Timing is Everything: Why You Should Wait for the “Right Moment”
May 02, 2013Yesterday, my colleague Greg Ward published a blog post about a friend who was awarded a $1k vacation that he has yet to use in 2 years because he’s waiting for the “right moment.” Greg then points out how many gift cards and reward points go unspent each year by people who may be doing the same thing. Well, I am that friend so let me explain why it actually can make sense to wait for the “right moment.”
If you think about it, isn’t that what saving is? In fact, most of financial planning can be described as how to save and invest money to be used at the “right moment,” whether that be when you retire, your child goes to college, or you need it in an emergency. Regardless of your goal, it all begins with choosing not to spend some of the money available to you today in order to spend it at some point in the future.
This ability to save is a habit that applies across our entire life. There was a study in which children that were able to resist eating a marshmallow were rewarded with another marshmallow. After they grew up, the ones who were able to delay gratification, on average, ended up being much more successful in every area that was measured.
The same principle can be applied to how we use things like rewards points and gift cards. Yes, it’s true that they don’t grow or earn interest and actually lose value over time with inflation. I’m not suggesting that you wait 20 years (plus they’d probably be expired and the company may even be out of business by then). But how many of us go and use a gift card or reward points for something we wouldn’t have otherwise bought? That means you’re trading a $20 gift card for something that you value for less than $20 (otherwise, you would have bought it without the gift card). Even worse, we often buy additional things in that transaction that we wouldn’t otherwise have bought so it ends up costing us money.
Wouldn’t it make more sense to use that $20 gift card to save $20 that you would have spent anyway so you get the full value for your money? Of course, you can take it to the other extreme and end up never using your rewards at all. That would be just as much, if not more, of a waste. Here are some ways to help manage your rewards in an optimal way:
1) Cash may be king but not when it comes to rewards. As long as you’re willing to jump through the hoops of redeeming them, consider choosing miles over cash. That’s because virtually all miles are worth more than the $.01 per mile that you typically get with cash rebates and statement credits, especially if you redeem the miles for international flights.
2) Use a site like Yodlee MoneyCenter, AwardWallet, or MileWise to manage your travel points in one place so you don’t lose track of them. Best of all, they’re free.
3) You can only use a gift card at the “right moment” if you actually have it with you at that moment so keep them with you in your wallet, purse, or car. One of the biggest reasons that people don’t use them is that they put them in a drawer somewhere and forget about them. (That’s probably where Greg’s Chick-fil-A gift card is.)
4) Use points and gift cards as tiebreakers. For example, if you’re going to go out to eat and you have a Chik-fil-A card, consider using it as a tiebreaker between Chik-fil-A and a competing restaurant.
5) If you’re never going to eat at Chik-fil-A, be shameless and re-gift it at a future secret Santa-type event. You’ll save whatever you would have spent on another gift. (Just make sure it’s a different group of people.)
Of course, you could argue that this may make sense for a small gift card but what about a $1k vacation? Isn’t that hard to put off? I haven’t found that to be the case. (It’s not that I don’t travel but all of my trips for the last 2 years have cost me significantly less than that.) In fact, I get a lot of pleasure knowing that I can take a free $1k vacation anytime I want. One study even found that people actually derive more enjoyment from anticipating and planning for a vacation than from the vacation itself.
Or maybe I just need some inspiration to find that “right moment.” What would you do with a free $1k vacation? Leave your ideas and suggestions in the comments section below.