Recently FreequentFlyer wrote a post on hacking business travel. You should read it, it’s good. However, there’s a few conceptual points I’d like to address when it comes to business travel, and you can apply them to your personal life too.
Business Travel is already hacked
The first rule of business travel is that it is inherently hacked by tax breaks. That said, the number of people I see who fall into the trap of paying for business travel with cash, deducting the cost, and keeping the points is ludicrously high.
The concept we need to be aware of here is expense pairing. All travel can be paid for with points; by all I mean personal or business. However, not all business expenses will be paid by points. That means if you take cash and pay for travel, you reduce the number of things the cash could have been spent on. When bootstrapping any business you need to spend every penny wisely, and that means that spending even $10,000 per year on an income of $200,000 is a huge detriment to the business growth. That $10,000 could be spent on new software, an assistant, outsourcing accounting, a team bonus, a retirement plan, or many other things.
A company with 5 employees could use points (wherever possible) for travel, and apply the different to a benefits package that encourages growth and staff retention.
When I see many small businesses start I see people who want to play at being a business person. They like the image of the persona. They pay cash, they even fly ‘Business’ because they think they are ‘Business’. It’s a huge mistake. Business is lean, and you need to be a fighter to win. I’ve seen this in the attitude of those who say ‘no kids in Business class’. If you really are in business then you should be able to fly across the world in economy and crush the meeting. I’ve flown that far and met complete strangers in Arrivals at an airport, no Centurion lounge in sight, it’s possible to grab a coffee still (cash is good here).
Ditch the Tumi bag, the cash ticket, and the entitled attitude and get to work.
What can we learn from this?
There is a deep psychological attachment to the ‘ownership’ and value of miles. The business owner wants to hoard them as a tax free ‘perk’ of running a business, but in doing so harms business (and therefore personal) growth. This concept manifests itself again with those who hoard miles for the perfect dollar per point value, rather than using miles as a buffer between travel and wealth. Personally, I just redeemed 20K Alaska miles for a 1 way ticket from SEA-EWR. The dollar cost of the ticket was $210. Many people pay the $210 and wait for that amazing point value, but I keep my cash doing cash things (funding a business, paying for food, or any other number of things) and my points doing points things.
Funny Money is worth MORE than real money
Many of us are cheap. We’ve been taught to think overly frugally by our parents or communities. This inhibits us. While I don’t like to spend cash in the above example, I will spend. The difference is simply the order in which it is spent. If I can first expense pair with points I will, then cash comes in.
People like to value statement credits lower than cash, and in some ways I agree with this. But the advantage that funny money has it that it can break through years of conditioning and allow you to spend. To the business, this is critically important. The key is to respect the points/cash value, but not let it rule you.
An example of this is when I once flew from JFK-NRT for a single meeting with a Director coming in from India. We met in Tokyo, a city I knew well, and I had the chance to go from one in twenty vendors to the only one sitting with him closing a deal. It would have been hard to justify financially, or psychologically, since the cost at the time would have eaten up a quarter of revenue. Points, Miles and Funny money allowed me to cast that aside, and access a deal worth 5x my annual revenue.
When we look at how we are conditioned to spend, we really need to look at the way in which we were taught about money, and if it might have had good intentions, but be dysfunctional. When it comes to business travel, don’t buy into the notion that because it is inherently hacked you can use it to earn points. That is like those foolish people who resell just to earn points.. if you want to really grow a business every resource you have should be available, there is no ‘you’ and the ‘business’. When it gets so large that profit simply can’t be spent on other things, then you can start paying cash, but that should be far down the line for most.
For personal travel, if you don’t have an immediate upcoming need for your points, stop hoarding and start using them to protect your cash, which can be spent on other things, such as paying off the student loans, mortgage, college fund, or beer.
Disclosure: I have three business trips in the next 3 months. The flights are paid with miles, and the hotels are paid with points, only one of them has a Limo picking me up….
Great post.
One thing we learned recently from our accountant is the rather stringent rules for deducting unreimbursed business travel expenses when a trip is a combo of business and pleasure. I plan to research this more carefully myself since my husband is doing more and more of this kind of travel. And once he retires and perhaps boosts his consulting activities/travel even more, it may come into play even more.
We have, in the past, paid for some nights to be able to deduct the expense and to save the points for the future. But between the accountant’s info and your persuasive argument above, I think we do better to just use the points we have and save the cash for things we can’t pay for with points.
Yes, taking personal time when on a business trip is a tricky one. There are times when it can be done but some strict rules about it.
A link at TBB led me to a Miles for Family post. The person interviewed said this:
“7. Do you ever wish you’ve never found miles and points hobby? Why/why not?
There are times when I feel that if I were to put the time and effort I’ve invested in the hobby into growing my business instead, I could afford to pay cash rather than points to fly business class. An exaggeration perhaps, but not entirely unfounded. Miles and points make it very easy to fall into the trap of being penny wise, pound foolish, and it’s something to be mindful of.”
Clearly this guy should be reading Saverocity 😉 !