By Nathaniel Sillin
I’m often intrigued and sometimes inspired by stories of people traveling the world using points and miles. There’s a well-known (within certain circles, at least) man who earned over a million airline miles by purchasing more than $3,000 worth of pudding during a special promotion in 1999. Or, you might have heard about people using coupons during a grocery store’s membership-only sale to get food and household products for free.
While I might not be as enthusiastic as some world travelers, or as extreme as some couponers, I do see the benefit in a program that’s free to join and offers you potentially money-saving perks. However, I also know it’s important not to get so caught up that I wind up spending more money than I would otherwise. As a friend of mine loved to say, “never spend a dollar to save a nickel.”
The perks of membership. There are many loyalty or rewards programs to choose from and the rules and benefits can vary. For example, a grocer’s program might offer the same in-store savings and exclusive coupons to all its members. By contrast, travel rewards programs often have tiers, different levels of membership with varying benefits depending on how often you travel or how much you spend. While the basic tier may offer discounted hotel rates or free Wi-Fi, the higher tiers might come with free room upgrades (including to coveted suites) and guaranteed early check-in and late check-out.
Recognize why companies might have rewards programs. When you’re a big fan of a company or product, getting rewarded for your loyalty can be great. After all, it’s a free perk if you were going to make the purchase anyway. But try not to get too attached to a particular company or product based solely on the rewards program.
Buying something simply because you get a discount as a member, or making a purchase “for the points,” might be a waste. You could find yourself with a pantry full of products that are slowly going bad, or paying more for a trip because you didn’t comparison shop the offerings from other airlines or hotel chains.
Joining a rewards program could lead to overspending if you’re not careful. Recognizing that the programs could be designed to get you to spend more, and more often, can help you refrain from overspending. Here are a few additional ways to make sure you maximize your benefits.
- Don’t double-count your savings. You’re tricking yourself if you consider the rewards points from a retailer’s program as savings when making a purchase and then consider the same points as savings (again) when you redeem them for store credit. Count the rewards once, or don’t make them part of your buying decision at all.
- Keep your programs organized. Points in some programs expire if you don’t use them within a specified period or have recent account activity. You could use a website, app or spreadsheet to help track your accounts, how many points or miles you’ve earned and when they expire.
Another way to avoid overspending is to consider your net cost when comparison shopping. To do this, you’ll need a list of the dollar value of each program’s rewards points. You could take a shortcut and copy the values other enthusiasts place on each program’s points. Or, you could make estimates of your own based on trips or purchases you regularly make.
Now you’ll know when 1,000 points are worth $1 or $10 and can plan your purchases accordingly. In the end, you want to be able to make as close to an apples-to-apples comparison as possible, inclusive of the value you place on the rewards.
Bottom line: Consumer rewards programs offer a wide variety of benefits, including exclusive savings and complimentary perks. While it’s often free to join the programs, and you could get rewarded for doing so, keep the big picture in mind and be careful about letting your membership lead to unnecessary purchases.
Nathaniel Sillin directs Visa’s financial education programs. To follow Practical Money Skills on Twitter: www.twitter.com/PracticalMoney