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Introduction to Today’s Manufactured Spending

June 28, 2017 By Trevor 15 Comments





Many credit cards offer opportunities to earn miles and points from signups and putting spend on your credit card. So you put your regular—or organic—purchases on your miles and points earning credit card, but if you’re like me, you find that the miles just don’t add up quickly enough for that next planned trip! So what other options do you have? More credit card applications? Paying cash—the terror! Or, you could add non-organic or manufactured spending to your credit card.

What is Manufactured Spending?

By its very definition, manufactured spending is creating spending, generally on a miles or points earning card for the purposes of generating miles and points at little or no cost.

Manufactured spending has taken on many forms over the past decade or so. In the beginning it meant buying $1 coins from the US Mint, where you bought them at face value, but the US Mint picked up the shipping. Since you were literally buying money, it was as simple as depositing those pristine $1 coins at your bank of choice. Now this wasn’t the US Mint’s intent with offering free shipping, and ultimately the Mint decided to discontinue that practice, thus killing the opportunity.

Since the US Mint, manufactured spending has taken on many forms. The method that propelled Frequent Miler to worldwide fame were with prepaid debit cards. You see we had this trifecta of Birds—well, two birds and a Serve—which history tells us, was a failed attempt of American Express to expand into a new market. First there was Bluebird, a partnership with Walmart, whereby one could load their Bluebird prepaid debit card at any Walmart cashier, or, in some cases, at a Kiosk at the Entrance (otherwise known as Kate). Many miles and point folks loved Kate. You might say that Kate was the girlfriend that helped us turn left when we boarded the plane, to settle into our comfy Lufthansa First Class seat with a nice glass of Champagne.

manufacture spending, lufthansa

Thanks Kate!

Then there came Serve, to lesser fanfare, but still very lucrative as you could load Serve online. That’s right, you didn’t need to go to Walmart!. That helped. There were other benefits of Serve too.

Finally, the trifecta of the “Birds,” The Target Redbird. If Greg the Frequent Miler was not a household name before, this certainly changed that. You see, the Target Redbird was everything anyone could have ever wanted in a prepaid card. You could load it at Target with first a Credit Card, then a prepaid Visa Gift Card. It gave you a 5% discount if you used it to purchase things at Target—including Starbucks! You could transfer the balance to a bank account or directly pay a credit card! There were even some other cool, yet shorter lived features. This was the pinnacle of easy, low hanging fruit manufactured spending. Yes you were limited to $5,000 per month per card, but you were only limited by your imagination as to how many redbirds you could get!

Then, one day, Redbird died. I opined that there was still life in Manufactured Spending (read: Redbird is Dead, Back to Basics), which unfortunately is where we are now.

You can still generate many thousands of miles and points by purchasing Visa Gift Cards and other similar instruments. You just have to work harder in liquidating or converting those Visa Gift Cards into cold hard cash. The costs to achieving that liquidation have also increased over and above the prepaid Redbird cost.

Is it still achievable? Of course, but it takes time, patience, and in some cases, a lot of experimenting and trial and error.

Manufactured Spending

A word of warning with Manufactured Spending

While manufactured spending is completely legal, there are some aspects that can put you in the gray area. One area in specific is how you deposit those money orders into your bank account. Structuring those deposits to avoid federal reporting requirements, should be avoided at all costs. Structuring is the practice of intentionally depositing less than $10,000 in monetary instruments or cash, in a reporting period or single transaction. There are varying interpretations of what constitutes structuring. Some will argue that depositing Money Orders doesn’t result in required federal reporting. I won’t argue the point, I will just say this: Don’t Structure.

Wrapping Up

Manufactured Spending is a great way to increase your miles and points balances. It takes work, don’t think that it doesn’t. Is it worth the time? I tend to think so. Consider it this way, miles and points are essentially a discount. They still have a cost. Visa Gift Cards have an activation fee cost (e.g. $6.95), Money Orders have a cost, your time has a cost. So consider all of those factors, and decide for yourself if its worth it. Often times, if you are traveling in premium cabins, that cost is worthwhile. Why? Because the marginal cost between an premium cabin cost on miles as compared to paying outright for that premium cabin ticket can often be very significant.

Filed Under: Manufactured Spending Tagged With: back to basics, cornerstone, Manufactured Spending

The Plastic Merchant – A Great Way to Resell Gift Cards

October 13, 2016 By Trevor 44 Comments

I realize that I may be a bit late to the party, but I’ve only recently dipped my toes into Gift Card Reselling. I only do a little at the moment, and I am very opportunistic. I don’t work with any of the more popular portals, only one that a friend of mine runs – The Plastic Merchant (TPM). For those of you attending the Chicago Seminars 14-16 October 2016, you’ll get to meet the team, as they are a sponsor. For those of you who attended ResellingDO 3, Mike Dean, the founder, was a speaker.

The Plastic Merchant

I think the description on The Plastic Merchant’s home page pretty much explains why it’s a perfect fit for the miles and point community:

“A bulk gift card selling platform built for and by point, miles, and arbitrage enthusiasts.”

The key reason that I even got into this, was because of how easy TPM makes it.

Once you have an account, you can log-in and see at a glance what kind of payout rates are by the various brands and gift card options. A key difference between TPM and other sites is that, TPM buys specific denominations of gift cards, represented by their SKUs. 

The Plastic Merchant

As you can tell, it’s a pretty exhaustive list of options (469 different SKUs at last check!). Of course, the real benefit to me, is that I know, before I even buy a gift card, what I can sell it at, and the rough margin (though of course rates are subject to change). More importantly, TPM also allows sellers to ‘reserve’ capacity so you know you’ll be able to sell your cards, even if the gift cards are being shipped to you later (like we see with physical gift cards). Bulk sellers are also able to view how long prices will be honored and exactly how much they’re willing to buy.

Valuable Resources

The Plastic Merchant also has a variety of additional resources that really shine. One of those resources is the portal lab, which is very similar to FrequentMiler’s Lab, but, only available to registered bulk sellers.

The Plastic Merchant

In addition, TPM sends out e-mails every so often when there’s a particularly good deal to leverage, and even provides the TPM price, so you don’t have to go to multiple places to decide whether you want to jump on a particular deal or not. 

The Plastic Merchant

Example E-mail from The Plastic Merchant.

Conclusion

All in all, I think The Plastic Merchant is a great place to start, if you are looking to get into Gift Card Reselling. This is definitely one of those areas,where you can increase your manufactured spending. You still have the potential to generate a profit, but without incurring as much overhead or risk as reselling products.

Have you signed up The Plastic Merchant? 

Filed Under: Manufactured Spending Tagged With: Gift Card Reselling, Manufactured Spending, The Plastic Merchant

Free, isn’t really ever free, in Manufactured Spending

June 8, 2016 By Trevor 6 Comments

A couple of days ago I had an interesting conversation that turned toward manufactured spending, with my friend, who runs the Facebook Group Travel Hacking 101.

He had shared the news about the AAdvantage program changes and asked the group whether that would lead to loyalty changes. He then followed up to say that he’ll continue to not pay for flights (I suspect, through using miles/points and cash back).

Always a cost to Manufactured Spending

My response was something to the point that there is always a cost. He ultimately responded that his only true cost was time. Time is definitely not free. There is always an opportunity cost. You could be out on the golf course, but instead you’re standing in line at Walmart. You could be working, and earning a higher per-hour rate, than you can generate via miles and points.

In Program Management, we generally measure three key programmatic metrics:
– Cost: how much did we think a program was going to cost, and how much it is trending to cost–although that may be overly simplistic.
– Schedule: how long did we think the program would take, and how long is the program trending toward taking based on delays and early completed tasks.
– Performance: is the program doing what we said it would do, is it meeting the desired goals at the start of the program.

Relationship between Cost, Schedule, and Performance

Relationship between Cost, Schedule, and Performance

To draw the corollary to the manufactured spending points and miles game:
– Cost = out of pocket cost + time (aka how much you value your time)
– Schedule = how long do you think it will take for you to do all the steps necessary to manufactured spending, and how long did it really take you (because there is a cost to that time)
– Performance = the result of those points and miles you generated, this is impacted by internal (ability to maximize/utilize the points), and external (devaluations, award space limitations) factors.

Wrapping Up

Really my basic point is – despite all the discussions of free, nothing truly is. Normally we talk about opportunity costs, but if you just take the basic view that your time is worth some amount of money–e.g. your hourly rate, or salary broken down to an hourly rate–then manufacturing spending in turn has a cost, even if you pay yourself back with cashback; unless you’re generating so much cashback, that you can replace your hourly rate, in which case, maybe you should just manufacture spend for a living.

Filed Under: Editorial, Manufactured Spending Tagged With: Manufactured Spending, Opportunity Costs

End of Year Reminder: Don’t forget to maximize Quarterly Offers!

December 28, 2015 By Trevor 2 Comments

This year we had a number of great quarterly bonuses for credit card spend.

Discover Quarterly Department Store, Amazon, or Clothing stores, and Apply Pay

For starters, we had the Discover Apple Pay promotion, where you get a 10% bonus when you pay with your Discover via Apple Pay. This can be even better if you have the Discover Double Cashback promotion. Note, the 10% bonus is only up to $10,000 spend between early September and the end of the year, per Discover card. Despite all of my spending this year, I’m probably just about $5k short of maximizing for my wife and myself. I did get the chance to double dip some though for the 5% quarterly bonus up to $1500.

Chase Freedom Special Nov 24 to 31 December – Amazon, Zappos, Audible, and Diapers.com

This was a special enticement from Chase, having previously stated that the “normal” Forth Quarter would be 5x Ultimate Rewards (UR) points up to $1,500 spend. Well, then they said, make that spend by 23 November, adding that from 24 November to 31 December, you can get 10x UR points up to $1,500 spend. Wow. That’s pretty big. I know I’m still working off my 3 Freedoms, at this point, I’m buying lots of gift cards. Lots and lots of gift cards. shameless plus, if you don’t have an amazon link, please consider using mine, you can find it at Support Tagging Miles, we sincerely appreciate the consideration.

Citi Dividend Quarterly Best Buy and Department Stores

If you haven’t made your $300 cashback for the year yet, well, you could finish that. If you already have, you could try what the Devil’s advocate recommends, as far as leveraging Best Buy and Department stores to maximize your 2016 cashback.

Wrapping Up

I’m sure there are more out there. I know I’ve been trying to get smart on the Bank of America cards for example. But the fact remains, it never hurts to maximize, if you have the flexibility to, especially when you can get as many as 15,000 Ultimate Rewards Points per Chase Freedom, $300 per Citi Dividend, and a bunch with the combined Discover bonuses.

One last thing, if you happened to get the targeted Barclay Aviator spend $500 in October, November, and December, and have gotten October and November, then don’t forget to make the $500 in spend in December!

 

Filed Under: Manufactured Spending Tagged With: Chase, Citi, discover, End of Year Reminder, Quarterly Spending Categories

Quick Roundup of Holiday Shopping Portal Bonuses

November 10, 2015 By Trevor Leave a Comment

My friends, we are entering a wonderful time of year. For those in the Northern Hemisphere, leaves are turning a variety of colors, the weather is becoming a bit brisk, and, most importantly, shopping portals bonuses are becoming more widespread as we approach the holidays!

It goes without saying, that I’m a huge believer in the power of shopping portals, and this year is much like last year in the bonuses.

Upromise

uPromise 10 2015

Upromise is doing their 10% Tuesdays again this year. Its a pretty nice deal, where they have a variety (and often changing) set of stores where they’ll offer 10% off on Tuesday each week until 22 December. Here’s hoping that Staples makes the cut!

American Aadvantage Shopping

AA Holiday 2015 Bonus Portal

Shop between 11/10/15 and 11/26/15 to get the maximum 5,000 AAdvantage miles after $1,200 spend.

United MileagePlus Shopping

UA Holiday 2015 6k Bonus Miles

Note, you need to complete your $1,250 spend by 11/24/2015 for United. Guess they don’t want folks ordering during Thanksgiving Dinner.

Alaska Mileage Plan Shopping

Alaska Mileage Plan Holiday 2015 Promo

Perhaps the stingiest of the group, Alaska also only gives you until 11/20/15 to get your spending in – so get crackin’!

Delta Sky Miles Shopping

Delta SkyMiles Shopping 2015 Promo

Via Douglas Levin, Delta also has a promotion through 23 November. This one is similar to Alaska, where you get the maximum 1,500 bonus miles after $500 spent.

Southwest Rapid Rewards Shopping (Updated!)

Southwest Rapid Rewards Portal 2015 Bonus

Southwest is offering one of the more beneficial bonuses, up to 5,500 points when you spend $1,500. Oren found this one to be open today, through 26 November.

Wrapping Up

This is the time of year to always look to see how you can double dip normal Shopping Portal benefits with these bonuses to get even more miles (or as in the case of Upromise, get even more cashback!).

Filed Under: Manufactured Spending, Reselling Tagged With: AAdvantage, Alaska Mileage Plan, MileagePlus, Shopping Portals, uPromise

You have only 168 hours a week, how do you use them?

October 19, 2015 By Trevor 2 Comments

Matt wrote a great post yesterday that reminded me of a post I had half written, after attending a company offsite back in August at the Hyatt Regency Chesapeake. I won’t go into too much detail, but we had a guest speaker who talked about how one can apply project management principles and processes in your every day life. It was pretty common sense, but one thing he said really struck me.

Every one of us has 168 hours per week.

Maybe it shouldn’t have struck me the way it did, but this concept of 168 hours per week, really hit home. What we choose to do with those 168 hours is usually defined by a collection of commitments, goals, desires, and needs. I think Leigh’s comment on another one of Matt’s post further highlights how limiting, having only 168 hours per week truly is. I would argue that it is even more important in a Post Redbird environment, as folks are formulating their revised Manufacturing Spending strategies.

For example, on average, people need 8 hours of sleep a day.

– Subtract 56 hours, now we’re left with 112 hours.

Most of us work, and work is generally expected to be a minimum of a 40 hour week, so now we’re down to 72 hours. You read that right, the equivalent of 4 days of your week are already for the most part committed to work and sleep.

So, what do you do with your 72 hours per week? First of all, you’ve got to eat, commute to your job during the week, and a collection of other routine maintenance things. Lets say that’s 2 hours per day. Now we’re down to 58 hours.

This is where you start to get into your free time. It is amazing, that in an ideal scenario, your free time is just over 1/3rd of your week.

I did the math for myself, assuming one of those random weeks where I’m not traveling. Here’s where I came out on a weekday:

  • Sleep – 9 hours allocated (although I don’t always sleep for 9, I make it a point to be in bed roughly 9 hours before I need to wake up.
  • Work – 9 hours allocated – on average, I put in 8.5-9 hours a day.
  • Commuting to work – 1 hour allocated round trip – I’m pretty lucky here, I have a less than 30 minute commute each way, so, rounding up for ease here.
  • Eating – 30 minutes per day – usually I multi-task, but every so often I have to cook.
  • Housework – 30 minutes – I try to do my part to help out around the house, this usually means things like laundry, dishes, vacuuming, standard stuff.
  • Writing – 1 hour – that’s probably under cutting it a bit, but, I do try to spend an hour a day writing, or doing other research for Tagging Miles.
  • FBA – 2 hours – I’ll usually intersperse looking for reselling products with writing, or catching up on Twitter.
  • Gaming – 1 hour – This is how I try to clear my mind before bed.

For a weekend, I usually switch out work with some Manufactured Spending (MS), errands, FBA, more gaming, with some sports watching in the background thrown in. Here’s the rough breakdown:

  • Manufactured Spending 2 hours
  • Errands – 2 hours
  • Eating – 1 hour
  • FBA – 3 hours (total)
  • Gaming – 3 hours (total)
  • Sports/TV/Movie – 1 hour (although the TV is generally on in the background throughout the day).

What does that tell me? well, I like to look at things graphically, so here’s that:

Pie Chart of 168 Hours

But really what does it tell me? Other than the fact that I allocate way too much time to sleep, I spend a bunch of time working. My next largest time commitment is Fulfillment by Amazon (FBA), which is logical, as I’m trying to build that business as a side gig. Beyond that, I spend a fair amount of time writing and gaming. Hey, we all have to de-stress one way or another.

Perhaps the biggest message I see here though, is that your opportunity to innovate on a weekly basis is pretty limited. Of course, there is a rather large block of time, aka, work, where you could take time off, to focus on innovating, or to travel. I’ll be honest, I burn nearly all of my vacation, of course, do I spend time trying to innovate while on vacation? Of course, because, well, I don’t shut down well.

What’s my point?

I think what this really comes down to is, you have 168 hours, each week. That’s it. What you choose to do with those 168 hours highlights what your priorities are. As Matt highlights in his post, there are plenty of options to outsource or drop things, but really, your are in command of your 168 hours. In the words of the the Knight in Indiana Jones and the Last Crusade – Choose Wisely.

How do you allocate your 168 hours per week?

Filed Under: Editorial, Manufactured Spending Tagged With: 168 hours, Miles and Points, saverocity

Redbird is dead, so what now? Back to Basics

October 18, 2015 By Trevor 12 Comments

There are a ton of moving pieces in the miles and points world on any given day, any given week. Earlier this week, news started popping up about a rather large flapping moving piece (aka RedBird) which may no longer being able to be loaded with debit cards (let alone pin enabled Visa Gift Cards).

This news is further corroborated by the AMEX Prepaid Redcard page

For many, this is big news. Monumental news even. Many who have cut their teeth on either RedBird when it was loadable directly via Credit Card or other ways that you never heard of, Perhaps this is even big for folks that got into MSing in the older days of Vanilla Reloads, or even the Mint.
The fact is, RedBird was easy. It was easy to comprehend… Let me draw a diagram for you
REDBIRD Wheel 1

That’s pretty easy, right?!?

More than a year ago, I stated, that Manufactured Spending should be made simple, not simpler. What does that mean? It means those arrows above, are overkill, they are “simpler” than it needs to be.
But how does that come back to where we are today. Well, I think those arrows are important today, for one reason and one reason only.
REDBIRD Wheel 2
So take this graphic, here we have a simple process, and now, you’ve just lost a rather integral component. What do you do? Do you just try to replace that one glaring, missing component? Or do you attempt to flip your entire manufactured spending practice and try a different approach? Matt posed flipping your stuff a few weeks ago related to programs to earn and burn points in for travel (e.g. moving to earning Thank You Points vs. AA miles). Perhaps it isn’t specifically to the point of losing a key component of your liquidation strategy, but the post is still relevant from a thought-process standpoint.
Now lets take it a step further, and I really, really don’t want to be that guy that outs a deal, but the fact is, there is another way, rather than replacing your RedBird with a BlueBird or Serve, you could instead procure a money order. Here’s how that graphic looks.
 MO Wheel
 Now, before you go any further, I would recommend you read about Freequent Flyer’s post on Structuring. I know you have no intent to break the law, none of us do. But, what if you were to do so, without intending to? Well, that’s why you are going to read Freequent Flyer’s post about Structuring, so you don’t.
Ok, that was a diversion, sorry. But incidentally, Freequent Flyer, responded to Matt’s post just this week, stating exactly the issue that we see with the X’d out Redbird graphic. He states:
“Having a routine is fantastic…. Having a routine is (can be) dangerous…..No deal lasts forever” bolding mine.

My friends, that last part is something we know. But so often we lull ourselves into complacency. The fact is, with the RedBird, some of our number allowed RedBird to take on such a regular part in our Manufactured Spending, that they will now be looking to fill that hole. Some will scale up other methods, some will research and test out new methods that they had otherwise not had the bandwidth to test, and unfortunately, some won’t have another avenue to turn to, because, they were given the simpler option, they were given the fish, without the pole, or the line, or the hook.

fish

I would argue regardless of which camp you fall it, it is back to basics. Think back to why you got into the miles and points game. Back to why you first manufactured spend. Was it because you wanted to earn enough miles for that first trip to Hawaii? Japan? Australia? What drove you to submit that credit card application, to nervously buy that first $500 Visa Gift Card, more money than you would normally spend in a weekend? Has that reason changed? Are you still working toward that trip? If so, I would say it is time to go back to the basics.

Wrapping Up

So, given this rather eventful week, what will you do? Will you go back to Bluebird or Serve? Will you pursue other avenues and innovate? A mixture of the two? For me, I’ll probably convert one of my RedBirds to a Serve or Bluebird, because its easy, I’ll keep one RedBird and continue to test out a few things (since it is useful for more than just Manufacturing Spend), and I’ll dust off my list of other stores I’ve been meaning to visit, but just haven’t had the time to. I don’t believe this is a case of “when one door closes, another opens.” Rather, I only have 168 hours a week, and those other items on the list just hadn’t bubbled to the top.
Really, I want to highlight the “back to basics” approach. But even more so, I would implore you, to remember why you got into this game to begin with. Because getting value from all of your effort, is the truest Big Win.

Filed Under: Editorial, Manufactured Spending Tagged With: Manufacturing Spend, RedBird

Are Miles, Points, and Cashback Taxable by the IRS?

August 26, 2015 By Trevor 23 Comments

Credit card wallet

Note: I am not a tax professional.

I was recently reading a post on the Tax Implications of Reselling and MS by Noah at Money Metagame, and at first, felt the need to comment, but as I found myself writing…and writing….and writing, I figured it may be better to just write a post.

Let’s take down the easy answer first:

Miles and Points

Generally speaking, miles and points as earned by travel (yes, open ended term), are generally viewed as “Rebates,” and are not in fact taxable. I agree with Noah, this is a gray area, however, I look to people smarter than me, to try to do some interpretation. In this case, to Gary Leff who writes View from the Wing, who has written a fair amount about the taxation of miles. However, there is a caveat, as noted in the second link, and if I may remind you of Citibank sending out 1099-MISC forms for those who received bonus miles or points for opening up a Citibank Checking Account. Now, based on my research, it seems like you can avoid being taxed on the Citibank Checking Account Bonus by not redeeming the Thank You Points (for example), in the same calendar year as they are earned, but, I haven’t tried that myself.

Cashback

This is where my opinion diverges greatly from Noah. For example, in his examples toward the end of the post, he cites:

Second example: I use a credit card that earns 6% cash back at a grocery store to buy a $500 Visa gift card.  The cost is $505.95 because of fees and the credit card earnings will be $30.36 in cash back.  For simplicity, let’s say we deposit the $500 directly into a checking account.  The profit calculation for this example is sell price ($500) minus buy price ($505.95 minus the $30.36 “rebate” or $475.59) for a profit of $24.41.  As far as the IRS is concerned, you made $24.41 in earned income on this particular transaction and are obligated to report it as miscellaneous income and pay taxes on it. – Money Metagame – Emphasis mine.

I believe this is factually wrong, based on a ruling I was able to dig-up from the IRS. The document really speaks to whether a taxpayer can direct cashback to charity and take a deduction. That said, the document states the following as fact:

Taxpayers are individuals who will acquire credit cards issued by a bank through an arrangement promoted by Company. Taxpayers will make purchases with the credit cards and, as a result of those purchases, will be entitled to receive rebates. The rebates are based on a percentage of Taxpayers’ credit card purchases (usually 1%) and reduced by fees charged by Company (e.g., administrative and marketing). The percentage of Taxpayers’ credit card purchases, less fees, equals the amount of the rebate to which Taxpayers are entitled ($X). – Emphasis Mine.

It goes on to offer the Law and Analysis:

Section 61 provides that gross income means all income from whatever source derived. A rebate received by a buyer from the party to whom the buyer directly or indirectly paid the purchase price for an item is an adjustment in purchase price, not an accession to wealth, and is not includible in the buyer’s gross income. See Rev. Rul. 76-96, 1976-1 C.B. 23, as modified by Rev. Rul. 2005-28, 2005-1 C.B. 997. – Emphasis Mine.

The conclusions reached are:

(1) The portion of the credit card purchases that Taxpayers can either receive back in cash or request Company to pay to a charity does not constitute gross income to Taxpayers under § 61. – Emphasis Mine.

Wrapping Up

Again, I’m not a tax professional, nor an accountant, but as I read this ruling, it seems to me that cashback is in fact viewed as a “Rebate” and not as earned income. I guess it brings me back to that old saying, the only guaranteed things in life are death and taxes.

What is your read? Do you report your miles, points, and cashback on your taxes?

Filed Under: Manufactured Spending, Reselling Tagged With: IRS, Taxes

How do you value your miles and points?

August 6, 2015 By Trevor 8 Comments

This is perhaps a rhetorical question. After all, miles and points are currencies, but they are very finicky currencies. Meaning, their value can change at the whim of an airline or bank. In fact, some currencies, such as the transferable Ultimate Rewards Points, Membership Rewards, Thank-You Points, and even Starwood Preferred Guest, are all at risk from being “devalued” by an airline or hotel chain, that they effectively have no control over.

Why now?

The real reason that I felt compelled to confront such a polarizing issue is because I happened to be reading this post from Gary Leff. He talks about paying any bill with Plastiq, a system that will allow you to pay a wide variety of bills, with a credit card. Briefly, the deal is specifically for new folks signing up, and  for a limited time, getting 1.99% for payments made with an American Express or a MasterCard. See graphic below:
Plastiq Limited Time Offer Rate (Courtesy of (I hope!) View From the Wing).

Plastiq Limited Time Offer Rate (Courtesy of (I hope!) View From the Wing).

While it probably doesn’t make a whole lot of difference, it looks to me, like the links are “pretty links” affiliated with View from the Wing, Gary’s blog. I’ve seen others including Frequent Miler, and it appears his link is similarly specific to him. I don’t see this as a problem, just something to be aware of. Now is Plastiq a bad thing? No, it provides an avenue for paying bills with credit cards at a potential gain (even if you use a 2% cash back card you’re getting .01% more than you’re paying, but that may be in the rounding).
How to value?

There are a handful of ways you could value points, to keep things simple, here are the ones I’m considering for this post:

  • Cost of Acquisition
  • Redemption value
  • Fair Trading Price (Courtesy of Frequent Miler)
  • Flat rate
  • Voodoo Math

Cost of Acquisition

This is easy, and does not incorporate the opportunity cost of assuming 2% as the base. It is as simple as taking your cost of acquisition, divided by the number of miles that you are accumulating. Example, you spend $206.95 for a Visa Gift Card from Staples with your Ink Plus, and load $200 onto your RedBird, then you’ve paid $6.95 for 1,000 UR points, or $0.00695 per point.

The skeptics of you may highlight the fact that I wrote about this in the past.

Redemption Value

This is easy as well, imagine you have just booked an Emirates First Class flight with 100,000 Alaska Miles. Let’s say the market cost of that flight is $13,343.80.
EK F Flight
So that ultimately means that your Alaska miles are worth $0.133 per mile. Wow, that’s quite the value!

Fair Trading Price

Frequent Miler came up with this, and it took not one, but two posts explaining it. I’m not saying that it is that hard to understand, I’m merely saying it is a pretty complicated approach. The easiest way to describe it is, that this is the lowest, straightforward, repeatable prices for buying points. Ok, I’ll be honest, I love repeatable processes. In fact, I really appreciate the approach. That said, I still have a hard time understanding Fair Trading Prices. I understand the concept as it incorporates a ton of components, including annual fees, the cost of buying the points, and category bonuses. I’m sure Frequent Miler would include more if he could quantify it. That said, you don’t have to do the math, you can just leverage Frequent Miler’s Fair Trading Prices.

Flat Rate

The easiest of all: 1 point equal 1 cent. Simple as that. If you have a 2x card, then you’re getting 2 cents per dollar, or 2%.

Voodoo Math

I call this Voodoo Math, because it includes a variety of factors, and I’m not entirely certain that I even know all of them. For example, One Mile at a Time’s Points Valuations don’t really include any notes, so its hard to figure out how he comes to these numbers. The Points Guy offers his valuations monthly (and for once, I agree with him, because these things do change quickly). Gary perhaps offers the most clear justification and background discussion of points values, but nonetheless offers his own. I wish I could find others, but the fact is, when I read valuations like this, I think a couple things:

  • These generally incorporate logical benefits like SPG’s 25% benefit when transferring to other programs (like American Airlines)
  • These can be further bolstered to justify annual fees, or otherwise market credit cards.
  • These can also incorporate personal biases, e.g. I really want to fly Korean Air First so Ultimate Rewards points are more valuable now.

Now I realize my second point is harsh, but why else would you attribute a value to points, other than perhaps a Fair Trading Price? Because you want to show that one particular credit card is better than another, and it is worth a hard pull. Don’t get me wrong, I apply for a bunch of credit cards each year, however I just have to be skeptical, and would advise others to be skeptical. Let’s circle back to Gary’s post:

As long as you’re using the Everyday Preferred card at least 30 times a month for purchases, it’ll earn at least 1.5 points per dollar on all of your spend. And I value Membership Rewards points at 1.8 cents apiece. So each dollar spent on the card, earning 1.5 points, gets you a 2.7% rate of return.. and a cost through this service of 1.99%. Profit. – Excerpt from View from the Wing

Here’s my concern: Gary is attributing a value, a value of 1.8 cents per Membership Rewards point, and thus asserting that even paying 1.99% you can generate a profit. In all fairness, he offers his logic in the underlined section, but I still have difficulty with the word profit, given how quickly miles and points can change in value.

I too even use Voodoo Math for my personal valuations when I make the quick determination of which card to use for a particular transaction, although that’s more because of that third bullet, based on which particular award I see myself doing next.

The biggest challenge I see with the voodoo math approach is the fact that today I might think UR points are more valuable than say Membership Rewards, however, tomorrow Korean Air or United might devalue their program, leading me to have accumulated all of these UR points for a goal line that has effectively moved another 10 yards, or to another zip code (e.g. United increasing awards by nearly 2x in some cases…there’s a multiplier that I don’t like).

Wrapping Up

There are tons of ways to value your points. Is one way better than another? I can’t say, but, the real point is, to be conscious of how others value their points, and how you value your points, so that everyone can speak the same language.

How do you value your miles and points?

Filed Under: Manufactured Spending, Where Credit is Due Tagged With: Manufactured Spending, Value of Miles and Points

How do Miles and Points influence your financial planning strategy?

July 16, 2015 By Trevor 12 Comments

Financial Planning

Yesterday, I read Noah, who write’s Money Metagame’s 2015 Mid-Year Financial Independence Report Card, and it got me thinking about my own financial planning strategy, and what influences that strategy. In a nut shell, this is the strategy that my wife and I tend to live by, including some of the folks that have influenced particular parts of the strategy.

Debt

This is the simplest component, because, lets be honest, there really is no “good” debt. Some could make the argument that purchasing a home (aka mortgage debt) can be “good” debt, because a portion of it can be deducted come tax time, but really, the answer is: limit debt. But lets dig a bit deeper:

  • Home Ownership: Despite Ramit Sethi’s Myths of Real Estate Investment, who writes I Will Teach You To Be Rich (who I’ve read since college), my wife and I made an active decision to buy a house. Not because it was the next logical step in our progression, but rather because we were quite tired of living in apartments. We didn’t necessarily see renting as throwing our money away, but saw the value in buying a house. A contributing factor was certainly, that when we bought, the market was nearly at its lowest following the 2007 downturn. Most importantly though, we ended up buying a house roughly 66% of the value that we were pre-approved for. If there’s one lesson here: Don’t buy as much house as you can afford, buy as much–or as little–house as you need.
  • Student Loans:If there’s one thing that frustrates the heck out of me, it is the student loans that we have to pay on a monthly basis. I actually have not one, but two sheets taped to the wall over my monitors with how much we owe. My strategy there has been a mixture of paying them off when the balance is low enough to just knock out, and in other areas, I’ve consolidated, like I did when I applied for the Chase Slate. Beware though, Interest Rate Arbitrage, which is what I did by doing a balance transfer from our school loan to the Chase Slate (0% for 12-15 months and 0% transaction fee), is risky if you don’t have a plan. That said, Interest Rate Arbitrage can give you that lift out of debt that much sooner–just have a plan!
  • Credit Cards: Generally speaking, we avoid credit card debt (except previous statement). Furthermore, we leverage the float for Reselling.

Expenses

When I got my first cellphone, way back when StarTACs were cool, I wanted to avoid a monthly payment at all costs. Luckily, cooler heads prevailed, but, the fact of the matter is, I don’t particularly like them, still to this day. Heck, it took my wife until 2 months ago to convince me that we’d be better off with Netflix than without. There are a couple of rules I generally have when it comes to expenses:

  • Going for Big Wins: Ramit Sethi talks about “Big Wins” a lot, in fact, I’ve used that phrase a bunch myself, and it makes sense. An example from Ramit’s Scrooge Strategy, is the concept of calling your cable, phone, or insurance provider and try getting them to cut your bill. Why is this a “Big Win” and skipping a Latte isn’t? Because generally you can yield more savings just from calling the retention line (remember, we do this for credit cards too!). Remember, customer acquisition is more costly for these companies than customer retention. I call my cable provider on average every 6 months, and realize 15-25% savings each time.
  • The $10 Rule: Chris Guillebeau spoke at the first Frequent Traveler University event I went to, way back in 2013. He shared lessons learned from traveling to every country in the world. The single most important lesson I learned from his talk was the $10 Rule. It is a way to limit stress when traveling, and sometimes when not. Every so often, I find myself skipping Walmart as I manufacture spending, and going to an easier place to buy money orders, even if they might cost me a penny more per point.
  • Put Everything on a Credit Card: This is a no brainer here, but it’s worth repeating. If there is no additional fee, paying with a credit card should be a no brainer, as long as you don’t carry a balance month to month. It’s easier to track your expenses, you can earn points for travel or just cashback, and you don’t have to carry change around with you. You could go even bigger and automate your personal finances – I’m too much of a control freak to do that completely though.

Income

I intentionally left income for last, because the first two really shouldn’t take much of your focus. You should block and tackle your debit, reduce expenses where you can get Big Wins, and then focus on increasing your income, thereby reducing the previous two to a lesser percentage.

  • Savings and Investments: Part of income is really how you use your income. Obviously you are using it to pay down debt, and pay your expenses, but there should be a good percentage that you’re putting to savings, and that you’re investing. Two lessons here: Max out your Employer Match for your 401(k), and max out your Roth IRA.
  • Leveraging Miles/Points/Cashback: The reason I think any of us are in the miles and point game is because we see outsized return from our investment. For me, I’ve used it to Grab the Brass Ring, more times than I could count. I know of folks who leverage miles/points/cashback so heavily that they not only travel in style but also supplement their income. The challenge of course, is that you can’t overdo things, as Vinh from Miles per Day highlights: Manufacturing Spending is a Get Rich Slow Game. Perhaps even more so from a churning perspective with Chase’s latest changes–Gosh it’s hard to get a new card from them.
  • Get a Side Gig: Everyone has a talent. Whether its tutoring piano, doing graphic design, reselling, or consulting. Ramit talks about 3 ways you can earn more money, leveraging a nice looking infographic, although in all fairness, I think the thing that influenced me more was Tim Ferriss’ Four Hour Workweek, and believe me, I failed a number of times before finding the answer in Fulfillment by Amazon.

Wrapping Up

While I realize this may be a bit off topic from my normal stuff on Fulfillment by Amazon and Miles and Points, I think it’s important to put things into perspective. Especially as some are reeling from Delta’s devaluation of their Skypesos program (how much worse can it get, Delta SkyDrachmas?), I think its important to consider how Miles and Points fit into our macro-financial picture.

How do plan financially? Do you focus on the frugality approach or the increase income approach?

Filed Under: Editorial, Manufactured Spending, Reselling Tagged With: Financial Planning

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