The Value of Points

Banks try to attract us to open accounts with their credit cards using incentives like sign-up bonuses and point multipliers. But just how much are these points worth?

This page covers:

• The Spend / Value Ratio

• Calculate Spend / Value

• Minimize Spend and Maximize Value

• A Reasonable Target

The Spend / Value Ratio

Let me introduce to you the Spend / Value Ratio.

The Spend / Value Ratio simply shows us how many dollars we need to spend to earn one dollar of value in travel. The lower this ratio, the less we are spending for the dollar value we earn.

The ratio has two components:

• Earn the most possible points for each dollar we spend

• Get the most value for each point we use

Calculate Spend / Value

To illustrate this, let’s assume we have an Aadvantage credit card, on which we have built up award points (or miles) by earning one point for every dollar we spent. We want to fly from Charlotte to LA, and we find a flight valued at $199 available for 19,500 miles +$5.60 in taxes/fees, as shown below:

Let’s look first at the spend component. Since we earned one point for every dollar we spent, our spend is $19,500. That is how much money we spent to earn those points. In addition, we have to pay taxes/fees or the flight, so we add that to our spend, and we now total $19,505.60

Now, let’s look at the value component. The value we’re getting by using our points is the cost of the flight for which we are avoiding payment, or $199.

So, in this case, our Spend / Value Ratio is $19,505.60 / $199, or more simply after division:

98/1

This means we spent $98 for every $1 we received in value for our points. That is the equivalent of a 1% bonus for our spend. It is a lot of spend for little value.

Minimize Spend and Maximize Value

Let’s look again at the two components, and think about how to improve that ratio:

• Earn the most possible points for each dollar we spend

We can maximize the points we receive by curating our credit cards to align with our lifestyle and spending patterns. This takes advantage of sign-up bonuses and point earning multipliers. See Earning Points.

• Get the most value for each point we use

We maximize the value of each point we use by finding saver fares on airlines and hotels, and upgrading to premium classes. See Using points.

A Reasonable Target

So, what should you expect to achieve in Spend / Value?

How does 5/1 sound? That is 20x the value of the above example.

How about 4/1??

3/1???

These targets are attainable when using Max Your Plastic to assess your spending habits, establish a plan, and assist with your travel plans. Please contact us for a free, no obligation initial assessment.