the process

banking for the future

we have never intended for our next life to be a personal finance blog, nor an early retirement investment strategy blog, and we’re not going to start now. plenty of others are writing many fantastic posts a day that share the pros and cons of virtually every kind of saving strategy, every type of investment, every form of passive income. this is about a different kind of banking: banking miles, hotel points and more.

when we quit our jobs, we sincerely hope to be able to live quite cheaply, but also to travel a lot. our last post was all about the trips we’re thinking about in the near term, and a lot of them require little more than a van we can sleep in, and money to buy food and gas. but it’s not our plan to see the whole world that way. sometimes we’ll have to fly, and once in a while we’ll need to stay in a hotel.

it’s well known wisdom in the financial independence sphere to invest at least as much in your 401(k) as your company requires to get the full company match. otherwise you’re throwing away potential money. but another way we see people throw away — not money exactly, but — potential currency, is to spread out work travel and personal travel over multiple airlines.

we advocate instead taking a fanatical approach to banking airline miles. most airlines require somewhere in the neighborhood of five coast-to-coast roundtrips to earn a free domestic roundtrip ticket. if you take those five trips on different airlines, they add up to essentially nothing. it’s only by concentrating your travel on one airline or airline network that you get the benefit. and double it to get an international ticket. if you spread your travel out over many carriers, in attempts to save money, you’ll never get a single free international ticket.

we fully recognize that this approach means sometimes not taking the absolute cheapest flight, and we believe it’s usually worth it. especially if you travel for work, then by all means, do your very best to stick with one major carrier with international affiliates (like united and the star alliance), and make sure you get credit for every mile you fly. we each have upwards of 500,000 miles in our accounts, thanks to work travel and mileage credit cards, and by the time we quit, we’ll have closer to 1,000,000 miles each. those numbers may not be achievable by everyone — we sincerely hope that most people get more time at home than we do, and don’t have to travel as much for work — but the principle is the same. if you’re working now, bank your miles, so that you can spend them later, when your budget is much tighter. we should be able to travel the world for several years without paying for our tickets, and we’re super excited to see that happen.

one area where we’ve just recently gotten wiser is with hotel points. and we don’t have all the answers here yet. we’re still debating which hotel chains to stay with most, but we’ve for sure started to focus on a few: marriott, because they are the largest chain in the world and have budget properties; starwood, because they make it easy to earn free nights; and hilton, for the same reason. if you have tips about which hotel program is best, please share! bottom line with this one is: regardless of which chain you choose, it’s better to stick with one or a small number rather than spreading your points out. same as with airlines. one thing in particular that we love about banking hotel nights is that we can use them in the future to stay at places that are out of our price range (granted, we expect this to be extremely rare, or we’d drain our points in no time), which will be an especially nice treat once we’re living the full cheapskate existence.

one thing to watch for with your points is when they expire. this goes for airlines and hotels. some expire in as little as a year with no stay or redemptions, which can quickly mean you lose out on the benefit of all those stays or travel. we find the award wallet app extremely helpful to track our points and to remind us if any are in danger of expiring soon. (note: we don’t like or use the site, but use the app weekly.)

we’ve heard the argument that banking miles is a bad idea, because they are occasionally devalued. that’s always a risk we run. when you save money, you are constantly exposed to inflation risk. with investments, you’re exposed to market risk. with banking miles and points, there’s a risk as well. but we look at it this way: right now we are working and have income, so can afford to buy our flights and hotel nights. in the future, we won’t have the luxury, and banking the points is a way to help us live the life we want.

what are you banking for the future?

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Categories: the process

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4 replies »

  1. I think you’re underestimating the degree to which points are devalued. The exact amount varies from year to year (more during good times for the airline) and depends on how you prefer to fly (business and first class get more devaluations, while economy tends to get worse availability instead), but the ballpark estimate that I use is to treat my points as devaluing at 5-10% per year. That argues for using them sooner when convenient. You still might end up with a large balance, but please don’t pay cash or avoid travel you would otherwise want to do to save your points for later when the points “price” is reasonable. Cash earns a positive return and points earn a negative one.

    • It’s a good point, but over the course of just a few years, it’s not that dramatic a difference. ;-)

  2. I agree with Telnar. Use your airlines sooner rather than later. That 1,000,000 miles sounds like a lot but in reality, right now on United, they are only worth about 4-6 international business class trips for two. And that’s if you are able to book relatively far in advance. We have enjoyed using our miles to fund travel since our early retirement three years ago, but know that after next year, we’ll be buying our tickets.
    Good luck on your new adventure!

    • We are under no illusions about our mileage valuations and the continued devaluations that will come down the pike! ;-)