For most of us, any summary of our investment performance in 2008 is likely to be depressing. But there’s another personalized annual report that’s worth viewing each January, and this one may offer happier news — of free beach vacations or extra money to pay your bills.
It’s what I call a loyalty annual report. You create one by summing up everything you earned through loyalty programs, like frequent-flier miles or cash back and other rewards from credit card companies. Free lattes from your coffee shop or gift cards from department stores count, too, and so do rebates from programs like Upromise, which helps members pay for college.
Adding up the winnings is only the first step of this process, though. You also need to review any big program rule changes among companies you patronize while checking with competitors to see if they offer a better deal. Finally, plot your strategy to figure out how to earn even more rewards in 2009.
There is something immensely satisfying about this exercise at an economic moment like the one we’re in now. First, the returns on loyalty are always positive, as long as you don’t spend needlessly just to earn rewards or carry a balance on your credit cards. After all, earning card rewards worth 2 percent still leaves you far behind financially if you’re paying 20 percent in interest.
Also, making an investment in patronizing particular companies in exchange for rewards of some sort gives you some measure of control. As long as the airlines or retailers don’t eliminate or eviscerate their programs and the card company is willing to extend you credit, you control how much you spend with whom and your ultimate return. Stocks and bonds don’t work that way, alas.
Here’s how I put my household’s loyalty report together:
EARNINGS First, one ground rule. Earnings don’t count until you’ve deployed them somehow. You need to cash in the frequent-flier miles for a ticket to count those miles. A cash rebate sitting with the credit card company waiting for you to ask for a check has no worth either. You could forget to request your reward, or it could expire or the program rules could change.
Start adding up your earnings by hitting the big, exciting line items. If you travel often, frequent-flier miles may give you the biggest return. If you trade in a large number of miles for free business- or first-class seats, the rewards can be worth many thousands of dollars, because that is what it would cost to purchase those plane tickets on the open market. Upgrades from coach class seats can have similar values.
My family used one free ticket on JetBlue this year, for a seat that would have otherwise cost around $300. You can generally track your usage history through loyalty program Web sites. Saving e-mail confirmations also helps you remember your transactions months later. For travel rewards, you’ll be able to produce the most accurate annual reports if you make a note, as you cash in the miles or points, what the free flight or hotel room would have cost you had you spent cash on it.
We did better on the hotel front, staying a total of five nights free at Starwood hotel properties. Those rooms, at a Westin in Florida and a Sheraton in California, would have cost a total of about $1,550 had we paid for them with cash.
The vast majority of our points in the Starwood program come from our aggressive use of the Starwood Preferred Guest credit card, which we used to charge about $60,000 in purchases in 2008, paying off the balance each month. We use the card for things as large as school tuition and as small as $3 lunches. We also took in about $580 in cash rebates from a collection of cash-back credit cards.
Finally, we earned about $200 from Upromise. The company works with an array of retailers, restaurants and financial services companies to reward your patronage with rebates. The tiny rebates add up in your Upromise account, and you can use them to save or pay for college. We use the company’s online shopping portal a few times each month, and we get 5 percent of our purchases back from the shoe retailer Zappos and 1 percent from a number of major travel sites.
Our grand total for the year? About $2,630. Not a bad salve in a year when the value of our retirement accounts fell by many times that number, though it’s nowhere close to the $25,000 or so we earned the year we flew to Australia in first class, free.
CHANGES It’s tempting to write off loyalty programs in an economic downturn under the assumption that companies will cut benefits relentlessly. In fact, many of them are becoming more generous as they fight for a bigger share of spending from the dwindling number of people with healthy incomes and decent credit.
So perhaps the biggest news of 2008 was the introduction of two new cash-back credit cards, the Fidelity Retirement Rewards American Express card and the Schwab Bank Invest First Visa Signature card. Both earn 2 percent cash back on all purchases, with no annual fee and no limit on what you can earn each year. Many cash-back cards yield just 1 percent, though some offer more at the grocery store or gas station.
- 1
- 2
<>
</htm