Frequent Miler - When are points better than cash & vice versa? | Coffee Break Ep39 | 12-31-24
The conversation centers around the Smartly credit card, which offers up to 4% cash back, prompting a reevaluation of the value of earning points versus cash back. The speakers argue that while earning points can be valuable, the opportunity cost of not taking cash back is significant, especially when points are valued at two cents each. They suggest that cash back can be used to purchase points during sales, effectively increasing the value of cash back to the equivalent of earning multiple points per dollar. However, they acknowledge that points can offer outsized value in certain situations, such as booking award flights or hotel stays, which cash cannot always match. The speakers recommend using the 4% cash back card for everyday spending while earning points through welcome bonuses, targeted offers, and other methods. They emphasize the importance of evaluating personal spending habits and financial goals to determine the best strategy.
Key Points:
- Use the Smartly card for 4% cash back on everyday purchases to maximize returns.
- Consider buying points during sales with cash back to increase point value.
- Evaluate personal spending habits to decide between cash back and points.
- Earn points through welcome bonuses and targeted offers instead of everyday spending.
- Keep some points for flexibility in booking travel deals that cash can't match.
Details:
1. 💳 Cash Back vs Points: The Debate Begins
- The Smartly credit card offers up to 4% cash back, which encourages a reevaluation of the value of earning points versus cash back.
- Earning cash back is relatively straightforward for most users, but the highest rate requires a significant deposit.
- The opportunity cost of not utilizing the 4% cash back can be substantial for those eligible.
- Points can offer superior value in specific scenarios, such as travel rewards where they might be worth more than equivalent cash back.
- Opting for points can also provide exclusive benefits like upgrades or access to premium experiences not available with cash back.
2. 📊 Evaluating Points vs Cash: Benefits and Trade-offs
2.1. Comparing Points and Cash Back
2.2. Buying Points Considerations
2.3. Opportunity Costs and Category Bonuses
2.4. Strategic Use of Cash Back for Points
2.5. Potential of High Cash Back Strategies
3. 💸 Cash as the Primary Strategy? Pros and Cons
- While a 4% return on cash through certain cards like the "smartly card" seems attractive, its sustainability is questionable, and it may not last long-term.
- Purchasing points during sales may appear beneficial, but it's often not practical as opportunities for outsized value can arise unexpectedly, requiring points on hand.
- Having a reserve of transferable points is crucial for taking advantage of sudden award space availability, such as 50,000 miles each way in business class on Air France or KLM.
- Programs like Hyatt rarely offer sales on points, yet they provide significant value, making transferable points essential for leveraging such opportunities.
- Award tickets offer flexibility, such as cancellation without penalties in many US-based programs, providing an advantage over cash payments.
- Cash is generally more flexible than miles and points; however, miles and points can access unique opportunities that would require significantly more cash.
- Real-life examples highlight the benefits of points, such as securing business class flights to New Zealand for 60,000 points during peak season, which would be costly in cash despite earning a high return rate.
- Balancing cash back strategies with earning transferable miles and points is necessary, as relying solely on cash back might not suffice for unexpected travel opportunities.
4. 🔍 Balancing Act: Combining Cash Back and Points
- Utilize a 4% cash back card for everyday spending to achieve near-optimal returns unless higher bonuses are available through specific category cards.
- Combine cash back strategies with earning points through various bonuses such as welcome bonuses, which can provide upwards of 10 points per dollar, making them a significant source of value.
- Welcome bonuses, targeted card bonuses, retention bonuses, and referral bonuses are key sources for accumulating points and miles more effectively than regular spending.
- Online purchases should be strategically planned with cards offering better rewards than the Altitude Reserve, which requires mobile wallet payments for its 4.5% return benefit.
- Maximize points earning by focusing on bonuses rather than regular spending, as many individuals derive most of their points from these bonuses.
5. 📝 Wrapping Up: Personalized Financial Strategy
- Utilizing a high credit card can earn Elite nights and Hyatt Milestone rewards, potentially offering over four points per dollar spent if certain thresholds are met.
- Consider the cost-effectiveness of spending strategies, as earning 5,000 points for $5,000 spend equates to paying 4 cents per point.
- Evaluate cash back offers carefully: some require only $5,000 in deposits to achieve 2.5% back, a potentially optimal choice for those unable to meet higher deposit requirements.
- Transferring retirement savings or investments to certain banks may help meet high deposit requirements and waive fees, enhancing financial strategy effectiveness.
- Run individual calculations to determine the best financial strategy based on specific spending habits and available resources.