An opinion (that I disagree with) is that creating zero cost points (URs in this case) via MS is optimal. The logic behind the statement.. Because free points cannot be beaten? The post from Shawn (who is putting out good stuff) is here:
- Earn 1035 UR from a $206.95 GC purchase.
- Deduct 1% for VSE, Deduct 488 URs to pay down remainder
- Balance of 547 URs net per card, at no fee.
In Shawn’s post he values Ultimate rewards at 2 cents each, then goes on to trade them in at 1 cent each in order to create a ‘pretty system’. This desire for neatness and compartmentalization in your process makes illogical decisions to seem logical. Additionally, the (overly high) valuation of the URs in their transferable form does make for a more effective case when considering the hourly rate.
Compartmentalization has a place in MS.
The purpose of running compartmentalized gigs is in order to have multiple inflows of points each month. If you only have one avenue, such as the OBC, and it closes, the world ends. You need to have many different streams, and always keep a portion of your time looking for the next one. Where compartmentalization does not have a place is in neatness. If you are prissy and neat with your logic, end up losing sight of the real value out there. Indeed, this logic is why The Miles Professor won milemadness, she didn’t care about the fees, because she was earning at a high enough rate to make them inconsequential.
How to reframe your thinking
In order to make sense of the madness, you need to reframe your thinking on this,
The “Free” UR Method
Susan takes a pail of milk from the cow to the market, each pail contains 5000ml of milk, for which she would receive receives 25,875 URs (the currency of this town) for her troubles. Each ml of her milk is worth about 5 URs.
Because Susan is a lowly maid, she must rent the milk pail. For each 200mls of milk she carries she must pay the Bob the Blacksmith $4.88 (she receives a 1% discount for a quick roll in the hay) Her bucket rental cost is $122, and once she pays that down she keeps the balance as profit. She trots off to market and returns with her payment, 25,875 URs, which she values at 1.5 cents each. She then gives 12200 of them to Bob to clear her debt. She revels in the clear and free profit of 13,675 ultimate rewards. Since she ‘wants’ to earn 27,350 URs (for free) she trots back home to the farm, navigates several piles of cow poop, refills her buckets, and trots back again. Total time for the two trips = 5hrs.
- Total earned = 27,350.
- 27,350 value (I’ll give you a penny fifty at a stretch) $410.25
- Hourly Rate $82.05
Susan being a good, homely girl, is very happy with trading her time at $82.05, as well she might.
The “Better Than Free UR” Method
Susan is getting grouchy with old age. She has been trumping these buckets of milk up and down to the market day in, day out, dodging cowpats left by the devils own satanic herd. She wants a raise, no she deserves it! She pops off to the local witch of the woods and asks her for some career advice.
The witch says ‘why are you carrying a full bucket of milk to the market, when you keep only half?’
Susan replied because if I give half of it away, the rest is free!!
The witch shakes her head, but since the hexing business is slow she tries to help Susan as best she can, and outlines a new, Better Than Free UR method:
Instead of taking two trips, take one. Take the 25,875 and put it in your pocket. Give none of that to Bob. Instead, take $122 out of your other pocket and pay him in cash for it.
- Hourly rate = $155.25 (pay rise of 89.2%)
- And a cost of $122 to deal with
But this way I pay money! Yells Susan.
But you just told me your hourly rate was worth $82.05, I just gave you 2.5hrs of free time back for $122. At your old rate you would earn $205 in this time. At your new and improved rate you’re able to earn $388 in this time, both of which are greater than $122.
Why bother taking that second trip, the first one is worth $155.25 to you per hour, why would you take a second one to pay off the debt of the first?
How much is that second trip really earning?
If your hourly rate from Trip 1 (new method) is $155.25, and your hourly rate for Trip 2 (old method) is $82.05, and you wanted to earn for ‘free’ then your subsequent trip is earning at a rate of $8.85. Still more than enough for you? Well, why not take the second trip and earn another 25,875, so your second 2.5hrs are also earning at $155.25? Does any of this make sense yet? Yes, you are incurring a purchase price, but if you didn’t think URs were ‘worth it’ then why buy them in the first place?
The key is knowing your limits
The reality is, you need to decide exactly how many URs you need in any given period and earn them as cheaply as possible. The theory of needing 100,000 so you earn 200,000 and give half back at a lower rate is madness. If you need 100,000 for your travel needs, earn 100,000 and shift the next $20,000 of spend onto another card that is worth more than 1 cent per point. If you are doing it any other way, like, young, naïve Susan, then you are saying you are willing to buying cards that cost $4.88 and earn $5.47 profit from them.
Everything must be viewed as a whole in terms of inflows and outflows. If you value Ultimate Rewards at more than 1 cent each, you can’t sell them back to Chase at 1 cent each after spending your time ‘buying them’. There are 3 things that are finite and must be considered: Your Time, Your Velocity to Earn, Your Opportunity Costs of Earning. While each constant can be increased to optimum capacity, it cannot go beyond that, so any decision you make to earn has consequences. Don’t be like the old Susan, trekking through cowpats twice a day.
Note – Shawn in his post mentions he doesn’t do the buy down himself, he keeps the points (smart chap) but it seems that many people do this and think it is savvy. What say you, are you a believer in this neat and tidy, fee free method, or does selling for less than you value strike you as being a bit odd?