Giving Cash its Dukedom

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For many mile/point fanatics hobbyists, the term “Cash is King” falls on deaf ears.  When given the choice between earning points or saving cash we generally go with the former.  Sure, cash can be used to pay for anything, anywhere, but points & miles can be used for luxury first class trips around the world – trips we would never take if we had to pay with cash.

That being said, I think we are often too quick to dismiss cash as a good option.  Even if you don’t agree that “Cash is King”, I think we ought to give cash its due in the royal hierarchy.  How about Duke?  Let’s give cash it’s Dukedom (OK, technically Dukes get “Duchies”, but “Dukedom” sounds better doesn’t it?).

Real choices

Many people (including me) choose points over cash all the time.  For example, we choose point earning credit cards over ones that earn cash back.  We shop via point earning portals rather than cash back portals.  Sometimes, though, it’s arguably the wrong choice.  Here are some examples of easy ways to earn or save cash that many of us forgo:

  • At grocery stores one can earn 6% cash back by paying with the Blue Cash Preferred card (soon to be capped at $6K per year of spend) vs. 1 point per dollar with most rewards cards. This offer has expired
  • Using the US Bank Cash+ card, one can earn 6.25% cash back in any two of a slew of categories: department stores, restaurants, home improvement stores, electronics stores, airlines, hotels, etc.  See “The best cash back card?” for more.
  • The Discover More card has rotating 5% cash back categories, but also has one of the most lucrative online shopping portals which often offers 10% to 20% rebates on purchases.
  • Cash back portals such as FatWallet, TopCashBack, BigCrumbs, etc. often offer much larger rebates than similar point earning portals.
  • Often hotels can be booked much more cheaply through sites like Priceline and Hotwire, but then the those stays don’t generally earn points or stay credits towards elite status.

Eating your cake too

For me, earning or saving cash is less fun than earning points.  With points, travel feels free.  Spending tens or hundreds of thousands of points for a great vacation is no big deal.  Paying cash, though, is painful even if I’ve saved cash in a myriad ways all year.

If you’re like me and prefer points and miles, but also want to make the most rational choice as often as possible, here is a proposed solution:

  1. Setup a bank account specifically for cash rebates.  This could be a great time to setup an account that offers a mile earning debit card, by the way!
  2. Don’t be afraid to save money and forgo points.  However, as you accumulate cash back and savings, move those savings into this new account.
  3. Use this account to buy points and miles when they are available at a great rate.  Here are some real world examples where it is (or has been) possible to buy points & miles cheaply:
    1. Purchase US Airways miles for 1.135 cents each.  Offer is available until the end of October.
    2. Purchase US Airways miles for 1.2 cents each.  Ongoing.
    3. Buy Avianca LifeMiles for 1.5 cents each.  Offer expired September 28th (but is likely to return)
    4. Use Avianca’s cash and points awards bookings to buy LifeMiles for less than 1.3 cents each.  Ongoing
    5. Use Priority Club’s Points & Cash trick to buy points for .7 cents each.  Ongoing
    6. Buy points cheaply during shopping portal mega-promotions.  Through a number of big shopping portal promotions, I’ve been able to buy points cheaply by shopping through the portal to earn points and then reselling the items purchased.  Generally, I loose a bit of money on the resale, but I consider that the cost of buying points.  Through many such promotions, I’ve successfully “bought” points and miles at less than 1 cent each.  For example, see “Mileage Run Shopping Results” or “Sears 15X: Frequent Miler’s almost final results.”
    7. Each spring, American Express sponsors the “Daily Getaways” in which it is often possible to buy various points and miles at deeply discounted rates.
    8. Hotel chains often offer mega-promotions in which you can earn huge numbers of points through one or two stays.  In some cases, it pays to book a stay at a cheap hotel just to get the points.
  4. Also consider using this fund to pay for mistake fares when they become available, or to fund your mileage runs so that you earn miles and elite status.
  5. Or, simply use this fund as a vacation slush fund to pay for all of those little things that can’t be bought with points and miles.

Deciding points vs. cash

When choosing between earning points or cash, you can use my Fair Trading Price chart to estimate the fair trading price of the points you would earn and compare that to the amount of cash you would save or get back.  Personally, I think that’s too much trouble.  Instead, if the choice is between airline miles and cash, I think a simple “1.5 cent per mile” valuation is reasonable.  It is often possible to buy miles for 1.5 cents or less, so you should choose cash if the cash rebate % is 1.5 times (or more) the number of miles per dollar that would be earned.  For example, if you need to choose between a shopping portal that offers 3 miles per dollar or one that offers 5% cash back, go with cash back.  In other words, multiply 3 X 1.5 = 4.5 to see where the cutoff is.  Cash back rates of 4.5% or higher are arguably a better deal.

When to choose points

Even if cash looks like the better option, there are times where it absolutely makes sense to go for points anyway.  Here are just a few examples:

  • Keep account active: Many loyalty programs require account activity every two years or so to keep the account active.  Earning points is a great way to achieve this.
  • Topping off an account: If you are building points in one program for a planned award, then it absolutely makes sense to forgo cash in favor of points.
  • Southwest Companion Pass: Southwest offers a fantastic program in which you can get a companion pass once you’ve earned 110,000 points in one year.  The pass allows a companion to fly free with you for the rest of that year and all of the next.  If you’re working towards this pass, then it certainly makes sense to choose points over cash!

Am I a hypocrite?

I’m convinced that logically it often makes sense to earn cash instead of points.  However, I’m not sure that I’ll actually act that way from day to day.  Despite the arguments I laid out above, earning 1000 points seems more exciting that saving $15 bucks.  Will that change if I setup a travel slush fund?  I’m not sure.

What about you?  Do you like points or cash?  What will you choose going forward?

 

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