As some of you know, my family just came back from a trip to Europe. It wasn’t just any trip, as we also had to pay for five relatives to vacation with us in Montenegro. I didn’t use any miles for their tickets (there was no practical way to do so), so right off the bat, we had to shell out almost $2,400. And believe it or not, that was cheap. If I waited even a week to buy their flights, the price would be almost double. The joys of living in sanctioned Belarus.
On top of it, my husband asked to add Iceland to our itinerary, which happens to be the most expensive country in the world. While we loved it and have no regrets on visiting, there was definitely some sticker shock involved. For example, just our rental van cost us $1,150 for four days. Yes, I did Autoslash and shopped around, and that was the best deal.
The cherry on top was adding a Paris stopover relatively last-minute. I had originally planned to fly to Iceland from Croatia and was able to redeem miles. Unfortunately, the tickets were cancelled one month before our trip, so I decided to fly via Paris and add a two-night stopover in the city. I’m super excited that we got to visit Paris, don’t get me wrong. But this detour added over $2k in costs, when you factor in airline tickets and hotel.
Right before the trip, I was emptying various accounts I opened for bonuses in the past. A $100 here, $200 there, all of that money would come in handy for helping me pay for this fancy vacation. In fact, this was our most expensive trip ever. But the memories are priceless, as corny as that sounds.
Dumping most of our emergency fund into I Savings Bonds
At the end of April I’ve decided to do something a little bit risky. There was an opportunity to lock in a high interest rate (averaging over 8% for 12 months). In fact, it’s still a good time to consider I Bonds, though there is a bit more uncertainty when it comes to return after the first six months (read this post on Frequent Miler)
This move wasn’t risky in a sense of possibly losing the principal, but in the fact that you can’t touch your money for 12 months. Nevertheless, I’ve decided to dump our relatively small emergency fund into this scheme. Then our trip to Europe has drained a significant portion of our savings. So right now we have access to only $3k in case of an emergency (btw, $2k is in Netspend accounts, earning 5% interest). Oh, and did I mention that we have an old van and medical insurance with $12k deductible?
You may wonder if that’s making me nervous. Not at all. I ain’t worried, as the song by the same name goes. Obviously, anything can happen. But you can’t prepare for every single eventuality in life. I felt that getting a return of 8% on my money is worth some risk. And don’t forget that inflation is risky to your money as well. Besides, I do have layers of protection that can be “activated” in case of an emergency.
First, many of my cards occasionally offer 0% interest on purchases. That can be helpful in case of an unexpected bill. I would instantly reduce my husband’s contributions to his 401 (k) by the amount needed each month to pay off the debt. Naturally, we would still contribute up to the employer’s match (50% in his case). Never give that up, it’s foolish to do so.
If our van breaks down, then some tough decisions may need to be made, like canceling some vacations. But we’ll cross that bridge when we get to it. The old clunker (almost 180k miles) is chugging along…for now.
Also, I do have a Roth IRA (invested in a CD) in a local credit union. It’s about $14k total. I can access the principal without any penalty at any time. I’ve mentioned before that Roth IRA is a good option for a “hybrid” emergency fund. The only issue is, we would lose Saver’s credit for several years.
A third option is taking out a loan against our 401 (k). We can access up to $50K if necessary. Obviously, this isn’t ideal as we would miss out on potential stock gains in the meantime. Plus, since the market is currently down, we would be locking in our losses. See my post on being inspired to try to save for my husband’s early retirement That’s still my plan a year later.
Emergencies do come up, and 2021 was a doozy for us. Medical out-of-pocket expenses to the tune of $10k, replacing an A/C system, washer and dryer etc. It happens.
For now, I’m betting on no major emergencies until April 30th of 2023, the first day we can access our I Savings Bonds. Even then we would have to pay a 3-months penalty, so I’m hoping not to touch the money, unless necessary. But even with the penalty, it’s impossible to beat this kind of return right now, considering the fact that it’s a risk-free investment.
A modified approach to planning travel
While I’m not overly worried, I also like to be sensible. Since our trip to Europe was ridiculously expensive (more than $11k even after using miles and points), the rest of the year I have decided to stick to local destinations that we can reach by car. Naturally, we will be burning hotel points I already have in my possession. One exception: a trip to Costa Rica for my wedding anniversary. But the hotel is already paid for, and flights are covered via Jet Blue points.
I was really tempted to book a Holland America cruise in December. I found a super deal on balcony staterooms, and was going back and forth. In the end, I had talked myself out of it because our current budget simply doesn’t allow it. This good deal would still cost us at least $3k when all is said and done. We still hope to visit Japan next June, but by then we will have access to our I Savings bonds.
I also have the option to redeem our Capital One points towards travel. We have about 180k points, which would cover $1,800 in expenses. For now, I’m holding back, since they may come in handy for mileage transfers in the future. But if an unexpected money emergency is thrown our way, I will burn them and not think twice.
Shifting focus to cash bonuses
Right now I have a lot of miles, and plan to transfer 110k UR points to Hyatt before canceling my Chase Sapphire Preferred. Between this stash and all the hotel certificates we get from credit card renewals, I estimate our travel needs should be taken care of for the next few years. Plus, sometimes I pay cash for flights and lodging when the circumstances warrant it (like during recent trip visiting Montenegro, Paris and Iceland).
I definitely prefer to save cash whenever possible, but it doesn’t always make sense. My mindset has changed a bit over the years too. I now try to look at my miles and points as tangible currency that is not always easily replaced. Sure, I can burn Hyatt points to save cash, but then I won’t be able to take my kids to a Hyatt resort in Florida that they love.
As far as credit card applications go, I still try to focus on flexible points whenever possible. As mentioned earlier, some points can be used to “erase” travel purchases, as is the case with Capital One premium cards. That’s why I’ve decided to first try applying for Capital One Venture Rewards card (see Nancy’s post for details) Capital One doesn’t like me, so I wasn’t surprised to get a denial. Oh well, at least I’ve tried.
My next choice was Bank of America Premium Rewards card (non-affiliate link) Approved! If all goes well, I should make $400 profit, and potentially $500 if I utilize $100 airline incidental credit. This isn’t a “sexy” bonus, but that’s $400 I can use towards expenses in Costa Rica, rather than potentially dipping into our meager emergency fund. These points don’t transfer to miles, so there is no opportunity cost in redeeming them towards a statement credit.
In a near future, I plan to seek out similar cards. There is no point in collecting more miles or hotel currencies when I have more than I can reasonably use in the next couple of years. But cash? I can always use that.