple excel file to help you keep it all straight. You can make one on your own, or, what I’ve done was download the travel reward spreadsheet from the ChooseFI folks, Jonathon and Brad.
Similar to how the FIRE-Prowess Gauge was designed to be agnostic to income, cost of living or current net worth in order to provide for a true and comparable figure, the Travel Hacking Prowess was designed to be agnostic to how much credit card spend you have and the amount you travel each year.
For instance, someone with a much higher cost of living and corresponding expenses that can be put on credit cards can more easily rack up rewards whereas someone living a more frugal lifestyle may find it more difficult. Either way, this measure was designed as a percentage to provide an easy and fair comparison between the two.
Points of Optimization
As mentioned above, there are two integral points to optimize travel hacking. First is earning the bonus travel rewards and the second is redeeming them. Let’s talk about each one of these individually.
Earning Travel Rewards
In earning the most travel rewards as possible, it is NOT about spending more. Remember rule number one above? The crux here is churning through cards as soon as you earn the bonus. Spend the threshold for each card, say it is $4K in three months, then move on. At this point in having hacked numerous cards, I’ve come to the conclusion that it doesn’t really matter if one card is “better” than another, just hack them both and get on with it. You can always figure out how to use the points on future vacations.
If your credit card spend is about $30K annually, your goal should be to hack eight to ten cards in a year. And that just happens to have been Lucy and my rough target every year. Granted our credit card spend is quite inflated given we are putting two kids through daycare (thankfully they take credit cards!), but otherwise our hacking would be more limited.
Redeeming Travel Rewards
The second point of optimization is redeeming travel rewards. This is the area that I am no way near considering myself an expert, but I have gotten better over time. There is a lot to this with different ways you can transfer points across platforms to take advantage of deals and other bonuses, travel during non-peak times, etc. etc. But some cards have fixed value (e.g. 1 point earned per dollar spent and each point worth one cent) such as the Capital One cards and the Barclaycard. Others can vary which lends itself for opportunities to maximize redemption values by having flexibility in travel and keeping your ear to the ground to find deals.
Historically, I really haven’t gotten too caught up in being super optimal in redemption value. This is definitely an area of improvement and learning yet for me. But right now, I’m just happy to maximize the earning of bonus travel rewards and accept the free travel no matter what the redemption rate.
SO WHAT IS THE CALCULATION!!
Here we are, over 700 words into the post and I still haven’t told you the calculation! But now that I’ve set it up a little, the explanation of the calculation will be easier.
First, for any given year, calculate how many bonus travel rewards you’ve earned. For the record, I do not include points or miles earned through non-credit card related spend. For example, both Lucy and I travel for work and I’m not counting the miles earned from that work related travel. So far in 2018 (through July), Lucy and I have hacked eight cards for a total of ~466K miles and points across the various platforms.
Second, calculate how many travel rewards have been used / redeemed. For Lucy and I that amounts to ~563K so far in 2018 (we carried over some from 2017 that we’ve redeemed). That may seem like a lot, and it is…we have a big ten year anniversary trip to Greece coming up that we’ve booked already.
Third, determine how much your credit card spend was in order to earn the travel rewards. This may seem tedious, but take five minutes and pull your credit card statements and add them all up. You can do this all online and won’t take too long. For Lucy and I, this has amounted to ~$36K.
Fourth, what was the value of your redemptions? For example, if you booked airfare and a hotel, what would they have cost you if you used dollars rather than rewards? For Lucy and I, that figure comes to $6.5K.
Take your Rewards Used divided by your Rewards Earned multiplied by your credit card spend. This will “equalize” the amount of rewards used to your spending levels and not “reward” you for using rewards carried over from a prior year nor “penalize” you for not using all the rewards you earned in the year.
For us, that would be (563K / 466K) X $36K = $43.5K. This represents my “adjusted” credit card spend based on reward utilization in the given year. I utilized more than I earned, so my adjusted credit card spend value is higher.
The next step in the calc is to take the value of reward redemptions divided by my adjusted credit card spend. That would be $6.5K / $43.5K = 15%.
MY TRAVEL HACKING PROWESS SCORE IS 15%!
How is My Travel Hacking Prowess?
Is 15% good? I think so, but I will continue to track it over the years and shoot for improvement. In 2018, we’ve done good but not great on spending just enough to receive the reward and, as far as redemption goes, we’re getting on average 1.15 cents per point. As I mentioned above, I know I can do better trying to optimize redemption value.
For shits and giggles…uh I mean shoots and googles…I calculated my 2017 Prowess score which came out to be 14%. And it is easy to know where the improvement came from, we optimized churning through credit cards better. Last year we didn’t have any strategy or goal in place and were more of the “casual hacker”. We routinely spent more on any given card than required to earn the bonus travel rewards which was inefficient.
Based on our ambitious, but realistic goals for 2019, I think we can do even better and reach a Travel Hacking Prowess score of over 19%. With some of the travel I know we’ll be taking in 2019 planned out and the targeted redemptions identified, I’m hoping to boost my average cents per point value to 1.4.
All in all, I’d say if you are hacking travel rewards with a prowess score of <10%, you are a beginner, if you are between 11% and 20%, you are an intermediate hacker, and if your travel hacking prowess is >20% then you definitely fall into the advanced category.
Tips to Travel Hacking
My main tip for those just starting to enter the realm of travel hacking is to just jump right in. Spend some time researching and finding a handful of good cards with bonuses relevant to you (e.g. don’t hack Southwest Airline credit cards if Southwest doesn’t have many flight option near you…) and start hacking.
This is actually the same approach I would give folks when first starting to invest. There is a lot of info out there, but you don’t need to be an expert when first starting. It is better to learn along the way than to have paralysis (delaying your investing) by over-analysis.
I first dabbled in the world of credit card travel hacking in 2014 with varied success and proficiency. But as I learned more and became more confident in the process, etc, starting in 2016 is when I amped up my focus and proficiency with travel hacking. Our travel hacking redemption value steadily increased year after year, from just over $400 in 2014 to $1.8K in 2015, $2.9K in 2016, $3.7K in 2017 and $6.5K so far in 2018.
One of the big hang-ups I had when I first started dabbling in travel rewards was concern over my credit score. First, the key to being able to be accepted by many of these credit card offers is having excellent credit. If you have excellent credit, I’m sure you are focused on maintaining it.
Take all the precautions you can to ensure you don’t have any late payments (set auto-payment right away) and that you pay your credit card statement in full every month. I can speak only to my own experience, and my credit card score has not fallen at all from travel hacking. Part of the benefit has actually been demonstrating good credit behavior / usage patterns despite having so much credit available to me.
If this is a concern for you, certainly do some research on it and consider taking it slow and monitoring your score closely.
We’re in the Trust Tree
So what say you?
What is your travel hacking prowess? Are you still a beginner? Have you gotten your feet wet and moved up to intermediate? Or do you have it down pat and already an advanced travel hacker? Let me know in the comments below!
Thanks for taking a look!
The Green Swan