My most recent case study about credit card rewards was met with fierce backlash.
Many business owners are passionate about their rewards points as they associate the value of the points with a qualitative outcome such as business class travel, beautiful destinations and lifelong memories.
The issue is not the outcome, it is the mechanism they are using to achieve the outcome. Unfortunately, behavioural finance and smart product design mean that your judgement is likely to be clouded.
Here are the facts.
Most rewards programs provide 1-3% in points for spending, with the average rewards program paying 1.25%
This means your points are worth circa 1.25c of every dollar
The annual fee is typically $200-$1,500. This means that you need to spend between $8,000 and $120,000 a year to break even
Once you pass this break-even point, your margin for spending error is less than 1.5%. Meaning if your spending behaviour alters slightly, you erode all of the value of the rewards program.
Here lies the issue.
Harvard conducted a study on self-awareness and was able to identity that 90% of individuals believed they were self-aware, but when tested they proved that 10-15% of people actually had the qualities of self-awareness.
What does self-awareness have to do with this?
In my experience, this is the most significant driver of financial results for my clients.
The ability to define your own intrinsic drivers, identify your strengths and weaknesses and reflect and recalibrate to optimise for results.
Coupled with the pursuit of external feedback and knowledge, this is a powerful combination for amazing financial results.
On the other hand, those who live their lives in ignorant bliss, allowing themselves to subjectively validate their positions, holding on to beliefs that don’t serve them and only surrounding themselves with others that share their views is hugely detrimental to wealth creation.
The truth is that most are not born with the ability to be self-aware about their money and this is an ongoing process of improvement.
We often see this as what we call a ‘come to Jesus moment’. A financial crossroads become the straw to break the camel’s back.
Take the time to analyse your own financial behaviours, look for objective ways to assess the real returns of your actions and be open to external opinions as they might hold value to help you reach the next stage of your wealth journey.
PS – if you’re interested, I am putting together a resource of how to create your own travel rewards program that could be worth far more than banks can provide.
Email me at jackson.millan@aureusfinancial.com.au if you’re keen to get the resource.
