Today, I’m going to show you how travel hacking can speed up your path to financial independence.
Since 2018, I have adopted travel hacking as a way to save thousands of dollars on vacations.
This post will be covering:
- What is travel hacking?
- How does travel hacking relate to Financial Independence?
- My experience with implementing travel hacking strategies
What is Travel Hacking?
When it comes to establishing a definition, Jason @ Zerototravel.com says it best:
Working within the existing rules set up by airlines, credit cards, and hotels, and using them to your advantage to earn free travel including flights, lodging, and other upgrades.
Jason Moore @ Zerototravel.com
Despite having the term ‘hack’ in the name, the process is relatively straightforward:
- Define your traveling requirements
- Identify and apply for rewards credit cards
- Meet the credit card’s sign up bonus spend requirement
Let’s now go over each step in more detail.
Step 1 – Define Your Vacation Requirements
Planning a vacation can be summed up by answering three questions:
- Where do you want to go and for long?
- Where do you want to stay?
- How do you want to get there?
The answers to those questions will be helpful in narrowing down the most effective ways to travel hack for your specific circumstances.
Step 2 – Identify and apply for the right rewards credit cards
The most common way to travel hack is by leveraging sign up bonuses from different rewards credit cards.
However, where do you go to research which credit cards will provide you the most valuable sign up bonuses?
Thankfully, there are a lot of great travel hacking websites that can help you identify the best travel credit cards for your specific situation.
Some of my favorite travel hacking websites that I have used in the past include:
These travel card hacking resources are regularly updated with the best offers that are currently available.
Furthermore, it’s worth mentioning credit scores.
Anytime that you apply for a credit card, the credit company will either do a hard or soft credit inquiry. If it is a soft inquiry, it will not have an impact on your credit score. On the other hand, a hard inquiry may result in a slight dip in your credit score.
From my own experience, these dips will usually correct themselves within a few months and have not had much of a long term impact on my overall credit score.
With that being said, I did not apply to any travel credit cards in 2020 because I was starting the path to home ownership 🙂
A good rule of thumb is to space out your credit card applications over the span of a few months time instead of all at once. This will decrease the likelihood of a larger impact on your credit report.
Step 3 – Meet the sign up bonus spend requirements
In order to receive a credit card’s sign up bonus, you will have to meet a minimum spending requirement over a specified period of time.
To understand what this means, let’s take a look at a screenshot from the Mad Fientist’s Card Rating Tool.
According to the table above, we have three different credit cards with three different spend requirements as well as varying credit card bonuses.
I love this screenshot in particular because it highlights the most important rule with travel hacking: choose credit cards with a spend requirement that you can meet with your normal monthly spending.
As an example, while the Ink Business Preferred Credit Card has the most potential value, the company also requires that you would need to spend $15,000 in three months in order to receive that bonus!
Compare this with the Ink Business Unlimited Card, where an applicant would only need to spend $3,000 in three months. This spend requirement is 80% less then the other credit card, yet still provides $1,000 of value without potentially stretching the budget. For most individuals, this is much more manageable then spending $15,000.
After meeting the spend requirement, the credit card company will either award you with a large sum of travel points or cut you a check. These rewards can then be used to reduce your travel expenses.
Travel Hacking + Financial Independence
With some upfront planning, travel hacking can be an efficient and effective way in order to cut down on travel costs.
Besides feeling like a total Baller from saving tons of money, it can also create a ripple effect on your journey to financial independence.
By decreasing the amount of money required to go on vacations, you subsequently will require a lower FI Number in order to achieve financial independence.
If you are interested in figuring our how much money you need to reach financial independence, I wrote a whole post on how to calculate your progress to finance independence.
Let’s now look at an example:
Imagine your annual vacation budget consists of going to the happiest place on Earth, Disney World.
According to an analysis done by The Points Guy, a modest family vacation to the Mouse’s House that includes five nights of lodging and four days of park tickets will run about $4,518.77.
We can use the below formula to calculate how much money in your ‘nest egg’ will be required in order to go on your annual vacation without touching your principal balance.
Assuming a 4% withdrawal rate, you would need $112,969.25 just to support this annual vacation.
Now imagine that you factored in travel hacking $1500 in perks every year to decrease the cost of your annual vacation.
Aside from lowering your immediate vacation cost from $4,518.77 to $3,018.77, there is also a larger compounding effect on your journey to financial independence.
Decreasing your annual vacation expenses by $1500 a year would subsequently result in a lower FI number. The $112,969.25 nest egg needed to go on your annual vacation would decrease by 33% to $75,469.25.
That is $37,500 less that you now don’t have to save!
By signing up for a few rewards credit cards each year, travel hacking can be a lucrative method of shaving years off your journey to financial independence.
How I have Implemented Travel Hacking + Final Thoughts
When I first discovered travel hacking, it quickly grew into a game of “How much money can I knock off this vacation.” For the frugal traveler, this turns out it is a pretty fun game to play 🙂
Below are a few credit cards that I have applied to over the years as well as the sign-up bonuses I received:
These credit cards had a low enough spend requirement that enabled me to receive their sign up bonus without stretching my budget.
As a result, I have been able to travel more for less.
Here are a few of my favorite highlights so far:
- 5 Free Nights Lodging in Big Pine Key, Florida Keys
- 3 Nights Lodging in Marathon, Florida Keys for $68.19
- 2 Free Round trip tickets to Paradise Island, Bahamas
Have you ever travel hacked? If so, what is the most that you have been able to knock off a vacation?
Thank you for reading! 🙂
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