A financial plan for more travel

Posted on December 5, 2012December 5, 2012 by Danielle

Airplane Flight Wing flying to Travel on Vacation (Photo credit: epSos.de)

What would you do with more money? What do you most want to do when you retire? For a huge number of us, that answer would be, Travel! Even for those of us with a lot of mileage already on us, the lure of faraway places remains strong.So what’s stopping us? The usual suspects—time and money. Employees in the U.S. get the lowest amount of vacation days in the western world. Even if you run a small business and could theoretically set your own hours, well, we know how that goes. But I think that even that time issue is a function of the money travel costs—if it costs a small fortune when you’re paying for it yourself, we tend to think it has to be a major trip, maybe several weeks, and we never go. But what if money were no object?—long weekend getaways would seem easier to fit in. As with all luxuries, we need a surplus in order to really relax.

Similarly, frequent flyer programs haven’t worked that well for me. For example, my kid is flying back and forth Philadelphia/Chicago five times this year. On US Airways flights (which we can’t always get) she might rack up enough frequent flyer miles to get one free ticket during her college career. But using it at a time when she actually has to fly given her breaks and vacations, well, I’m not booking it just yet.

It’s seemed to me that I’m going to get that fabulous tour to India (fill in your own bucket list destination) just about the time I win the lottery, or start collecting on that long-term care insurance. Yet I do hear rumors from time to time about adventurous types who traipse all over the globe for cents on the dollar. How?

Like Archimedes, my Eureka moment hit me in the bathtub (actually, the shower). I’ve been getting a blog feed from Chris Guillebeau, who writes The Art of Non-conformity, for years. I originally subscribed because I liked his free e-books and he is embarked upon a quest to visit every country in the world. It was great armchair travel fantasy. But suddenly it hit me that I should actually pay attention to some of this stuff—not just the travelogue, but the tips.

Chris has an e-book, Frequent Flyer Master, which pretty much lays out the techniques for you. The book is somewhat outdated (this field changes FAST), but Chris promises two things—that you’ll find a way to get at least 25,000 more miles (a free domestic ticket or thereabouts) and that he’ll send you the new copy when it comes out (in the next few months, apparently). The principles are available if you do enough web searching, but Chris puts them together in a succinct 101 course. It’s pretty complex, and he lays it out well. So, how do people do it?

Sign up all over the place for frequent flier airline programs—some of these can be transferred to partner airlines, so if you fly on airlines in the same “alliance”, you can consolidate.
Apply for a bunch of credit cards. Sign up bonuses can offer startling amounts of miles (like 50,000)—your credit has to be superior and there’s generally a required spending in a specific time period. Also, these points can sometimes be transferred to other programs, consolidated, or used as cash to pay for non-covered portions of your travels. Some of these are airlines cards, some hotels, some just with big guys like American Express, Chase, and Capital One;
Never buy anything, especially on-line, without checking through the card and airline programs—many of them will give you double or triple points (on some things, 5x) for anything you buy, from flowers to electronics to duck boots.
Keep watch for specific promotions that offer multiple points—like 5x on office supplies, or restaurants, or companion tickets.
Use credit cards strategically depending on multiple points offers.

Obviously, this is a game of big and little wins adding up to serious travel awards. Chris advises that the way to get there is to figure out your goals (just as in the rest of life!) If you know you want to go to India or Rome, you can organize your acquisition strategy for the best deal to that place. There are even software programs (some free on-line) to help you keep track of what you’ve amassed.

Is it worth it? Well, just like other effective financial strategies, if it were easy everyone would be doing it. It does require some research time and a fair head for sorting details. You’ll probably stick with it if you enjoy it as a hobby, feel you’re getting something significant for free, or really want to do more traveling. For me, I figure it’s worth a moderate investment of time considering the available rewards—much more worthwhile than clipping coupons out of the paper (and then forgetting them when going to the grocery store).

One caution—you must have a great credit score. Do not attempt this if you have debt or trouble controlling spending. And, your credit score will take a hit initially, so don’t start numerous credit applications if you’re going to buy a house (or maybe an auto) in the next six months. However, having a lot of credit power that mostly you don’t use can actually help your credit score over time—it’s the ratio of use:availability that matters. One number that floats around is that the amount you use each month should be less than 7% of your total available credit—so if you have $20,000 as a credit limit, you shouldn’t charge much more than $1,400/month, which you pay off each month. Other advice I’ve come across: apply for the cards all at once, double dip by using airline mileage cards and charging on credit cards that offer points, and keep on top of your credit score. (I’ve used Quizzle.com for a free score, but there are many others).

As with income tax and college financial aid strategies, you can go broke “saving” money, so be careful to confine this travel hacking of amassing points to money you would be spending anyway. Once you dip a toe into this you’re going to feel really stupid for all the points you’ve missed (ugh, money wasted). It’s complicated—if I still had a teenager at home, I’d put her onboard to keep track of this and figure it out—they’re always on the internet anyway, right? If you have one, you might ask a grandkid to do this as a gift to you—and make ‘em a deal on sharing the benefits.

My personal goals? India within two years, mostly paid for by benefits, London, and either a warm long weekend in the winter or a great city visit. I’ve scored 135,000 miles/points so far. I’ll update this from time to time to illustrate how I’m actually doing, what benefits I’ve landed, and how I used them. We’ll see if it’s worth it. And I can’t resist: warning, your mileage may vary.

Three simple steps to wealth

Posted on November 16, 2012November 16, 2012 by Danielle

Just because it’s simple doesn’t mean it’s easy. The solution to nearly all money problems is quite simple:

Spend less
Earn more
Invest the surplus

The devil’s in the details. Often, people with financial difficulties are in fact very good at least one of these, but they don’t take into account the other two.

First, there’s the very frugal type. If you’ve ever been mocked for the latte factor (pinching pennies by carrying your own coffee rather than Starbucks’), that would be you. You squirrel it away, have a budget, research every purchase, and pay off your credit cards every month (if you use them at all). You’re an expert at living on less. I love it. The danger here is that you’re so focused on not spending that you forget to invest properly, which inevitably involves some risk—something that frugal people often hate. Or, you’re so focused on steadiness that you overlook the big wins in income that can be generated by pursuing a better job or a significant raise.

Earning more, however, is not necessarily a sure ticket to wealth. Wealth is how much you hold on to, not how much money has slipped through your fingers. People with large salaries in highly visible or status oriented jobs are not necessarily rich—especially if they spend a lot on toys, travel, transportation, or the (seemingly inevitable) McMansion. Also, people in high earning jobs also find themselves under quite a bit of stress, and the urge to make it up to yourself with rewards is hard to resist. This group needs to remember that there’s a particular kind of satisfaction in a 6 or 7 figure investment portfolio as well.

Group number three: okay, you earn more than you spend, and you’re hardly more extravagant than a nun. Where is your surplus parked? In CDs? No! With a stockbroker, fee-based “advisor”, wrap account…? AAARRRGGGHHH! You owe it to your hard work to educate yourself. Investment scams and schemes can cost you way more than you’ll save in years of frugality or even earnings. Really, the hour a week you spend reading financial books or articles may earn (or save) you more per hour than any other action you can take to preserve and increase your wealth.

In fact, these three principles could as easily apply to our national economic woes as much as our personal financial management. If only…

Investing—who can you trust?

Posted on November 7, 2012November 7, 2012 by Danielle

An awful lot of hot air has been blowing lately about trust and believability. Now that it’s the morning-after, maybe we can recover from all the campaign ads and go back to pondering the usual scoundrels. I have the secret to success, however, at least when it comes to investment safety. Follow these principals and you’ll avoid most of the ways you can be skinned alive.

If it sounds too good to be true, IT IS. Not like I haven’t said this before, but look beneath the hood of any scam, and you’ll find our own personal greed has something to do with it. No, we’re not smarter or cleverer or luckier than the next guy and that nice man isn’t keying you in on a privileged deal—not a legal one, anyway. If you are truly in on an insider deal, well, I hope your mug shot looks good on the front page of the Wall Street Journal. But for most of us, guaranteed returns better than the return of the specific market are a sure sign you’re talking to a crook—unless it’s a federally-insured savings account, and you’re not going to make any money at all on that one. Ask investors in David Lerner (or many other) non-traded REITs—you can’t get an 8% return in this market without getting more than a whiff of fish.
Just because he’s nice doesn’t mean he’s honest. If you’re selling some crap, especially something that’s hard for the consumer to evaluate, you’d better be nice or you’ll be eating cat food. But there are some professions where “nice” doesn’t count as much as an honest answer and advice based on expertise: doctors, attorneys, accountants, and financial advisors. Get a Lab if you want nice. Similarly, just because he belongs to your church, or says he loves older people, or graduated from an Ivy League school doesn’t mean he’s honest or competent. In fact, that’s one of the best ways to scam people with their guard down.
Understand what you’re buying. If you don’t know how it will make money, what will cause it to go up or down, and why you should include it in your portfolio, don’t buy it. You don’t know what you’re doing, and probably neither does the “advisor” if they can’t explain it to you. And why is he selling it to you? Is there a monthly bonus contest going on?
Know what it costs you. You have to pay for advice—no one works for free. If you get “free” info off the internet, you’ve probably just gotten either a)something worth what you paid for it or 2)good background but not specific enough for your personal situation. If you just went to a “free” lunch at Maggiano’s and the nice young man told you that they were fee-based and didn’t generally collect commissions, you are about to pay four or five $$ figures for that lunch. Any reputable fee-only advisor can tell you exactly what you’re going to be paying, whether hourly or based on assets-under-management fees. Know how someone gets paid and you’ll know where their interest lies. Management fees and fees on retirement plans can be jaw droppers once you find out how high they really are.
Educate yourself. Read more than the sports section or the movie reviews. Every day, every newspaper, magazine, and a myriad of financial websites run articles on annuities, asset allocation, target funds, emergency funds, and on and on. Force yourself to read at least one article a day. Jeez, just read this blog! You can eat the elephant one bite at a time—you don’t have to know everything instantly, but over time you’ll find you’ve begun to get a grip on even the most complex issues (I nominate annuities for that title).
Don’t leave it all up to your spouse. Two heads are better than one, and after years of ignorance it’s very hard if you suddenly have to go it alone.

Follow these principles and Bernie Madoff wouldn’t have been padding around in custom embroidered velvet slippers. My clients wouldn’t be bringing me portfolios full of A, B, and C shares, IRA accounts with 29 different mutual funds, 57 varieties of annuities, and life insurance they didn’t need at 3x the cost of term. With decent planning and a healthy dose of skepticism, they’d enjoy far greater prosperity and some peace.