This is a behavioral post. I love to reflect upon my decisions when it comes to money, particularly my bad ones. I see something arising that could be a problem when it comes to manufacturing spend and controlling your personal finances.
In college I wracked up some credit card debt, just poor decision making on my behalf. It took me many years to clear it off because I ‘lost touch’ with it. I worked on cruise ships around the world, and never saw a bill or demand letter, until I came home for a break and had a pile of them. But then I would leave again, and leave them behind me. From a psychological perspective the biggest problem that I had was that I had no pressing need to pay it off, and since it wasn’t staring me in the face it lost its relevance to me.
Once devalued as a priority like this it would sit and fester, and in the end I paid many times the original principal after interest and fees. The only way to truly “own your finances” when it comes to paying down your debt, ensuring you don’t get into any more debt, or to increasing your savings is to have a true ability to view everything accurately at all times.
There are tools out there that help people visualize their financial position, such as Mint.com, and they can be great things for your personal finances. However all they do is present your position, and if you don’t accept its strengths and weaknesses it has no value. Whats more, if you start relying on a crutch like Mint, then start throwing in manufactured transactions you stop believing what you see, it loses relevance, and you lose connection with your finances.
The slippery slope
Once you lose connection with your finances, and your tracking methods ‘aren’t real’ it is very easy for poor decisions to slip into your game plan. People who manufacture spend are always looking for the next big thing, and either applying for new cards, or new services to earn more. The game is filled with people with alarmingly high success rates, and blogs increasingly lower the entry bar. I really don’t think it is a leap of the imagination for people to get way out of their depth very easily.
The combination of losing touch with the reality of our spending and our ability to meet those obligations, coupled with a barrage of luxury lifestyles and clique like groups are encouraging bad financial behavior.
The answer is not better tracking software. The answer is discipline, systems and structure. You need to lean less on software, as your mind can discount it before you realize it has happened.
I am completely in favor of optimizing money, points, taxes, lifestyles to the maximum, but in order to play the game well, you need an iron like will. You cannot trust tracking software, you cannot follow the crowd. You must keep a constant eye on the game you are playing and ensure that it is played at a level you can manage. This is even more true if you go through a period of financial change, such as losing a job, moving home, or becoming a parent.
When you are living in a land of smoke and mirrors, be careful not to lose sight of yourself.
The key is to step back and take a break once and a while. Even if just for a day to count bills vs ms.
I know a guy who has no money and no job and little ambition. He also is afraid to ms big and has low credit lines. But he is smart in ms theory and has vast travel experience and knowledge of MR and airline status programs. He got into zero % financing and well, to me that is writing on the wall.
You need some capital to do this stuff. Period.
Otherwise you will lose money
I agree. I’m feeling a disconnect between the players and the game right now… a rift in the force.
Lack of Cap increases flakiness from players, more chance to blow the gig to preserve their smaller reserves.
Long time lurker, first time poster. (Love the blog by the way).
This “game” that we “play”, in fact, is no “game” at all. The credit that we use to float, is very real. And it has both seen and unseen effects. The unseen are what this post writes about. When a person “spends” 25k (or whatever amount), the behavioral repercussions are vast – whether we consciously recognize them or whether we unconsciously incorporate them.
I would second the idea of taking breaks from the “game”. Otherwise, a sense of monetary reality is lost and the “game” consumes a person.
Zach, thanks for coming out from the shadows and commenting, much appreciated!
The tracking software, complex spreadsheets, etc. are great for tracking the mechanics. But it doesn’t do the thinking for you. I try and look at the finance side of this stuff from different angles, just to make sure I have a handle on the money flows. It helps me keep in touch, as noted. Taking a break or step back also sound like good ideas.
I always like the posts that are a mix of personal finance and MS.
Thanks for the comment, yes I think you and others are onto something regarding stepping back and reviewing. Good stuff.
One other comment! I’m surprised there are not more reports of people getting in over their heads doing MS. I suspect people are and we just don’t hear about it. Personally I dread the day that the mainstream media picks up on reports of people getting in financial trouble from MS.
AP is a good example of this. You’re essentially taking a CC loan that goes into your bank account . But you have to pay it back in 30-60 days.
Everything is really – AP, Giftcards – a huge amount of MS is on credit, and a small amount pure debit on a few cards. It’s very high risk.
The key is to establish systems. The system I use is to segregate the credit cards with the type of MS played.
For example, for AP I use Citibank CC. This way, I can keep track of things manually. Don’t use any software for accounting purposes (yet).
Yep, I agree – but you have to stick to them, sometimes cards slip. I had one card (SPG Biz) that I used as a ‘real business card’ for a while, then I stopped using it for that and started using it for MS, and now it is a little murky in my mind if I reach into my wallet and see that card for a business expense…
The only challenge to this is that it’s sometimes good to mix in other purchases so that the banks don’t just see a string of $206.95 or $504.95 purchases from a single store. Once you start putting real expenses on a card it’s a lot harder to keep things separate.
I think this is a very relevant post. People can find themselves points rich and cash poor and start on a spiral that will not end well. I try to focus on the programs and credit cards with actual cash back or cash equivalents as an option. Those are often not the best redemptions compared to the program itself (e.g. Southwest) but it’s reassuring to know that if liquidity does become an issue, there are ways to liquidate. The key of course is to not get in a situation where liquidity is an issue. I have been using a two card rotation so that there is always some float. I never have more floating than I could cover out of savings and the money deposited from MS. I never consider any of the MS money mine. It is a tool to use to generate cashback (which does become mine) and trips (that need to be taken in reasonable amounts). If you suddenly have $10,000 in two BB accounts and can’t resist the temptation to spend that money on something, the slope becomes very slippery.
For sure – I’m going to do some more thinking on limits and levels to see if that helps too – and yes, the impact of the temptation to spend the float is dire indeed.
For far too many, I think the answer to that question is yes. I’m taking a breather myself to focus on other things…..like repairing our savings account. It’s not that I can’t do more than one thing at a time, it’s just that in this case, I don’t want to.
It’s a great idea to take a break, don’t need a reason for that other than for the sake of taking a break. Enjoy it!
It is really easy to get caught up in the if I just do one more scheme I’ll make X. Scaling up is a good way to make more profit but it takes more forethought, cash flow, and discipline. Which takes more time. Its ok to not pursue something that will take that much more time away from family, even if you are leaving money on the table.
When I’m on vacation I like to let it go and take that time off from work and MS. It helps me refocus when I come back.
Yep- we have to remember why we are doing it – to actually enjoy the vacation and life better!
Excellent post, Matt. Unless someone is able to categorically reconcile their ends vs needs, this game is not for them. MSing just for the sake of it is another addiction similar to gambling. All casinos are ruthless and this casino belongs to banks and big corporations which can be equally ruthless. That is why even when people do App-o-Rama, they should think clearly as to what their end goal is, why they are doing this and what is the cost and time involved in doing this as against some other work. I also wonder how someone could do this full time without a job and still run a family. This game sucks at times and is not for the faint hearted as you rightly pointed out. One can enjoy this only if they have it as a hobby. For full timers depending on income from MSing, this cannot be fun as they will always look at this as their main source of income and as such have huge pressure to succeed and will lose the fun aspect. Also with the increasing pressure from all sources to curtail MS avenues, i feel the full timers are going to be in for huge setbacks if they dont have another source of income. Newbies and youngsters in particular should not just get carried away by all those bloggers out there pumping CC after CC luring them in to MS. Their aim should be to get full time jobs and do MS as a hobby only. This game as a full time source is only for near retirees or retired ones. Others must just enjoy having fun, doing adequate volumes at time intervals that they are comfortable with. The whole arbitrage cycle, researching, reading, learning from mistakes should not be at the cost of any other precious things in life like full time job, time with family and time where one is able to just sit back and relax instead of constantly thinking about money and miles and points. And i feel there should be more and more articles like these in most travel blogs out there. I think Saverocity is doing a great service to this country by constantly writing articles like these where others dont try to even bother thinking about. Just hats off to you and your entire team, Matt.
Thanks Kumar, trying to keep it real, but not be the depressing voice of reason in a fun filled space 🙂
Matt, this would a good topic heading the personal finance section in your new forum or maybe the MS section
Indeed – why not start it up with your thoughts on it?
This post is spot on. I think that it is very important to take a step back and evaluate. I usually take a break when I am traveling outside the country, which I do regularly. It is so easy to get sucked in in this hobby. I agree that discipline is extremely important.
Good to hear – thanks for swinging by and keeping a cool head with these things.
I’m reading this at a WM McD waiting for manager to reset kiosk and watching Romney’s 47% pass in front of me. Almost as interesting as traveling.
That said, I doubt many MSers get in trouble. I’m sure the Average MSer has higher income/higher education and necessarily higher credit scores. They are ideal candidates to manage MS effectively and responsibly.
For me, MS is a meaningful money making hobby. I don’t do it for the money per se, but as I’ve scaled up and learned, making money in addition to millions of miles comes naturally.
But I do obsess about it too much. Always planning my next run, my next churn, my next trip. And when I’m on a trip, all too often thinking about MS, or actually doing it (like AP and previously, loading BB with VRs)
I’m looking forward to my walmart runs soon… not something I can do right now in NY, but am moving near one.
I think that there are many smart MSers out there, who can handle things, but we should also think that as blogs make the hobby more mainstream it might well encourage a new segment to enter the fray. Also, I do see the appeal of MSing to people who are looking for an easy route – which is what it should be, but that can attract the wrong type of person too.. and they are the ones I am more worried about… though we can all slip up.
I constantly have to think about the balances on my bank accounts (A,B…) and the balances on my prepaid products (BB, Serve, Buxx), the money on the GC’s that I have not cashed out, the money on the MO’s that I have not deposited and what (I try to deposit them as soon as I can, but of course we know that’s once in a while you find yourself holding to MO’s in your wallet for more than a day or two and start getting nervous about what happens if you lose your wallet or you get robbed, etc. – very real risks, but that’s a different story altogether). I sum them up, and then think about the balance of the credit cards, and then subtract them and that’s my cap. I consider all this accounting the tax of playing the MS game. It can be stressful, and that’s the reason I can’t see myself scaling to the level of some of the players here. My disciplined self just won’t let me go to that level
Take photos or make copies of money orders, reload cards etc – doesn’t take much effort and sounds like it will give you some piece of mind. I’m less concerned about being robbed versus my habit of doing incredibly stupid things like misplacing important items at the worst possible times.
A bit late to the party on this one, but ironically, I find that this is actually a debt-deterrent for me. I despise seeing a credit card balance on mint (had carried one for some time that took a while to get rid of). So now, when I know that I have a high credit card balance, even if I know it is mostly MS and I have to wait for the cycle to complete, I find myself avoiding any real spending, just so that I can get the number down to zero as quickly as possible. So maybe for me, this is a good thing. I would imagine someone who has not had this experience (of bad debt) probably would not have the same aversion though.