The following is a guest post about cutting yearly expense. If interested in submitting a guest post please read my guest post policy and then contact me.
What’s your biggest one-time expense every year? Not what you spend the most money on total (probably housing or food), but the biggest one you pay just 1 -2 times?
I bet it’s your vacations or travel plans… Or that travel is at least in your top 3. And that makes it a smart target for cutting, because the bigger the expense, the bigger the savings, if you’re able to reduce it.
Most budgeting articles give you tips on how to cut your small or medium sized expenses. Those strategies, like saving on groceries, can definitely help your bank account. But I’m here to cover how to dramatically cut that huge expense you pay just a few times a year – your summer vacation, the regular trips to see family or friends, or that winter getaway.
How to Cut Your Vacation Expenses by 50% or more
The following is an outline of a savings system I use to “hack” travel costs – one that’s successfully helped me buy all my plane tickets over the last few years for over 90% off normal prices.
It involves using credit card rewards and frequent flyer programs. Most of us know that certain credit cards give you good rewards; 2% – 3% cash back on spending, even up to 5% in special areas. Those are nice, but the real opportunities are in cards with big signup bonuses. My travel hacking system strategically uses those types of bonuses to pay for almost all your airfares.
Here’s how it works:
Step 1: Plan Far Ahead and Pick a Destination
Where do you want to travel? For this system to work you have to think long term and choose a destination at least 6 months before you want to travel there. Ideally you’re planning even farther ahead, for a trip over 8 months out. If that sounds a little extreme, just remember: you’re putting in strategic work to save yourself hundreds of dollars or more… This is worth it.
You’re planning so far ahead because you won’t be paying for the flights on this trip with cash. You’ll be paying with frequent flyer miles. People normally earn miles as a bonus for flying a paid flight; this travel hacking system uses special credit card bonuses to earn you enough miles to secure an award flight to any destination you want.
Let’s plan an example trip: Say you want to go to France in the Fall…
Step 2: Find the Airline Miles You Need
This part can get a little complex, but we’ll stick to the basics here. The miles you need depend on your destination. Assuming you live in the United States, your destination falls into one of two categories – International (like Europe, Asia, etc.) or Local (somewhere in the continental U.S.).
If you’re going international, you want United Airlines miles or American Airlines miles. If it’s local you can choose United, American, or Southwest Airlines.
Example Trip: Destination: France (International) – Miles: United Airlines
Step 3: Find the right Credit Card Sign-up Bonus(es)
So you need United Airlines miles – An award flight on United from the U.S. to Europe costs 60,000 miles (vs a paid flight cost of ~$800 – $1,000). The way to get those miles is by signing up for the right credit card. At the time of this blog post, Chase Bank has an offer for a United Airlines branded credit card that gives you 55,000 miles for signing up.
For our trip to France, that leaves us short by only 5,000 miles. There are a couple of ways you could bridge that gap; one is by transferring Chase Ultimate Rewards credit card points into United Airline miles. Let’s assume for this example we can do that.
Example Trip: Card Selection: Chase United Airlines branded Credit Card
Step 4: Apply for the Credit Card and Earn the Signup Bonus
This is another step that can get complex, but if you have a credit score that’s above 700, you should be approved for this card. Earning a signup bonus requires spending a certain amount of money (the “spending minimum”) within 3 months of opening the card.
Example Trip: Sign up for United Airlines Card, Spend $3,000 in 3 months and earn 55,000 frequent flyer miles
Step 5: Find and Book Your Award Flight
By now you can see why this strategy requires some long term planning – you need 3 months to earn the frequent flyer miles you’re going to use to buy your plane tickets. You’ve now earned your 55,000 United miles, and have gotten the additional 5,000 either by spending on the card or transferring Chase points into United Airlines miles.
Now it’s time to find and book your award flight! For United it’s straight forward – you go to www.united.com and search for an award flight. To make sure it’s an award flight, choose the option “Search By : Award Travel” at the bottom of the flight search box.
Note: You can do this right now and see award flights, without having the miles or an account with United… Try it out!
From there you’ll see award flight availability. Select the SaverLevel award flights (the least expensive), and when you get to the purchase screen, you’ll log into your United account and use your 60,000 miles to pay for the trip. There will only be small cash charges – typically under $100 for international flights and under $25 for U.S. flights.
Example Trip: Book NYC-Paris Round-trip
Your Cost: 60,000 Miles, $93 cash
Cost if Paid in Cash: $800 – $1,000
SAVINGS: $700 – $900
Final Step: Travel! Then… Rinse & Repeat
Just like other powerful personal finance strategies, like investing for retirement while you’re young, this travel hacking process requires some longer term planning and a little work. But the rewards are well worth it – You can save at least $500 on every trip you take.
I covered the process above at a high level… Each step has its own complexities when you dive in deeper. Scaling the process up into a repeatable system also gets complex quickly.
If you’d like to learn more about travel hacking, including specific strategies for earning miles and finding award flights, I teach an in-depth online class on the topic.
It’s called Travel Hacking: How to Travel the World for Next to Nothing, and it has detailed video walkthroughs of how to execute the steps above, along with other tactics for maximizing your travel hacking returns.
For a limited time, I’m offering it to Modest Money readers at 75% off…
Check it out here to learn more and join over 800 students taking the class.
Author Bio: Huntly Mayo is the founder of the blog Personal Wealth Basics. He writes about high-powered wealth building and teaches people how to travel for next nothing in his full feature online class Travel Hacking.