Cash vs. Points?

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Cash vs. Points?

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Part of effectively using your miles and points is not only knowing how to use them, but when to use them.

There are two major factors that determine this for most people:

A. Getting the most out of each redemption

B. Availability of miles vs. availability of cash

A. Getting the most out of each redemption

Without getting too complicated, one mile can be valued, at a base level, at 1 cent.

So, 100 miles is $1.00, 2000 miles is $20.00, 10,000 miles is $100.00 and 100,000 miles is $1,000.

Note: This is a very, very basic valuation of points–of course, some miles are worth more, if you get more value out of a specific redemption, over others. That’s what we’ll look at here.

Example 1 

A one-way flight from New York to Miami, non-stop on American airlines requires 7,500 British Airways miles. The cash price of this specific ticket is $203:

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If you were to use 7,500 British airways miles for this flight, you first need to calculate the price of these miles:

(7,500)(0.01) = 75, or $75.00 

In this example, if you’re going to pay for the ticket with cash, you’d “save” $128.00.

Example 2

This flight using British avoid, for example, would cost 7,500 miles, or $41.00?

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If those 7,500 are valued at $75.00, then you’re better off saving miles and paying cash (or that’s what I’d do).

Calculating the value of your redemption

So we know that 1 mile equals one cent. That can help you, after a redemption, the cent per mile redeemed:

In example 1: We redeemed 7,500 miles against a $203 ticket, so what’s the value of each mile? To do the calculation, we need to convert our dollars to cents:

20,300/7500 =

2.63 cents per mile

That’s 2.63 cents per mile. A great redemption, if we assume all miles are valued at 1 cent!

So which one should you use? Cash, or miles? It may seem obvious…

…But, this leads us to to section B; you’re availability of miles vs. your availability of cash.

B. Availability of miles vs. availability of cash

There are one of three categories we each fall into as individuals or as families:

  1. Miles rich, cash poor
  2. Miles comfortable, cash comfortable
  3. Miles poor, cash rich

1. Miles Rich, Cash Poor

This is perhaps the most common of the three categories, not because one is, “poor”, per se, but because one usually doesn’t have the extra income to take lavish trips, flying business and first class around the world and stay in five-star resorts.

We fall into this category because we accrue a significant number of miles via credit card sign ups and spend smartly, allowing us to fly first and business class around the world and stay in five-star resorts. 

If you fall into this category, it will make sense 99% of the time to use miles, over cash to book your big and small trips.

2. Miles Comfortable, Cash Comfortable

The second most common (and thus listed second), category. We earn some miles via credit card sign ups, but we’re not very aggressive. Getting free flights and hotel nights is great, but not really necessary. We’d probably take that once-in-a-lifetime trip after saving up enough miles. Short-medium hall flights to visit family and friends around the U.S. will probably be purchased using cash.

If you fall into this category, you need to look at the vacation line in your budget and see when it makes sense to use miles, or cash for yourself. Without knowing each situation, you’ll get the most bang for your buck using your miles on farther destinations during peak/vacation times.

3. Miles poor, cash rich

We have a few credit cards, but we use cash more often than not. We buy tickets for times of the year it works for us, regardless of the cost.

If you fall into this category: SPEND SMARTLY. Make sure to maximize each and every purchase, for a return on investment: more miles per purchase. (Read this post for more info).

C. Bringing it all together

Read step ‘A’, to determine the calculation of miles or cash. Then, go on to step ‘B’, to determine in which category you fall into. That can help you decide how to move forward on whether or not you should be using cash, or miles.

-The Miner


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