I think most mile enthusiasts tend to overly focus on miles, and it’s not hard to see why. Premium cabins are really nice, and miles are very valuable when you use them properly.
In the chase for miles, however, I think mile enthusiasts incur a lot of costs that they are unaware of. Here are some grave mistakes I think mile chasers tend to commit.
Ignoring opportunity costs of miles vs cashback
Once you have established the value of a mile, it makes perfect sense not to buy miles at a rate higher than your valuation of it. If you value each mile at 1.5 cents, for instance, you would turn down paying a credit card annual fee of $192.60 to earn 10,000 miles since each mile would cost 1.926 cents – far more expensive than what you think it is worth.
This is clear enough, but I imagine fewer people take into consideration the opportunity cost of earning miles when they choose a mile card over a cashback one.
When they pass over the chance to put spending on a 10% cashback card to clock spend on a 4 mpd card, they are essentially buying miles at a cost of 2.5 cents each. It’s fine to do so if you value miles at above 2.5 cents, but few people truly do that, and most would actually try to get an annual fee waiver to avoid paying $192.60 for 10,000 miles.
This is highly inconsistent behaviour. Let’s assume the following:
Scenario 1: 10% cashback card + pay annual fee
Scenario 2: 4 mpd card + avoid paying annual fee
|Scenario 1||Scenario 2|
|Pay Annual Fee||-$192.60||No|
|Total Rewards||10,000 miles + $7.40||8,000 miles|
Conclusion: It is clear that 10,000 miles + $7.40 is far superior to 8,000 miles on the same $2,000 spend. If you avoid paying 1.926 cents per mile, you would definitely also avoid paying a cost of 2.5 cents per mile.
Paying a price for premium flights they wouldn’t normally have paid
Even with such an illustration, there would still be some hardcore mile chasers who would still tell me to shut it. “Miles let me travel on business class for FREE!” is their argument. Let’s see if this holds up.
A business class ticket to San Francisco via Singapore Air can cost $6,200 when there’s a sale. I think most miles chasers won’t pay for this, which is precisely why they chase miles. Would they pay $4,750, I could ask them, and I suspect most will continue to say no.
They would, however, happily plop 190,000 miles on this trip.
Now, on a 4 mpd card, one would need to spend $47,500 in order to clock the required miles for this SIN-SFO biz class trip.
If they had put the spending on a 10% cashback card, that’s a stunning $4,750 worth of cashback. Giving up $4,750 for 190,000 miles is essentially buying the business class ticket for $4,750. Opportunity cost is cost.
Even if I lowered the cashback percent to consider spending limits for the 10% cashback (note that 4 mpd cards also have spending limits), optimising my spend across a mix of 10%, 8%, and 5% cashback cards would easily yield 5 to 7% at least. At 7%, that’s still $3,325 of cashback given up if you pursue a miles strategy for that US trip, and basically the price you are paying for the ticket.
At 5%? $2,375, or roughly double the fare of economy. Some mile chasers I spoke to admitted readily that they wouldn’t spend a premium to get a more comfortable seat. They don’t realise that they are indeed paying a premium when they give up a high cashback rate for miles.
Conclusion: Miles are still useful to discount the price of business class tickets, but you’re still indirectly paying a premium for it. Miles are merely another form of currency that you buy (either directly or indirectly). If you’re the kind of person who would already pay the ticket price, miles are definitely for you. But if you aren’t, it might be time to reconsider your card strategy.
Overspending just to clock miles
The chase for miles leads to dopamine highs – specifically designed by banks to encourage spending, I’m sure – and this tends to make mile chasers a little skewed in their perspective, myself included; miles and points just feel so much better than plain, boring cashback for some reason.
This leads to spending on things that we might not have bought just to clock a fantastic 8 mpd earn rate. I have, on more than one occasion, bought things I was on the fence on and had fancier meals than intended because of the extra miles it’d clock. When I was younger, I use to associate spending with “pain” which is how I developed my frugality, and in less than 2 years of having my first mile card the banks and airlines have reprogrammed my attitudes towards spending and shifted that association closer to “pleasure”. Insidious.
We have to remember that miles are part of an elaborate loyalty programme and tread carefully. As much as we try to maximise our rewards from these companies, they too seek to exploit us whenever they can.
Do you agree?
Are you a miles chaser telling me to shut it? Or are you now convinced that my tier list makes a lot of sense? Tell me in the comments!