What’s the “Point”? Saving Money vs. Living the Life

I wanted to have a bit of an open-ended discussion today on a relatively simple question. When I describe to others what we do here at Prince of Travel, I’ll typically call it something along the lines of “travelling more, for less”, by collecting and redeeming points.

If I’m feeling particularly grandiloquent, I’ll say something like “travelling the world in style, at a fraction of the price”, again using points. 

But what, exactly, is the “point”? I’ve come to observe that among those who start dabbling with Miles & Points, some people focus on “travelling the world in style”, while others zero in on “at a fraction of the price”.

Perhaps unsurprisingly, the points community has a fair bit of overlap with the various other “frugal” communities out there, such as people trying to cut down on their expenses, people working towards early retirement, or people who simply pursue every deal in the land. 

With that overlap, there can often be the tendency to ask the question: What is maximizing credit card points and loyalty programs really all about? Is it about saving money, or is it about – as an umbrella term – “living the life”? And it’s an important question, because those with different approaches to the game will be making entirely different decisions in terms of how to use their points.

In this post, I wanted to outline both approaches as I see them, explain why I’m a champion of one in particular, and open it up to the community for debate. 

The Money Saver’s Perspective

It’s not hard to see how earning and redeeming points would help a frugally-minded person save money. Indeed, that’s the angle through which many people get introduced to the game at first.

Now, let’s be clear here. There are people out there who are so obsessed with their bank accounts that they starve themselves of every earthly pleasure in the name of compound interest. Let’s assume you aren’t one of those spoonful-of-olive-oil-for-dinner types, and that you live a relatively comfortable lifestyle – you generally enjoy taking your partner or family on one or two vacations a year – but you love to exercise frugality and save money while doing so. 

On the face of it, earning and redeeming points is a solid way of accomplishing those goals. A single credit card signup bonus on the Amex Gold Rewards Card, with no money spent out-of-pocket, gets you a round-trip flight within North America. Get your partner to do the same, and now you’ve got that long weekend getaway to Las Vegas sorted. 

Why stop there? The Business Platinum Card will get you enough Aeroplan miles for a trip all the way to Asia, albeit with an annual fee of $499. And hey, you could even make it a full-blown Mini-RTW while you’re at it and plan a European stopover on your way to Asia!

Savings vs. Value

But hold on a second. If saving money is the be all, end all, then why would you shell out extra for anything beyond the simple Asia round-trip that you would’ve paid for if it weren’t for points? 

A surcharge-free Mini-RTW routing through Europe and Asia would probably run you about $200 in airport taxes and fees. Throw in the $499 annual fee, and you’re $699 out-of-pocket already. Then remember that you had to spend $7,000 on your Amex to earn those 75,000 miles, and if you had put that spending on a 2% cash back card instead, you’d have earned $140. Opportunity costs, don’t forget those…

So yes, the Aeroplan Mini-RTW is an excellent sweet spot that provides great value. If your goal is to save money, though, do you really care about value? Surely, instead of paying an effective $200 + $499 + $140 = $839 out of pocket, you’d be better off buying a cheap fare of about $500 to bring you to Asia? 

And that’s to say nothing of redeeming points for business class. Sure, a business class award is much better value, but it also requires 150,000 miles – double the economy cost – to begin with. If frugality were the mandate, you’d be best-advised to save those miles for next year’s economy class trip instead of burning them now in business class.

Just as you shouldn’t forget about opportunity costs when earning miles, you shouldn’t overlook them when redeeming either. Points are a currency, and they have an inherent cash value – with Amex MR points, for example, you always have the option of cashing them out at $0.01 apiece against any purchase.

So when you’re entertaining the possibility of booking business class, the question you’re really asking is: would you buy-up to business class by spending an additional $750 (the floor value of the incremental 75,000 miles) that you didn’t really need to spend? And for a good money saver, there’s only one right answer…

Indeed, after mulling it all over, the best course of action from a money-saving perspective might be something like this: grab both the Gold Rewards Card and the Business Platinum Card for 100,000 MR points in total. Use 50,000 MR points to offset the $499 annual fee you paid as a statement credit. Then use the remaining 50,000 MR points to book a cheap $500 fare to Asia, all-in. 

You wouldn’t get good value out of your points; in fact, the value in the traditional sense would be downright terrible. But if it allowed you to book the trip you’d ordinarily book, while paying nothing out-of-pocket, and thus accomplishing your end goal of saving money – then who is anyone to tell you it’s the wrong way to use your points? 

The “Living the Life” Perspective

I hope the above illustrates how saving money and attaining good value for your points can often be at odds with each other.

Those in the opposite camp, meanwhile, recognize this fact and therefore do not view saving money as an objective of collecting points, in and of itself. Instead, the goal is to use points to attain unique experiences that would otherwise be far out of reach – in other words, to “live the life”. 

This perspective is what drives many of us to pursue business class and First Class redemptions, to redeem points for stays at awe-inspiring luxury hotels and resorts, and to travel to far-flung corners of the globe. For most of us, the retail prices of these experiences would be drastically out of our budgets, but equipping ourselves with Miles & Points makes them, all of a sudden, very much within reach.

You could be a relatively well-off company executive, but even then, you probably won’t be dropping tens of thousands of dollars on international First Class on a regular basis. Well, points can make it happen. You could be an ordinary middle-class family with the budget for one vacation a year, but the appetite for three or four, or even more. Again, points can make it happen. 

You could be a university student with aspirations to travel the seven seas, but very little money in your bank account. Points can make it happen – indeed, that’s where my journey with this stuff all began. The idea is that Miles & Points allow you to do awesome, unforgettable, and frankly life-changing things that cash alone would not, and that’s the perspective I’ve championed since the very start. 

Note that I’m not dismissing the importance of saving money – everyone knows that compound interest is one of the keys to a stable financial future – but that’s the domain of RRSPs and TFSAs. It’s just that when it comes to Miles & Points, saving money is not the end goal.

Instead, saving money is couched within the context of maximizing value. One example of this would be my ANA First Class trip last year, where I used some Aeroplan hidden-city ticketing to bring the taxes and fees from $200 down to $100. Or when I opportunistically pounced on the US$980 Cathay Pacific First Class mistake fares on New Year’s Eve. Or the time when I updated the address in my Aeroplan profile to my Beijing address, so that I’d count as a foreign resident and wouldn’t have to pay the HST on any change fees or phone booking fees (a neat little trick, by the way). 

All of the above are examples of attempts to save money for the purpose of maximizing value and living the life, not instead of it. For me, having this abundance mentality is how you get the most out of Miles & Points – let your savings accounts do the savings, and let your Miles & Points do what they do best, which is allow you to comprehensively enjoy your life through some incredibly rewarding travel experiences. 

The Value Debate

Lastly, it’s interesting to note how this question ties into the debate that regularly occurs whenever the concept of “value” itself gets discussed. On paper, using First Class retail prices, you can often get upwards of 15 cents per point (cpp) on your points redemptions, but how accurate of a measure is this really?

Those who focus on saving money and cost minimization are quick to compare against the benchmark of “what you would have paid”; according to them, since you never would’ve paid those exorbitant retail prices in cash, it’s totally unfair to say you got 15cpp for your points. 

On the other hand, those who adopt the mindset of “experience maximization” will emphasize that the retail price is in fact the fair price of the redemption on the free market, so the 15cpp valuation accurately represents how amazingly they used their points. The fact that they never in a million years would’ve paid cash for it simply underscores that idea. 

Alas, this is one of the debates that has raged on since the day the very first frequent flyer mile was issued. Both arguments have their merits, so there’s no real clear-cut answer, but the conversation does serve to highlight the opposing viewpoints held by people who are using their points to accomplish different objectives.

Conclusion

I’d love to hear your thoughts on where your primary objectives with Miles & Points lie. If you’re intent on saving money, and can use points to help you make progress towards that goal despite putting aside the notion of value, then no one has the right to tell you you’re redeeming points the wrong way. On the other hand, if you’re set on living a high-flying lifestyle that relatively few people in this world will ever get to experience, then there’s nothing that gets the job done better than Miles & Points either.

Ultimately, as with all things in life, there should be a balance between saving money and indulging in earthly luxuries. For me, that balance is struck when the former is objective is pursued diligently in the name of the latter. What about you?