In my most recent post I explained how I’ve started to think about travel hacking in relationship to my finances. As my rate of credit card approvals has slowed drastically, I have shifted to other means of earning miles, specifically by manufactured spend.
Unfortunately, manufactured spend is not with out some real cost. If I spend more than I can put on all my cash back cards, each transaction is no longer cash-flow positive: on average, I spend $60 for every 10,000 miles I earn. That’s $60 I could be using to go see a concert of my favorite band, or $60 I could be putting towards my nest egg for when I decide to have a family. To put it in starker terms, in order to manufacture 1 million miles, it would cost $6000! Yes, that’s a lot of future free travel, but it’s also a hefty chunk of change.
If the cost alone weren’t enough food for thought, the other day I hit a bit of a manufactured spending snafu that cost me slightly north of $1000 (a gig died), and it prompted me to think more critically about my miles-earning strategy going forward. Now that I have a large enough pool of miles to support the next couple years of travel for myself, how should I proceed? Should I stay the course and throw ever-more of my money into “options” that have diminishing returns due to the effects of miles inflation (award chart devaluations)? Or should I invest my time and set aside my money for other pursuits entirely?
The answer is a mix of both.
Change 1: Dial down the manufactured spending
I’ve come a long way from my initial schooling in Milenomics, which preaches that you should never earn miles without a specific plan for using them. For a while, I stuck to the letter of the law, but over time I’ve loosened my stance knowing that I’d be able to use the initially unallocated miles to fly premium cabins instead of economy or stay in fancy hotels instead of hostels.
However, I’ve finally gotten to the point where I’ve passed that bound. I can’t see a path to using up my current mileage balances before the end of 2018, even if I restrict myself to flying business class on every flight (first class doesn’t have enough marginal benefit for me to justify the marginal cost). To put it in stock parlance, I’m overleveraged in airline miles, and as tempting as it is to continue buying, I need to dial it back.
There is a strong case to be made that my ability to manufacture miles will decrease as time passes, since loopholes have been closing at an alarmingly fast rate in the last year or so. More likely, though, the fear is akin to that of being told by a car company that the sale they’re advertising for is ‘limited-time only.’ It’s true in the most literal sense — that particular sale will end in a week — but there will always be another. And regardless of whether or not the dealership will ever have a sale, if you have no plan to use a car within the next three years, why would you ever buy it?
Change 2: Slow credit card applications and invest time in improving my credit report for the long-term.
On the assumption that credit card bonuses are here to stay in the short-medium term (long term they will probably evaporate as credit card interchange rates head 0 and we transition to digital payments), I can probably replenish a large percentage of what I use with a few sign-ups every year. To do that, I’ll need to get my credit report into better shape.
For starters, I’ll need to cut what I call ‘hail-mary’ credit card applications. At this point, I have so many inquiries on my credit report, such a high aggregate credit limit and such a low average age of accounts that no creditor in their right mind would approve me for a card. Yet I still apply as good offers appear, because “what damage could one more inquiry do?” In the long term, my oldest inquiries will disappear, but their effect will just be replaced by the newer, unsuccessful credit card applications. Why apply if I know I’m going to get rejected?
Secondly, in preparation for one day wanting a mortgage, I want some installment loan history on my account. Thankfully I was able to pay down all of my student loan debt within a year after graduating (I thank my parents for making this happen more so than my ability to find a well-paying job), but unfortunately, it means I have no active installment loan on my account, nor the benefit of a multi-year account.
As if reading my mind, Doctor of Credit recently posted an article on how to get installment loan history for minimal cost. I’ll leave it to him to explain, but roughly, it involves taking out a cash-secured loan, paying off 90% of it within a month, and stretching out the remaining balance over the term of the loan. You can find the rest of the details here:
My loan appeared on my credit report last week and should start having an effect within the next few months, which gets me well on my way toward my goal of cleaning up my credit report. The other part, of course, is on me — limiting my applications over the next 6-12 months and only going for exceptionally good offers.
Change 3: R&R for my travel hacking muscles
I’ve been largely on travel hacking autopilot the last three months, spending more time on my job and with my girlfriend while watching my miles balances grow from manufactured spending. And as great as those three months were personally, they took a lot of the luster out of travel hacking. I was already feeling a little burnt out from the travel I had done the first half of the year, and I had gotten to a point in manufactured spending where most of what I was doing was rote and uninteresting.
Ironically, I think traveling again is going to be the cure here. I have two trips to Dublin and a trip to Southeast Asia planned (the latter of which is all in first class), so it’ll be a nice reminder of why I spend so much time chasing deals.
At the same time, I also think it will be good to engage more with the friends that I’ve made over the internet. There are a lot of travel hackers from the bay area whom I’ve gotten a chance to meet, but it’ll be nice to put faces to the other people with whom I communicate with regularly by chat or in forums. And hey, what better excuse to use my well-earned miles than to visit a friend?
Change 4: Keep Blogging!
Sometimes blogging is a way of me sharing new information or teaching people about something I find interesting. Sometimes it’s a way for me to work out my thoughts, almost like a journal entry. Hopefully it has value for y’all too 🙂