It makes me smile whenever i read blogs or articles about personal finances.
It is usually the same ideas and ideology repeated differently… From the rich dad poor dad, millionaire next door, to the wealthy barber… Etc… all the same concepts being preached… Yawn..
Now it seems there is a proliferation of blogs and books showing people how to save:
Or which cash back credit cards they should get:
While the traditional personal finance concepts are time tested and applies to everyone, rich to poor : spend less than you earn, save min 10%, save on costs, invest in asset producing passive income etc…
It is still traditional thinking, They do not push the thinking further enough, the luxemiles way should be:
It is not how much you make, it is not how much you save, nor how much you spend, it is HOW you spend it.
Every body have to spend resources, money, time, health energy. If you have to spend it anyway, then why not maximize it the luxemiles way?
There are some college kids and stay at home moms that travel for free and luxuriously in first class, they travel like a millionaire while earning minimum salary. And there are millionaire, even billionaires, that travel the same way as the college kids while spending the same amount as them….
Notorious examples: there is a blogger, ben, at one mile at a time, that use points accumulated from just credit cards applications, and other travel hacks, to often travel in first class around the world while still in college.
Then there is the story of newly minted billionaires, founder of whatsapp text messaging services, that refused to pay cash full price for a first class tickets, instead redeeming his points for a lufthansa first class tickets, costing him less than economy prices…
Especially in usa, where one credit card application produce enough bonus points (100k points for some cards) to go first class across the ocean, one does not need cash or money, or to be rich or wealthy to travel like a wealthy person.
Most people will spend countless hours and energy to save on small items, for example on groceries… They may compare prices across merchants, actually drive to differents store just to save $10, while the gas cost alone may be already $5 ! They forget to factor in ancilliary costs, like gas, parking, and opportunity costs like time and energy.
While it is important to save on costs, you need to factor in all variables (time, energy, gas, AND rewards points !!)
Points is an elusive system. Most people will not have any concepts of value and opportunities of points. Like how much each points is worth (IN) and how much value can you get from the points (out).
Points system also count on the fact that human are usually not patient enough, and want rewards right away. Most will not have the patience to wait for their points balance to reach a critical amount where the value is maximized, and most will not know how to maximize the points value when redeemed.
FIRST, back to the grocery cost debate: luxemiles thinking is why would you waste time and energy to save a few bucks on groceries, while you can easily shop at one store, and save min 20-40 per cent off on already low prices? How?
Learn how it works. Know how managements think. Become either an extreme couponers (yes those people deserve praises, as they READ all the small details on the coupons, understand the system, and come up with a plan), OR just be “lazy” the luxemiles way: efficiently :
Shop at newly opened safeway store that are not busy. We shop at windermere safeway, and because it is dead, because of the competition nearby from big retailers like walmart, the prices are already lower. PLUS each time we go, we wait until we can aim for a min spent of $100, and a maximum spend of… $100 exactly. ( we go around the store with a calculator). More than $100? Drop the extra items and come back later.
From what we see from that safeway store, Most people will not wait until they need to buy $100 worth of groceries, and most will come in whenever they WANT something. And most will keep on spending above $100, usually if they buy groceries above $100, most likely it will be $150-$200 range. Exactly what the retailer wants, that you spend more (while getting the same amount of rewards back)
Why? For spending $100, you get 200 air miles reward miles (www.airmiles.ca). It is different from amex points, or airlines points.
What is the value of 200 air miles? You can redeem right away for 90 miles = 10$ off, or you can stash it to redeem for golf (250 miles: free golf : $90), or wait until you redeem for flights etc… So min of 20% off to 40% value later. It is all how to maximize the OUT value: redemptions, while minimizing the cost (IN)
SECOND, Back to the credit card debate: cash back is great for most people as most want to see the cash and reward right away. They prefer to see the MAXIMUM 2% cash back when they spend. And 2 per cent is and will be always the maximum value that they can get. They cannot get more than that.
While the smart travelers like the college kid, or the billionaire, when they spend money, they will use the credit card that will bring them the most value when redeemed, as they always think about the value proposition, the exit (out). And usually the most value comes from redemptions for travel in expensive business or first class, or expensive hotels. For Worst case scenario, They know they can always get min 2 percent value back. But usually they will get 10-20 percent value back when it is properly redeemed.
if you are a business owner and have to pay for expenses, you should get some value back just for spending money! You should focus on HOW to spend it.
THIRD, if you have to spend resources anyway, then luxemiles way is you should spend ONLY to get value back somehow. But It is not always about cash or points.
Luxemiles Value is defined as:
1. Usage, Pleasure or satisfaction from services or products. If you are happy with what you got, even if it cost more than usual, you get personal value from it.
2. Time value : if it save you time, or make you more efficient, you get more value
3. Health value: if what you get brings you mental or physical joy or happiness, then you get value from it. If you need to spend to stay healthy, at the dentist or the medical doctor, or the eye doctor, you get tremendous maximum value from it, because luxemiles rule number one is: no health no wealth.
4. Timeframe value: if what you spend is something that you will enjoy for a long time, and will bring you either happiness or health over that long timeframe, then it is worth it. Remember that resources like Your time on this earth is limited, as well as money and health, so you need to use it efficiently.
5. Efficiency value: if it can reduce your waste in resources like time, money, health, then it brings value. If it maximize usage of resources like time, money and health, it brings value.
6. Improvement value: if what you do or buy improve your knowledge, thinking, health, or help other people, it brings value
But luxemiles value is NOT defined as : spending for show or outside status. You should have No need or reasons to buy that expensive purse or car for show. You will save more resources if you do not need to spend for show.
It is better to spend a little more to buy something that you will personally use or enjoy for a long time. It is not OK to buy something else just because you use it to show social status.
It is better to spend money for that regular eye exam or health check up, on that medication that you need, then spending on that expensive purse or cars
My pharmacist friends tell me stories where patients will come in, yell at them, refuse to pay for a $25 dollars antibotic medications that they need, all while carrying luis vuitton purses and drive a bmw…
Or stories where people drive around with old expired glasses or prescriptions, seeing nothing or not clearly, all while getting new expensive bmw lexus cars every 3 years. For them it is a “necessity” as it is for “safety reasons” with the latest gadgets, all while their risk of potentially causing accidents greatly increases because they cannot see anything …
Or stories of competitive moms and dad spending tons of money to put their kids through special schools or programs, while neglecting the kids’ teeth or eyes. If the kids cannot see clearly at school first and foremost, what is the point of spending time money and energy on special programs?
That is where the HOW you spend is more important.
And of course, luxemiles assumes that you are already doing the basics: spend less than you earn, save min 10%, save on costs, pay your credit cards in full, invest in asset producing passive income etc…