Reward Miles: Stash 'Em or Cash 'Em?
To all you frequent flyers; are you someone who squanders away your miles as quickly as you earn them? Or do you store your miles with hoarder-like enthusiasm? Have you ever struggled to decide when it makes sense to use them? Two years of flying internationally twice a month earned me a substantial amount of miles. My immediate reaction was something to the effect of, "I shouldn't pay for another flight until I've burned through all these freebies!" <Insert loud, annoying buzzer sound here.>
Don't do it! Thankfully, I took some time to research before burning through my stash, because as some of you probably already know.... those miles are only worth spending IF they offset the cost of acquiring them. Basically, think of your miles as cash. Let's face it, you spent money in some way, shape or form to earn those miles. So what are they worth to you?
The most recognized value for cashing in on miles is a ratio of 1.4 to 1. That is, 1.4 cents per mile. Anything less and you're recklessly giving your miles away. I researched The Points Guy who spells this out pretty clearly, but still struggled with the formula. For someone who runs calculations all day, it's hard to admit that at times I still get it backwards.
So perhaps my explanation and a little "cheat sheet" I created will help make it clear to anyone who hasn't fully grasped it explained another way.
($/#) x 100 = ratio.
That's it! Dollars it would cost to purchase a ticket, divided by how many miles you'd have to cash in for the same ticket, then multiply by 100. A lot of bloggers on the subject forget the multiplication part of the formula. It might seem basic, but not doing this means you'll practically never get to a ratio of 1.4. Therefore, at first glance it never makes sense to use your miles.
If your cents per mile (CPM) comes out to 1.4 or greater, those miles are serving you well. If they don't, decide if you can afford to spend the dough this time and save the miles for another trip. My understanding of the ratio is that it's based off of the average domestic flight. So your basic domestic flight is going to cost an average of $350 or 25,000 miles. ($350/25000) x 100 = 1.4. So anything equal to or greater than this ratio is going to make the most use of your hard earned miles.
Based on the formula, you can work off of the above example and come to the following:
25,000 miles = $350
50,000 miles = $700
75,000 miles = $1050
100,000 miles = $1400
Now you can roughly estimate for flights falling in-between these parameters, or work through the quick and easy calculation to get an exact comparison.
**Don't forget! There are usually additional fees tied to flying on your miles. For example, a flight to Chicago may cost you 25,000 miles round trip plus $30. Knowing that we want our miles to be worth at least 1.4 cents each, that $30 is actually another TWO THOUSAND miles! So don't leave it out of your comparison.