When it comes to spending our money, there are really only 2 things my wife and I tend to splurge on: restaurants and travel. Both of us really enjoy seeing new places and sampling the local food scene. That being said, those two things can get really expensive, really quick.
Last year, we spent about $9,000 on restaurants and $4,000 on travel expenses including airfare, hotels, and ground transport. Since we budget about $25,000 in discretionary spending every year, it’s really the elephant in the room when talking about our expenses.
So what to do about it? Well, we could just simply cut back. No one needs to spend that kind of money every year on restaurants to be happy. Not to mention the fact that eating out all the time doesn’t do your waistline any favors. And yeah, you don’t need to fly somewhere else to have fun.
But here’s the thing, we like doing those things. In terms of exchanging money for happiness, we get a lot of return from them. Sure, we could order less drinks at restaurants or take shorter trips to cut down on hotel stays, but overall we’re still going to go out and travel places. So in order to cut down on expenses, but not experiences, we needed to be smarter about the whole process.
One way to save money that my wife and I have gotten a lot better at is seeking out deals when we buy things. First, we’ll seek out things that are on sale or better yet, on clearance. Brand new Eddie Bauer parka for $50 marked down from $375? Bought that up! Next, we’ll use apps and promotions that further extend the discount. My wife’s favorite savings game is to use the MyMixx and iBotta apps when grocery shopping to clip coupons and get rebates. Lastly, we leveraged our credit cards for cash back. We used 4 different cards: the American Express Blue Cash Preferred, Chase Freedom, Chase Amazon Prime Rewards, and Capital One Quicksilver Cash.
With that last technique, I thought I was gaming the system. We’d get 6% cash back at the grocery store, 3-5% back on gas, 5% at Amazon, 2% on restaurants, 5% on some rotating categories, and 1.5% back on everything else. Pretty good right? Well, like anything, that depends on who you ask.
While the financial independence community hosts groups of experts on various FI related topics, one group has really caught my interest lately: the travel hackers. For those unfamiliar with the term, travel hacking refers to using points and other rewards programs to dramatically reduce the major costs (transportation and lodging) associated with travel.
To accomplish that, travel hackers take advantage of the bonus offers that credit card issuers give out to new card members through a process known as churning. In a nutshell, you open a card, spend the amount required to trigger the bonus, open another card, repeat. While I got an average of 2-3% in cash back across all of the cards I used, people using these techniques can blow those returns out of the water. In one popular method, dubbed the Chase Gauntlet, one person could accumulate 290,000 points/miles from $17,000 worth of spending over a 2 year period. Even if you take those points at a base 1 cent/point valuation, you’re looking at 17% back in value at a minimum! In reality, those points are generally worth more like 2 cents/point bumping our value to 34% back. That’s ridiculous.
So obviously, this sort of nonsense is of great interest to me. But there are some important caveats.
- Opening up lines of credit will impact your credit score since in order to apply for cards, the issuing bank will do a hard pull on your credit report. Generally speaking, these hard inquiries result in an immediate 3-5 point drop in your FICO score. As such, travel hacking may not be a good idea for those that still need to get approved for major loans such as a mortgage.
- Opening accounts frequently can cause loan applications to be denied regardless of your FICO score. This can hold true for both mortgage seekers and credit card applicants. For example, Chase has a well documented policy on this called the 5/24 rule. Per that rule, you may only open a maximum of 5 credit cards from any bank in a rolling 24 month period. Any more and you’ll get denied by Chase for new card.
- There are warnings in the cardholder agreements about the possibility of points being taken away at any time for whatever reason the issuers deem fit.
Hence, this is why I’m getting into it as an experiment; though I’d like to think that I’m a good test subject. I’m fortunate enough to be in a position where I’ve already gotten a mortgage so most of the major risks have passed. Also, and more importantly, I’m not banking on travel hacking to offset my budget. If my points were to be taken away suddenly, I could simply say “Well that sucks” and move on.
So in this series of posts I’ll share my experiences with the travel hacking. I’ll talk about what cards I’m opening and why, what bonuses I’ve gotten, and what redemptions I make. But also, I’ll talk about the less glamorous aspects of travel hacking such as the impact on my credit and how hard it is to make those redemptions. So here we go…
Card #1: Chase Sapphire Preferred (for me) – Opened 3/20/18
FICO Score Change: -3 (2/16/18-3/31/18)
- Chase Ultimate Rewards: 1,276
To start out, I chose the Chase Sapphire Preferred (CSP) card. I got this card for a few reasons.
- It’s widely recognized as one of the best travel rewards cards out there for the flexibility in it’s rewards program, Ultimate Rewards (UR).
- The points you earn can be used to book travel through Chase at a 1.25 cent/point valuation or you can transfer them to any of their airline or hotel partners 1:1. That last bit is extremely important for being able to squeeze 2 cents or more worth of value out of each point.
- You can freely transfer points between members of the same household that hold a card that uses UR. There were some points on my wife’s Chase Freedom card so I transferred them here.
- The bonus being offered was extremely generous at 60,000 points if I spent $4,000 within the first 3 months. Assuming I got only 1 point per dollar spent and 2 cents of value per point, that equates to 32% back in value from that $4,000 worth of spending.
In order to get that though, we do need to spend $4,000 in 3 months. While not excessive, we’re not going to get there with our regular grocery spending. So to make it happen, I put all the recurring expenses that I could onto the CSP. In what I think will become sort of a ritual for me when I open a new card, I went through the tedious task of moving every bill I could over to the new card. I even called our propane company and had them refund another card for a recent delivery only to put it on the new CSP! That last one was a little sketchy I’ll admit but whatever. Overall, I was able to set it up so that reaching the minimum spend requirement wouldn’t be an issue.
I did have a bit of a surprise with my card though. On most sites where I’ve seen the CSP advertised, the annual fee of $95 is waived the first year and the bonus is only 50,000 points. When I saw the 60,000 point bonus offer on Chase’s website, I assumed the annual fee would still be waived. I was wrong. I got hit with it on 4/1/18. While this isn’t a big deal (the extra 10k in points more than makes up for it), it did highlight the need to be careful about what offer I apply for as they’re not all created equal.
You may’ve also noticed that when I referred to the card I opened, I specified that it was for me. There’s a reason for that. Normally, when one of us opens up a card, we make the other an authorized user and they get their own card to use. This is a major no-no in the travel hacking game. If I added her as an authorized user, not only would she be unable to get the 60,000 bonus points, it would count against her in her own 5/24 rule schedule.
Not adding her does create a bit of a logistics issue though. Fortunately, there’s a workaround. Mobile payment options such as Apple, Samsung, and Android Pay can allow us to use the card without actually having it on us! What’s more, by using Samsung Pay specifically, we can accrue additional points for gift cards on their platform as well. Nothing game changing but cool nonetheless.
The Next Step
Once we’re done with this card, my wife is going to open up one in her name. And, as a bonus, I can get an extra 10,000 UR points for referring her!