Credit Card Hacking for Travel

INTRODUCTION

This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high-income professionals stop doing dumb things with their money since 2011.

Dr. Jim Dahle:
This is White Coat Investor podcast number 407 – Credit card hacking for travel.

This episode is brought to you by SoFi, helping medical professionals like us bank, borrow and invest to achieve financial wellness. SoFi offers up to 4.6% APY on their savings accounts, as well as an investment platform, financial planning and student loan refinancing, featuring an exclusive rate discount for med professionals and $100 a month payments for residents. Check out all that SoFi offers at whitecoatinvestor.com/sofi.

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QUOTE OF THE DAY

Our quote of the day today comes from Daymond John, who said, “Make sure you have financial intelligence. I don't care if you have money or you don't have money. You need to go and study finance, no matter what.”

I think that's actually pretty good advice. It's particularly valuable though, if you actually have money. What we do here at the White Coat Investor is we try to give you basic financial literacy. Because if you combine basic financial literacy with the high income that physicians and other high income professionals have, it can do some pretty amazing things, not only in your life, but enabling you to take care of other people that you care about, like your patients, your family, your friends. And so, it's pretty awesome when you combine those two things.

Thanks for what you're doing out there, by the way. It's not always easy work. And I know you don't always get thanked very much for it. I'm grateful for my healthcare providers. I'm seeing a physical therapist a couple of times a week. I know I'm grateful for his encouragement and hard work. I think his hands are as sore as mine are at the end of our therapy sessions right now. But I'm grateful for the progress that I'm making there.

I'm also grateful for my surgeon. I texted him the other day and he said, “No, no, no, no, no, you're doing great. Your progress is excellent. We're not putting you in this crazy JAS splint, not for your injury.” He talked us out of something we were thinking about doing for therapy. And I'm grateful for that. I'm grateful for his expertise.

All right. Don't forget, first years. The champions program ends in like a month. If nobody has handed you a White Coat Investor's Guide for Students yet this year, you need to sign up to be your class champion. You can do that at whitecoatinvestor.com. All you got to do is getting something signed by the dean's office saying there's 107 people in your class and give us your mailing address. And we will send you a copy of that book for everybody in your class.

All you have to do is pass them out and you will be not only our champion, but their champion. I figure that you're probably saving each of them something like a couple million dollars over the course of their career. If you can make them financially literate upfront a couple million dollars times a hundred people in your class. That's $200 million of value that you can provide just by taking a few minutes to pass out some books. Please sign up whitecoatinvestor.com/champion. This is for first years. When you're a second year, you have to buy the book, but we'll give it to you for free if you're a first year.

All right. We have a great interview today. It's a little bit long, but that's fine because there's three of us on it. And we have a pretty good discussion. We brought back our Friend of WCI, Lisha Taylor, and we've got a special guest as well. Let's get them on the line.

INTERVIEW WITH DR LISHA TAYLOR AND DR DEVON GIMBLE

We're back here at a White Coat Investor doing another one of our Friends of WCI episodes and our friend today, as you know, from prior episodes is Lisha Taylor, Lisha, welcome back to the podcast.

Dr. Lisha Taylor:
Thank you so much for having me. I'm excited to be back and super excited about this topic we're going to delve into today.

Dr. Jim Dahle:
Yeah, we've got a great topic and we have a guest today with us helping with this topic, Dr. Devon Gimbel from Point Me To First Class, which is the name of a podcast and a website, as well as a Facebook group. And there is a Point Me To First Class for women physicians with 28,000 people in it. Is that what you told me it was?

Dr. Devon Gimbel:
Yeah, that's about right.

Dr. Jim Dahle:
Awesome. Well, welcome to the podcast, Devon.

Dr. Devon Gimbel:
Thank you so much for having me. I'm a huge fan of you, the work you do. Lisha is someone who I admire very much. We've had great conversations before, so I've been looking forward to this conversation for a very long time. I'm so excited to be here.

CREDIT CARD HACKING FOR TRAVEL

Dr. Jim Dahle:
Yeah. We're excited to have the conversation too. Our topic today is credit card/travel hacking. And this kind of comes in two varieties. There's the one-on-one variety where you have a card that gives you some rewards and I've got a card that gives me five percent back on gas. Basically, I buy all my gasoline at a discount. That's the one-on-one level.

But there's a whole other level to this. We'll call it the 401 level, where mostly you're working not so much to get one or two or four percent cash back, but you're getting bonuses for initial spend on the card or sign up bonuses. And these sorts of things can add up to substantially more than one or two or three or four percent.

And the trigger for this podcast was a quote that our social media folks put out on Instagram that came from a post that was written by Tyler Scott, who's one of our columnists. And he said something to this effect. He said, “I'm baffled by the lengths people will go to and the complexity they're willing to add to their lives by having eleventeen credit cards to get three percent back on gas, four percent back on restaurants and five percent back from Home Depot versus just having a single two percent cash back credit card. That extra one percent on gas or two percent on restaurants is not the difference between winning and losing the single player game of personal finance.”

The quote was taken out of context. That wasn't what this entire blog post was about, for sure. But it blew up on social media and in the Point Me To First Class Facebook group. I think what it really tapped into is that there's a whole bunch of people out there, including many physicians, who have seen a lot of benefits in their lives from travel hacking, from credit card hacking and really think it's fun and cool. And so, we're going to talk a little bit more about that.

But the first thing is, let's talk about why people reacted to this so strongly. Lisha, do you want to start out with why you think there was such a strong reaction to that quote?

Dr. Lisha Taylor:
Well, I think that there was a strong reaction to the quote because a lot of people find a lot of value out of this hobby, out of credit card hacking. And usually when I am talking about this topic, when I'm introducing this topic, I usually start off with talking about why I do it, why this is of interest to me. And I think there's three main reasons.

Number one, credit card hacking and travel hacking, however you want to call it, it prevents me from having to always do so much delayed gratification to meet my financial goals. Let me explain that a little bit. Jim, you and I both have podcasts. You and I both spend a lot of our time helping doctors with personal finance, whether that is saving money or paying down debt or minimizing taxes or investing for retirement.

But I find that in order for a lot of people to do that, in order for people to do that successfully, there's this constant tug. There's this tug between YOLO and fiscal responsibility. There's this tug between I only live once. I want to buy what I want because it would bring me joy and I actually should save and maybe invest for retirement. So, there's this tug. I want to do this other thing, but I know I should do this thing.

I find that travel hacking and credit card hacking prevents me from always having to make that choice. I can use my own money to invest for retirement, pay down debt, save and build an emergency fund, and I can use credit cards to fund my travel. And so that's point number one, is that doing this hobby prevents me from having to go through so much delayed gratification to live the life I want.

The second thing I find is that doing this hobby prevents me from leaving free money on the table. Jim, you talk about this all the time. If you work a job and you get a retirement match, you not taking advantage of that match is you leaving free money on the table.

Well, I liken credit card hacking to the same thing. I already have to buy things. I am not carrying around lots of cash, so I usually use a card. If I'm going to use a card, I might as well use a credit card. And if I'm going to use a credit card, I might as well use a credit card that earns me perks and rewards. And if I'm going to earn perks and rewards, I might as well use the kind of card that allows me to earn more perks and rewards and allows me to do more things with those rewards that I earn. And so it prevents me from leaving free money on the table. That's point number two.

And then my last point is, Jim, I consider myself a HENRY. I consider myself somebody who's a high earner, but I'm not rich yet. And that means that I'm somebody who wants to live this rich life, but I don't necessarily have all the rich money. I don't have all the money in the world. I find that credit card hacking allows me to live a life of luxury without paying luxury prices. I don't have to choose between saving and going on vacation. I can actually do both.

And so, that is sort of the three main benefits that I get out of this hobby. I don't have to delay so much gratification. I prevent myself from leaving free money or free perks on the table. And I can live this life of luxury without paying luxury prices.

Dr. Jim Dahle:
Awesome. Devon, this blew up in your Facebook group. People almost felt like they were being told.

Dr. Devon Gimbel:
Sure did. It was otherwise a quiet Sunday afternoon. And all of a sudden, everything started happening. I remember this very, very well. I think what's so great about this, first of all, is the conversation that it spurred. And I think it was really funny when you led into this conversation. You said you know what triggered this whole conversation. I think trigger is an absolutely perfect word for this because this one specific post, it's literally a screenshot, like three sentences, really did trigger a lot of people.

I agree with everything that Lisha said. So I'm not going to reiterate all of that. But I think speaking to your point about why, why was this specific post or this specific sentiment? Why did it generate as much discussion, as much interest as it did? And I think coming from my community, again, I run a private Facebook group of 28,000 female physicians. That's the entire audience. And the whole point is to talk about credit card points. How can we use them, earn them expand our experiential wealth through travel using credit card points.

I think what really kind of hit on a lot of people about this quote that I know now was taken almost entirely out of context, is that it showed number one, I think a common misconception around this whole idea or this whole hobby of strategically and responsibly earning and using points, which is basically that it's not worth it. You're either going to have to have a million billion credit cards, you're going to have to spend 1000 hours a week in order to get anything out of it. And that's just not worth it.

I think that that reflects a fundamental misunderstanding of really what this hobby can be, especially for the high earning, probably working a lot of hours a week already professional like physicians, lawyers, practice owners, all of these different types of folks who can really benefit from points.

I think even underneath that, the piece of it that I know a lot of people reacted to, is, again, we're only talking about this one quote and how you can interpret a quote about someone being baffled about why anybody you know would want to do this kind of hobby is I think that there was a tone of almost for one individual person to decide that something is good or right or responsible for them, but then apply that blanket to everybody else because there is something available, a hobby available to someone that they personally don't want to engage in, that it doesn't make sense to them why anybody else would even consider it.

I think that that is the piece that people really want to have a conversation about, because it has been my personal experience, again, as one of a two adult physician family. In my certainly my experience now that I've had the pleasure to teach hundreds and thousands of women physicians how to do this whole thing is that points actually can be a significant form of benefit, even for high earners. And it doesn't mean that it's right for everybody, just like I don't think it's right that nobody in this community really learned how to do this well.

I think for me, what it really kind of opened up was this need for a bigger conversation, a more nuanced conversation about what does this hobby actually look like? How do you know if you stand to benefit from it? Or how do you know if no, you actually are way better off sticking with a great solid cashback card? I don't believe there's a one size fits all for personal finance. And I don't believe there's a one size fits all in terms of credit card points.

But what I really want to expand the conversation around, especially for physicians and high earners is, what does the actual opportunity and possibility of this hobby look like? And now you can go out and make an informed decision about whether or not this fits into your life.

I have to say that for you to have as huge a platform as you do, especially around personal finance, I have always been really surprised that this has not been a bigger conversation in the White Coat Investor community. And so I'm so excited that that one random quote got pulled out of context and posted on social media, so that it really could start to open up this conversation that I think so many people can potentially benefit from.

Dr. Jim Dahle:
Yeah, I think part of the reason it probably hasn't been discussed a lot in the community is that I operate at the one-on-one level. I don't have a spreadsheet with 25 cards and bonuses and cross top when I cancel them or anything like that. I have some cards that I've had literally for years, and they pay a decent percentage back. But that's about it.

Before we get any further in this, let's make some disclosures. Here's the first one. White Coat Investor actually has a credit card page. We have some credit cards we can get paid affiliate marketing fees if you sign up for credit cards from that credit card page.

Now Point Me To First Class doesn't actually do any credit card affiliate fees. You do have a course that you sell on how to do this and that's how you monetize that business. And Lisha, you don't have any disclosures to make, as far as credit cards and conflicts of interest on this topic.

DOES CREDIT CARD HACKING LEAD TO MORE DEBT?

But I think we probably ought to start at the very top as we discuss this and talk about where these rewards come from. Because there is no free lunch in life. Somebody is paying for these rewards. And part of that is some of that payment is probably from people who aren't using credit cards very responsibly. And that could easily be some of even our target audience of people we're trying to teach about how to do this right.

But there's a lot of studies out there that show that we actually spend more money when we use a credit card to pay for things. And in fact, I've used this to help me spend more money because it truly is less psychologically painful to use a credit card.

What are your thoughts on the possibility of people ending up in credit card debt, 29% credit card debt that they're carrying for years and years. Obviously, these banks are making more than they're paying out in these rewards, or they wouldn't be doing it. What are your thoughts on navigating that aspect of travel and credit card hacking?

Dr. Devon Gimbel:
Yeah, I think this is a great place to start. Because I think one of the fundamental things that we all have to understand, like you said, is that banks aren't doing this just to be nice and fun. They're going to do things that benefit their bottom line and their profitability. And what that usually looks like is that for this specific type of credit card that we're talking about, Lisha may call these rewards credit cards or points or miles credit cards. There's so many of them that are available to you if you're based in the US and have access to the US based financial system.

But essentially, a rewards credit card is a credit card that anytime you put an expense on it, you get rewarded in the form of points or miles is usually how they're referred to. And the thing to understand is that these specific credit cards, one thing you have to know about them is they all tend to carry obscenely high interest rates. And we're talking 20, 25, 28% interest rates.

And so, the banks, like I said, are not doing this just to be nice and fun. The way they make money is of course, when people don't pay off their credit card statement in full, they end up carrying a balance, they get charged these, again, I think they're borderline extortion interest rates.

The thing is, number one, one of the core rules of this is that I never ever, ever recommend anybody ever get one of these types of credit cards or use one of these types of credit cards if they are not in a position to pay off their entire credit card bill in full every single month, full stop.

There are a lot of people who are not in that position, maybe not in that position yet. I tell them, fine, you can learn about this for free. Wait until you are in that position to even consider this because any interest that you pay on these credit cards is going to more than negate any value you get from the points, even when you are very, very good at extracting value from these points.

That's kind of a baseline where I tell everybody, this is where you need to start. Beyond that, if you are someone who is paying off their credit card statement in full every single month, you stand a great chance of getting more value from these points, of course, than the bank is going to get out of you. But we know that that's not the majority of consumers. The majority of consumers are not paying off all of their credit card statements in full every single month their entire life.

The flip side of this is that credit cards, I believe, can be more useful than just the points. Of course, we're going to talk about that. I think it's really fun and exciting. But credit cards offer more than that. If you've ever tried to get a loan, a student loan, a mortgage, a car loan, a line of credit, you need a credit score. Learning how to responsibly handle credit cards is going to help you boost your credit score. It's going to help you in other areas of your life.

Of course, that doesn't mean that you need to go out and get 20 credit cards just to improve your credit score. But there are additional benefits to becoming really, really educated about the way that credit cards work. But I think speaking, then this is the last thing I'll say is, that point about, are we now going to be incentivized to spend money we wouldn't otherwise spend or spend more money, because now it's gamified. If I spend a dollar, I get a certain amount of points. If I spend $5, I'm going to get five times as many points.

I think that it's entirely possible that that can happen. And I think this is where you have to really, really know yourself, know your behavior and know your patterns. If you know you're someone who just that incentive of getting rewarded for spending more money, if you know that that's encouraging you to spend more money than you already are spending or that you want to spend, I would say that's a really good indication to either not get into this hobby or get into it, but get into it very, very slowly.

I think if you're smart enough to be a physician, you're smart enough to be following White Coat Investor, be learning about all of those things, I think you're also going to be smart enough to have a really good sense of just what are your own personal tendencies. And to be able to say, “Hey, I want to learn about this, but I don't want to dive all the way in because I'm not exactly sure how I'm going to react to it.” Be aware of that in yourself, so that you can decide at what pace you want to take this.

Along with just always pay off your credit card bill in full every single month, I think the second core rule and something that I very much live and teach is that this is not about spending money you otherwise wouldn't. This is about taking the money you're already going to spend no matter what and leveraging it so that you can get more out of it than just the thing that you're buying at the end of the day. Lisha, I don't know if you have any additional thoughts, if you disagree with me about any of that.

Dr. Lisha Taylor:
No, I agree with what you said. And the thing that I will add is Devon, I think what you said is one of the reasons why you and I both believe that physicians are in a prime position to take advantage of this hobby. And I think going back to your original question, Jim, that's why there was so much traction. It was like, “Hey, physicians are in a great position to take advantage of this. It's odd that there would be a post suggesting otherwise.”

And so, let me break this down or make it clearer is because physicians tend to make substantially more money than the average American, most physicians also tend to have more monthly expenses than the average American. And so, we are already spending a lot of money each month. And if you are already spending a lot of money each month, why not try to put that spend on a credit card that gives you substantially more perks and points?

Devon and I talk about this offline all the time in that some people who don't make as much money each year as physicians do, they utilize this hobby by constantly taking out credit cards. They're constantly trying to get a new card so that they can get that signup bonus and get these points. And so, they end up with a gazillion credit cards.

But one of the things that Devon and I are unique about, and that I think a lot of physicians are unique about is we don't always have to get new credit cards in order to earn a substantial amount of points. I don't take out credit cards all the time. I don't have a million credit cards. And so, it's not an all or nothing. It is not a, “Hold on, I need to get 30 credit cards and have 20 spreadsheets in order to take advantage of this hobby. Wait, I'm actually in a good position to take advantage of this hobby with the money I already spend.”

Dr. Jim Dahle:
Yeah. I think it's important to point out that it doesn't take much to get a credit score adequate to get a mortgage either. My daughter just texted me that she just found out her credit score is 794. Now, bear in mind that six weeks ago, she was unemployed and serving as a missionary. She hasn't made $2,000 since then. She's a college student now and is a terrible credit risk.

So, how does she have a 794 credit score? Well, I put her on my oldest card two months ago. So, it doesn't take all that much to get a fine credit score that's going to allow you to get a mortgage and that sort of a thing. If you get one credit card and buy your gas with it for a year, that's going to be enough for you to get a mortgage. So, don't think that you've got to do crazy stuff. You don't have to have student loans. You don't have to have 12 credit cards. You don't have to do these sorts of things in order to function in life the way normal people function.

BIG WINS OF TRAVEL HACKING

So, don't do it just to get a credit score, just to have a credit history, that sort of thing. You've actually have to like the game. And I'm getting the sense that the vast majority of these rewards and things that people are doing is travel. What about people that hate traveling? If you're like, “I do not want to go on a first-class trip to Europe twice a year. That sounds terrible to me.” Are there other options besides travel?

Dr. Devon Gimbel:
Yes, 100%. And I think this is where it is so key to kind of understand what matters to you, both in terms of the way that you want to handle credit cards and also what are you hoping to get out of these rewards on the other end. I would argue that if you really are not interested in travel, I don't think that rewards credit cards are going to be a great fit for you. I do honestly believe that you should always be getting something benefiting in some way from your expenses. But you can do that very easily, very simply with a solid cashback credit card.

For someone who really doesn't want to travel, I still think it's better to not use a debit card. It's better not to use a local credit union credit card that may not give you any rewards at all. Get a cashback credit card that gives you 2% cash back on everything. Wonderful. At least at the end of the year, you have something in the form of rewards to come back to you for the spending that you've done. I think if you don't want to do travel, then don't even pay attention to rewards credit cards. It's not a match in terms of desire, preference, and then outcome.

There are really great cashback credit cards now both for personal spend as well as for business spend. If you're a medical practice owner, you're an online business owner, you're spending multiple six, seven figures a year on your business expenses, great. Go out and get a solid cashback credit card. You're still going to benefit tremendously from that.

Dr. Jim Dahle:
Okay, let's have the cocktail party conversation. When you go to a cocktail party, people talk about how they bought Nvidia before it went out. You talk about your wins, you don't talk about your losses. Let's hear about the big wins with credit card hacking. Each of you give me an example of a big win you personally had and how it happened and how much it was worth and what you did with it, etc.

Dr. Lisha Taylor:
Okay, I'll go first. I found so much value out of this that pinpointing one big win is challenging for me. So, take that as you will. But I will say two things come to mind. I know I'm sort of breaking your rule here. One of them is a business class flight to South Africa. Devon knows about this because I have talked ad nauseum about this trip on her own podcast and on my podcast. And I think Jim, the last time I was on your podcast, one of the things I talked about is how my dad refuses to give us money for an inheritance and how he instead decides that he's going to buy us family vacations, which okay, champagne problems here. I recognize that.

But our last family vacation was to South Africa. And I'm mentioning this as one of my big wins because I said, “Well I live in Atlanta, South Africa is far, far away. I don't want to be cramped up in the middle seat sitting upright for 20 plus hours. That does not seem fun for me.” And I think for a lot of people, that probably does not seem fun. If you've ever traveled internationally, the flight tends to be something that you have to get through. Most people are going on Google flights, picking the cheapest economy flight, and just saying, “If I could just top it out through the flight, then my vacation will start.”

Well, with this trip to South Africa, the flight became part of the vacation. I had never traveled business class before. I don't even think I knew what business class was, because most of my travel was domestic. Yes, I had traveled internationally before, but I was not rich enough to buy anything other than an economy seat. I really didn't know what the options were.

One of the things I learned is when it comes to international travel, not all planes have a first class cabin. They have an economy cabin, some sort of comfort plus or premium cabin, and then they have business class for a lot of these flights. And I'm like, “Okay, what's business class?” Business class is, you get a bed on the plane. Business class is sometimes they give you pajamas. Business class is you walk on the plane in an entirely different section that I never knew existed. You're greeted with champagne and mimosas, you get chef inspired meals. I actually get to sleep on the plane, like lying flat, what?

And when I thought about business class flights, what I always thought about was I have to be a multimillionaire in order to do this. Who in their right mind can pay $7,500 for this one way business class flight? That's how much it costs.

Well, with credit card points, I didn't have to pay that. Instead of paying $7,500 in cash, what I did is I utilized credit card points, it was 90,000 credit card points plus $500 in cash. And so, when I subtract the $500 that I paid in fees, and then I do this, how many points per cents of value did I get out of my flight, I got seven cents per point of value out of that flight.

To put this into perspective, most credit card points assign a value of about one cent per point. 100,000 points is the equivalent of $1,000. And yes, $1,000 is better than nothing. You could use that $1,000 to decrease the amount that you owe on your credit card statement, you could use that $1,000 to purchase an economy flight to South Africa.

But instead, I utilized 90,000 of those points for a business class flight to South Africa. I would have already spent $500 to $1,000 on the flight. Instead of using that money to purchase an economy flight, I use that money and I got a business first class flight to South Africa in luxury. And so, that I think is the difference is it turned into “All right, I was already going to take this trip. But instead of taking this trip in economy, I can take this trip in business or first class and it doesn't cost me any extra money.” That's my first point is it expands what I can do with travel because of this point.

And then the second thing is I was able to take trips that I otherwise wouldn't take. I just went to Cabo completely free. The resort, all-inclusive, was free, I did not pay a cent in taxes or extra fees. Ordinarily, I probably wouldn't go to Cabo on a whim. But because I didn't have to pay anything, I got a free vacation. And so, those are what I consider my big wins is now I get to travel in luxury. And now I get to take trips that I otherwise wouldn't be able to take.

Dr. Jim Dahle:
Okay, so how'd you get the 90,000 points?

Dr. Lisha Taylor:
Those 90,000 points I got from a sign-up bonus on my first credit card. First rewards, transferable points credit card.

Dr. Jim Dahle:
Yeah. You had to spend $3,000 on that credit card and then they gave you 90,000 points or something like that? Or what was it?

Dr. Lisha Taylor:
Yeah, yeah. When I first started off in this hobby the first card I think I got was maybe Chase Sapphire Preferred and then I got an Amex Personal Gold card. And so if we're breaking this down and trying to figure out how much money I spent and that sort of thing, the Chase Sapphire Preferred has an annual fee of $95 dollars and I think the sign-up bonus at that time was like spend $4,000 and get 70,000 points or something along those lines.

And so for me, I was already going to spend $4,000 or so by virtue of being a high earner and having high expenses. And now I just put that spend on that card and I earned those points.

Dr. Jim Dahle:
Okay, but if that had been a 2% back card you would have gotten some money for that $4,000. 1% would have been what? $40. And 2% would have been $80. That's the opportunity cost instead of using those to buy that cost to be $80 plus a $95 annual fee, that sort of thing. Obviously that's a pretty good swap to get $7,500 of value for $150 or $200 worth of what it really cost you.

All right, a big win for you, Devon.

Dr. Devon Gimbel:
Yeah, let me just talk to your point there where I think it is important to kind of run through this math and say, “Hey, how much am I actually kind of spending on an average basis? What would I earn if I was going to use a straight 1% or 2% cash back card?” I think we can all argue that actual cash is always going to be more powerful, more liquid than getting a certain amount of points or rewards. And so, I don't always think it's an apples to apples comparison.

But I was running through for me the math because I am nerdy and I do keep spreadsheets and this is what I do also as a business. But how many points have I earned on an annual basis? What were the ways I used them? If I had booked the same exact things, just outright in cash, what would the cash cost of that have been? I just like to get some of these benchmarks.

And for me personally, in 2024, I redeemed a lot of points. I redeemed about 2.7 million points for about $150,000 worth in travel. And I was doing the math of, okay, if I had a straight 2% cash back card, again, I have personal expenses, I'm a business owner, my husband is a self-employed physician, so he has his business expenses. We earn points for all of those. If we were to just earn 2% straight cash back for all of our expenses, we would have had to spend about $7.5 million in order to get 2% cash back around $150,000.

I can assure you, I feel like we are high spenders. We are not spending $7.5 million a year even between our businesses and our personal spend. And I also think context here is important. Maybe Lisha can talk a little bit about her background, how long she's been doing this.

I've been doing this for over 10 years. And I will readily admit, I'm biased. I think points are amazing. Again, I do this professionally. I do not purport to be just like your average case study. I like to show people and be transparent about what I'm doing, and also acknowledge not everybody's experience is going to look the same as mine, especially not maybe their first year or two in this hobby.

But I think what Lisha has done with points is really, really common for people even in the “beginning” in terms of just what is possible for you in the beginning. This past year, we just got home from my kids' winter break. I have two kids, a six-year-old and a nine-year-old. The four of us went to the Maldives for a week. We flew roundtrip, business and first class internationally for a family of four, which if you've ever looked at international flights to the Maldives, those are not really what I would consider to be budget flights.

We stayed one week on a beachfront standalone villa. Again, that entire hotel stay, there was no out-of-pocket cash cost for the actual reservation. We made the reservation for the villa for a week, all on points, no out-of-pocket cash cost.

But that's actually not the example that I want to say, “Oh, it's a huge win.” Because I think that really is an extreme example. I think it's doable for a lot of people who get into points. And also, this is the first time I've taken my two kids that far internationally on business class.

What's actually much more regular for us is that we travel around my kids' school schedule. I think a lot of folks can relate to that. Your spring break, your winter break, this is when travel is in very high demand. It's very expensive, even for travel that I don't think a lot of people would consider to be just out-of-control luxury.

And so, the example that for me is a really big win is one that I think is actually much more relatable to so many people, which is for my kids' spring break in 2024 we took them for one week to a resort in Costa Rica. This is a direct five-hour flight from where we live in Chicago. Roundtrip economy flights for one week for a family of four, they were pricing out at $9,000. That is a huge amount of money. Even for me personally, to spend $9,000 on roundtrip economy flights, that to me does not scream luxury. If you've been hanging out in economy on United Airlines anytime recently, I don't think a lot of people are thinking, “Wow, oh my gosh, this is the epitome of travel.”

But that's what travel costs. To fly a family somewhere is not cheap, even if you're doing domestic or kind of local international. And so, we used points. Again, I flew my family for roundtrip. I guess it's not domestic. It's international in Costa Rica. But roundtrip economy, we stayed for one week in a really lovely hotel. It was a standard room. It was nothing extravagant. It was a 400-square-foot room with two rollaway beds for my kids. Out-of-pocket cash cost just to book the flight and the hotel for that trip, I spent $312. I would argue that is a bargain.

And if we were to book the same exact economy flights, the same exact hotel for the dates of stay all in cash, it would have cost $17,700. And for me, this is as much about what points are about as all of the amazing extravagant things and stories that I could share and that I share on my own podcast, is that I am not in a place in my life right now, where I look at $17,000 for a one-week trip to Spring Break with my kids and think, “Oh, that's a no-brainer.” I'm thinking, there are so many other places that $17,000 can go. My kids 529 accounts. Taxable accounts, funding an HSA account.

That to me is really what the power of these points are that yes, you can go amazing extravagant for very, very little out-of-pocket cash costs. And you can also just take a regular family vacation that otherwise you may have to sacrifice some of your other financial priorities in order to do. And that to me is truly the benefit of points is that I don't have to sacrifice my other financial priorities. And also, I get to take my kids on trips. We can travel during their school breaks and it's not costing me $50,000, $100,000 a year to do that.

Dr. Jim Dahle:
It's awesome that you just went to South Africa, Lisha, because we just went to South Africa. We might've bought some of the kids' flights or something on points. I don't know exactly, but I do know that I flew premium select, which is basically second-class on Delta. This is not lay flat. It's a nice wide reclining seat and a little bit better meals. And it's second-class on the flight essentially. My ticket was $5,000. I didn't know this before I went on the trip, but I found out after the trip, it was $5,000. That's what it cost me to go to South Africa.

You got to fly, it sounds like one step up in class, for $500 plus a couple of hundred dollars in opportunity costs, which I think demonstrates the value here. Obviously there's a lot to be done here if done well, but it does take a little bit of time and effort.

TIME AND EFFORT REQUIRED TO CREDIT CARD HACK

So, let's talk about the time and effort. Let's talk a little bit about the initial learning timeframe, how much time it takes to just understand all of this and then ongoing learning about new cards and new opportunities and new ways to do this. What kind of time commitment are people looking at if this is going to be one of their hobbies?

Dr. Lisha Taylor:
Yeah. I think this is one of the areas where Devon and I differ a little bit. Devon lives and breathes this stuff. Her podcast is dedicated to travel. My podcast talks a little bit about travel, but is more about personal finance. And so, we attack this a little bit different. Devon loves this. It's amazing. You get a lot of value from it. I get value, too, but it's not like my day job.

I'm saying this to say that I do not spend a lot of time on this hobby. I don't even consider it a hobby. To me, it is a cost savings thing. On a day-to-day basis, I am not thinking about credit card hacking. At this point in my life, I utilize credit cards that are going to earn me the most points based on what I am spending. And when I am ready to plan a trip, I book that trip with points. And so, for me, it doesn't take much time.

In terms of how I got started in the initial learning curve and that sort of thing, one of the things that I tell people is this hobby boils down to two things. It boils down to earning points and redeeming points. The initial learning curve is learning how can I earn the most points? And then how can I best redeem those points? And so, if you split it into those things, earning points, redeeming points, then it kind of helps you get started.

When I start talking about the earning points part, it's like, “Okay, what are the different ways that I can earn points? And what kind of points do I want to earn?” I can earn points from a signup bonus. I can earn points from different bonus spend that I'm putting on credit cards. I can maybe earn points from a referral. And then as we're talking about earning the different points, then later you're going to talk about redeeming those points. But for me, there's different ways to earn those points.

And then when we were talking about the kind of points that you want to earn, one of the first things that Devon and I usually like to make crystal clear is all points are not the same. You need to be strategic about the kind of points that you're earning. And this is what I think that learning curve that you're talking about, Jim, this is where I think that kind of comes into play is most people listening to this probably already have a credit card. And they probably already have a credit card that earns them some sort of perks or rewards.

And so, one of the first things you have to learn is, “Do I have the kind of card that earns me the kind of rewards where I can get this outsized value, where I can take that trip like I did to South Africa, or that trip like Devon did to the Maldives. What kind of points do I want to earn?”

And I think Devon really goes into this really well. I kind of let her take over here. But I think that the best kind of points to earn are these what Devon and I call transferable points. As you're getting started in this, you're thinking, “How can I earn the most points? I'm going to earn points from a signup bonus, I'm going to earn points by putting spend on a credit card. – Okay, Lisha, that sounds simple. But then you said, I have to earn a certain kind of points. Okay, what kind of points are those? – Those are transferable points.” And I'll kind of let Devon take it over from here.

Dr. Jim Dahle:
Well, before we go to Devon, somebody doesn't know anything about this. They're just listening to this podcast. How much time they got to spend in the next month to learn how this game works?

Dr. Lisha Taylor:
I did not spend a lot of time on this hobby, just being completely honest. I started delving into this hobby when Devon and I first met, which was in 2023. We met through a mutual friend. And we actually were having this conversation. I had many of the same questions you did, Jim, I think I admitted this to you. I used to be against using credit cards. I was like, “What? Credit cards make you spend more money. I'm a personal finance nerd. I don't want to spend more money. I got into credit card debt before. I don't want to get into credit card debt now.”

I took out one card, it was a Delta SkyMiles card, because my cousin told me I could get a free flight. And I was like, “Well, that sounds cool.” And so, I wasn't really into this hobby. I met Devon in 2023. We had these candid conversations. And after that initial conversation, I got a rewards credit card. And then the next month, I got another rewards credit card.

And then I joined Devon's Facebook group. I started talking to people about it, but I just started earning points. I was like, “That sounds simple. I'm going to get a credit card. I'm going to earn points.” It didn't take a lot of time. And then once I earned the points, I said, “Okay, I'm going to take this family trip to South Africa.” It was three months later that I was going to book this flight to South Africa.

My goal starting out was let me earn enough points to get this business class flight to South Africa. That was my goal. And the time it took for me to book the flight, I will admit the redeeming part takes a little bit of finagling because it's not as simple as going on Google flights and choosing the cheapest flight. There is a little bit of time involved.

If I'm thinking back, I want to say in full transparency that I probably spent two or three hours searching for flights, not all at one time, but just over the course of a few weeks as I was trying to search for flight deals. Part of the reason is I didn't have a ton of points at that time. So I couldn't spend a lot of points on this flight. I needed to find a business class flight that was enough for me, that I didn't need a substantial amount of points for.

To answer your question, Jim, I had a conversation. I got a rewards credit card and Devon and I are happy to talk about some initial cards that we think would be a good fit for most people. So I got those cards. I met the signup bonuses. I started using those cards for daily spend. And then I booked my flights, probably spent a couple of hours searching for flight deals and booking the flight.

For me, it doesn't take a lot of time. I will be honest. I don't have spreadsheets. I am not a spreadsheet person. That stresses me out. It makes me feel like I have a third job. I already have a million things to do. And so for me, the juice has to be worth the squeeze. I am not willing to take on this as another job. And I personally am not even willing to take on this as another hobby. For me, it is “I'm doing what I need to do to earn points and redeem the points. Everything else can go by the wayside.” I could probably get even more value if I took out a credit card every month or if I lived and breathed this stuff, I'm sure I could find even better deals.

But for me, I don't want to do that. And I think that a lot of people listening to this might have a similar sentiment. They don't want to spend hours learning about this hobby. They don't want this to feel like another job. They want to do something simple, earn some points and redeem some points for outsized value. And I think I'm an example of, “Oh, you can do this. It's not a huge learning curve. It doesn't have to take a substantial amount of time.”

Dr. Jim Dahle:
Okay. Devon, you are a confessed hobbyist.

Dr. Devon Gimbel:
I would probably be much more than a hobbyist at this point.

Dr. Jim Dahle:
A professional maybe is a better description. But not only I'm a little curious just what kind of time you spend on this, but I'm more curious your thoughts on how much time it takes for somebody to do this in a reasonable way.

Dr. Devon Gimbel:
Yeah. And I think that that actually is the more pertinent question. Again, I don't think a lot of people listening to this podcast, all of a sudden have dreams of now becoming a full-time professional points educator. I'm probably like an end of maybe four of the entire White Coat Investor podcast audience. And that's never my goal, to turn people into something they don't want to be. It's to help people very easily and very quickly start to tap into the opportunity that their expenses present to them by learning how to navigate this world of points and miles.

Remember, even though I do this, again, for fun, and for my profession, really what I'm trying to do is walk people through the shortest, most advantageous, most efficacious path so that they can get what they want out of points, not so that they can become the way I am with points.

And so, I've taught thousands of people how to do this. And I think that, of course, everybody's a little bit different in terms of their learning style and what it's going to take. But I think especially for this community that does not need to get deep in the weeds in terms of let me come up with 20 different ways to earn points. No, you need one or two streamlined ways to earn points and let your expenses do the heavy lifting.

I think it takes a handful of hours to really just become proficient in understanding just what is this thing about? What are the basic concepts? You could do that in one or two hours, reading stuff online, listening to some podcasts that you find, joining a points Facebook group, there are millions of them out there. I really think that the initial learning curve is actually not that big. And I don't think that it is that prohibitive for people to get into.

What I do want to acknowledge and say is that depending on what you want to get out of your points, you probably are going to have to spend more time depending on what your outcome is. It is easier to find and book really good flight deals for one person traveling solo who has a little bit of time flexibility versus what I tend to do most of the time, which is I'm booking for a family of four. And when we fly internationally, I'm looking for business class flights around my kids school breaks. The constraints of that type of trip planning is very different than another type of trip planning.

And so, I think it depends on how much are you looking to get out of this, that learning curve of once you feel really comfortable, how do I earn points in a way that's not going to take me a ton of time, isn't super confusing, isn't super complex. People tend to get that done very, very quickly. I would say within like three months of initially learning how to do things, spending an hour a week in some area of learning that's interesting to them.

And then the next learning curve is “How do I take these points I've earned? And how do I learn how to really effectively redeem them, meaning trade them in for the travel I want.” And again, depending on what are you looking for. Are you looking for kind of one local trip for one person? Are you looking for a more ambitious international trip for a family? The more ambitious trips are going to require that you learn a few more skills. But again, this can all be titrated and calibrated to your personal level of interest.

And so again, I spend hours doing this because it's fun for me and interesting for me. But you can get so much value out of points without having to dedicate 5-10 hours a week on an ongoing basis. I tell people this is not like med school and residency. You don't have to spend four to eight years, 80 hours a week in order to see the payoff from this hobby.

But I do think with any skill acquisition, you should expect there is going to be an investment of some time and energy. And then you get to make that decision of “Is the potential payoff of what these points can do for me, is that worth the investment for me?” The answer may be yes, and the answer may be no.

Dr. Jim Dahle:
Yeah, I think that will differ a lot for a lot of people. For example, there's a lot of people out there that frankly haven't taken care of their personal finance yet. They don't have any sort of written investing plan. And I don't know that spending even five hours learning credit card hacking is the best thing for that person's finances. Maybe those five hours ought to be spent on writing their financial plan.

I do worry a little bit about that, the opportunity cost of that time. But I think the big concern is as people look into this a little bit, they realize the big bonuses are the sign-up bonuses. You get the card, you put some minimum level of spend on it. It's no big deal for a physician usually, within three months and you get 100,000 miles or whatever.

But then after that, the card is not as good as it was for the sign-up bonus. And so, people are like, “Well, I guess I got to cancel the card and get it again in a year, or I got to go get another card.” And they fear this spreadsheet, which if you have 25 credit cards, you probably ought to have a spreadsheet to keep track of.

How many cards do people have? If we polled your group, Point Me to First Class, what would be the average number of cards you think that the people in that group actually have had at some point in the last couple of years?

Dr. Devon Gimbel:
I love that you asked this question. I actually did poll the group. I did not get 27,000 responses. So, take this for what you will. But I have to believe this is probably one of the more accurate numbers. I just don't know if anyone's polled any number of people before of the physician community to ask this.

Dr. Jim Dahle:
I think one of my philosophies about this and the way that I look at points, especially points for physicians and high earners, is very different than if you were just to go to any general points blog. It’s that most of the other points education that's out there, really, the advice is, whenever you have spend, you should always have a new card open so that you can always divert any spend you have to a new card so that you can constantly be earning these welcome bonuses.

And that makes a lot of sense for folks whose monthly overall expenses may be $2,000, $3,000, $4,000. That makes sense. Maybe they're opening a new card every three or four months, all of their spend is going to a welcome bonus. That breaks down when you start looking at folks who have higher expenses, again, especially people who have business and personal spend. My husband and I would have to open 73 cards a month if we were always trying to put all of our expenses on a new card. It's not practical, it's not sustainable. And I don't think that that is required for a lot of folks in this hobby.

Now it's this kind of a two-sided coin. One side of the coin is yes, dollar for dollar, you are always going to earn the highest number of points from a welcome bonus. It's an incentive. That's how the banks get you to want to sign up for these cards. The flip side of that is I go many, many, many months in between applying for new cards. And so, it's not that, “Oh, I'm either earning a really high rate of points because I'm earning a welcome bonus, or I'm earning nothing.”

Now, this is where picking the right cards for you really comes into play. Because there are credit cards, again, you don't need 10, 15, 20. I think an average physician could do very well with two to four credit cards. And that may sound like a lot to a ton of people, but I guarantee you it is nothing near 20 to manage and handle.

It's that you can make sure that you are deliberately getting credit cards. They're not going to give you 20 points for every dollar you spend like a welcome bonus. They're going to give you 2, 3, 4, 5 points for every single dollar you spend. And over the course of a year, that is going to add up.

And so, in terms of how many cards is it typical for people to have, the best number that I can get from the questions I've asked in the surveys I've run is that about 24% of my audience is carrying one to three credit cards total in their name. Their partner may also have their own credit cards, but the primary person has one to three credit cards.

46% of the people who responded to my survey carry four to eight credit cards. Just between that, that's what? 60, 70% of people polled carry between one and eight. And again, this could be someone who's been in this hobby for years and years and years. Maybe they've been in this hobby for a month.

About 25% of the people I polled carry nine to 15 cards. There is certainly a segment of the population, again, because they actually find it fun. They find it interesting. They consider themselves to be maximizers. They want to take advantage of all of the opportunities that are going to be very high yielding for them. They are comfortable holding more cards. But I do think that it's a fallacy that in order to get something out of points, that you need to always hold 15 or 20 cards. You don't need to do that.

I actually do not think that's average for the physician community because I think what's more common for us is, yes, signing up for some cards to earn the welcome bonus. But even beyond that, really understanding where are the other opportunities to easily and sustainably earn points for the expenses that you have and letting those expenses do most of the heavy lifting.

MECHANICS OF TRAVELING ON POINTS

All right, let's talk about the mechanics of travel. I think a big fear people have and they've gone and tried to redeem Delta or United points or whatever. They worry about being able to book whatever flight they want or having to fly at undesirable times or having a million connections. Talk for a little bit about the travel and flexibility you can have, where you go, where you stay and whether the deals out there actually determine where you travel to. Let's talk a little bit about the redemption side of this.

Dr. Lisha Taylor:
Yeah. Jim, I think it runs the spectrum. One of the things that you will quickly learn when you enter this hobby is that the people who have the most flexibility tend to be able to take advantage of the best deals more often. If you have a job where you can take off at different times, I don't have children. Devon has children. I don't have to travel around school breaks because I don't have children that are in school. But Devon does travel around school breaks. And so, she's a little bit more limited in her options than maybe I might be. And so, there are certain people that might inherently have a little bit more flexibility and inherently be able to take advantage of more deals more often than others. That's number one.

But when it comes to really like being able to book what you want, I find that the earlier you plan, the better deal you get. And so, when you enter this hobby, you will learn that flight calendars for a lot of these airplanes open up around a year in advance. And so, if you already know what vacation you want to take, whether it is by yourself with your friend or with your family, if you are able to book it really early, like a year in advance, you can oftentimes find a lot of these great deals.

Devon will tell you she often does that. She's a planner. She's going to plan her trips a year in advance because she knows she's got to find four business class seats. She's got to find the best deals because she's got four people traveling with her a lot of the times.

But for me, I consider myself a planner, but I am not booking my vacation a year in advance. I'm sorry. My life just does not go that way. Oftentimes I'm traveling with a friend. Maybe it's with my boyfriend. Maybe it's with my girlfriends. And although I am a planner, they sometimes are not. Oftentimes it's a few months in advance that we are finding and booking a flight.

And so, that means that sometimes the deals that I find are not the best deals, but they're still good deals. I want to eliminate this fear that in order to take advantage of this, you have to travel at obscene times or just spend an exorbitant amount of points. That's not true.

If you plan in advance, could you get a better deal? Sure. But that doesn't mean that if you are like me and you travel maybe a few months out that you can't take advantage of it. And so, I want to kind of eliminate that fear and say that, “Hey, if you want to take advantage of this, define what your goal is. Do you want to travel by yourself? Do you want to travel with a family? Do you want to go somewhere domestically? Do you want to go somewhere internationally? Do you want to take one trip a year? Do you want to take multiple trips per year?”

Once you figure out your goals, let's say, “All right, how much flexibility do you have?” And that may depend on your family structure, your family size, where you're trying to go. All right, cool. And then we can work from there. And so, yes, being more flexible gives you better deals, but it's not like if you're not as flexible, you can't find any deals.

Dr. Jim Dahle:
Yeah, I've had that experience as well. Sometimes when you're booking last minute travel, you're going to a funeral or something, sometimes that's exactly the time to use points and you're like, “Wow, this is going to be $1,800 to fly three states away if I pay cash, but it's still only 50,000 points. So I guess I'll use points for it.” And so, I've experienced that as well.

Any comments on travel? You're not as flexible as Lisha is, it doesn't sound like. Are they going to get crappy flights? Are they going to have to travel at crappy times? How big of a concern is that?

Dr. Devon Gimbel:
I think that this is so valid. Because I think, again, looking at our kind of community, our population, by the time we actually get time off a lot of us want to have some say in where we're going. I love travel, I could probably be happy traveling anywhere. And also I want to be able to say, “I would love to take my kids to this place during this time.”

One of my preferences is that especially if I'm traveling with my little kids, I want to have as few connections as possible. We're lucky our home airport is O'Hare. We have access to a ton of direct flights. And also I don't want to take a three connection flight just because it happens to be an amazing deal.

What I tell people is that when it comes to booking flights with points and the availability of points flights, there are inherently going to be less options than if you're just going to book outright in cash. And that's simply because airlines make fewer seats available to book using points than they release to be booked in cash. So it's just the inventory is different. You just need to understand that piece upfront.

And oftentimes, I tell people, you can get a lot of what you want, you may not get everything of what you want. And here's what I mean, is that again, my personal preferences, I want to fly, if I can, somewhere direct, especially if I'm flying with my kids. If I'm going to be flying internationally over six hours, I want to fly lie flat business class seats. Again, I may have some constraints around my travel dates where I can't just fly out on a random Wednesday and come home 19 days later, because that's the cheapest flight.

And oftentimes, I can get two of my main three things. I may not get every single thing I want. But here's an example for this upcoming spring break in March that my kids have off. We are taking our family to Paris. We're flying direct from Chicago to Paris on Air France. We got an amazing points deal. It's basically the lowest amount of points you can pay for a nonstop business class flight. And we're flying, again, on my kids' spring break. So, ideal travel dates.

What is the thing that I had to give up because you oftentimes can't get every single thing you want? Well, we're flying from a Thursday to a Thursday instead of a Saturday to Saturday. My kids happen to have off the Thursday and Friday before their entire spring break, so they're not missing any school. But ideally, I would have loved to fly Saturday to Saturday. That deal was not available.

But I think, again, it's not that, “Oh my gosh, you have no say in where you're going to travel.” If you want a deal, basically you have to go at some random time, you don't get to pick where you go, you don't get to pick how you get there. It's not that, but in full transparency, you're always going to have more options, more flexibility paying cash. But the vast majority of the travel I'm booking with points, I wouldn't book using cash.

For me, that kind of sacrifice, if you want to call it that, of giving up some element of my 100% priority travel list, that is worth it to me. I think it becomes harder for folks who are not based around a large hub airport. If you're one of the millions of people whose local airport is a smaller regional airport, you're probably going to have less options of points flights because you have less options of cash flights anyway. There are large portions of this country that are not serviced directly by international flights. So, you're going to have to factor that in no matter what.

I don't think that that's specific to points. But I think if you are willing to accept, “Hey, I might get 80% of what I want, and it's going to mean I can use points and offset the cost of travel”, that may be worth it to a lot of folks. It may not be worth it for everyone.

What I tell people is, hey, you know yourself best. If your travel constraints are such that you only ever want to fly direct, you only ever want to be able to say, “I want to fly this specific day, or even this specific time of day, and I want to get the exact flight that I want”, then I say, “Hey, you're going to have more options with cash. That's probably a better option for you.”

Dr. Jim Dahle:
Now, Megan, our podcast producer says I have to get into the math as best we can on this. Have either of you ever tried to actually quantify, and I'm not talking the cocktail party trip. I'm talking the average one you get from playing the credit card hacking game, but actually subtracted out the value of your time as a physician, the cost of your annual fee, your booking fees, the 2% opportunity cost you would have got just from a boring old cashback credit card, and actually come up with what you think the actual savings is on an average experience that you're buying through credit card hacking.

Dr. Lisha Taylor:
Yeah, I will introduce this because Devon does a lot of this math, because we established she's an enthusiast when it comes to this hobby. But I will say, Jim, I appreciate that question because that was one of the main barriers to me getting started. I knew that I could earn points from using a credit card. That was not new to me.

The reason why I didn't before was because I said, “Hey, it's going to take me a long time to earn enough points to make this worth my time.” Because as we stated earlier, most credit card companies value your point at one cent per point. I don't think you need to be a math whiz to figure out that if you want to be able to purchase a $7,500 flight to South Africa and your points are one cent per point, it's going to take you a lot of points in order to be able to redeem that.

And so my question was, is it worth it? This takes too much time. It would take me a year to accumulate enough points to get maybe one free economy flight. Is this worth it for me as a physician when I could just work more shifts and make more money and just pay cash for this stuff?

And so, for me, I think one of the things to really understand before we break down the math is that not only can you earn a lot of points much quicker than you might assume, is that you can get much more value from each individual point than what you may think. It's not just one cent per point. That is often the value if you cash out your points.

So, if you have 100,000 points and each point is one cent per point, that's $1,000 in value. And you could take that $1,000 and you could decrease the amount of money that you owe on your credit card statement. You could also redeem that $1,000 for travel directly through your credit card portal.

But that is not the way to get the most value out of your points. The way to get the most value out of your points is to actually transfer your points from your credit card account into the airline loyalty account or the hotel loyalty account. Because when you transfer those points out of your credit card portal and into an airline account or into a hotel account, you get substantially more value.

How do you get more value? Well, oftentimes when you transfer those points, there are these things called transfer bonuses and they're often 25% or 30%. By virtue of literally moving your points from your credit card portal and into an airline account, you get 30% more points sometimes or 25% more points sometimes. That's one way to get more value.

Secondly, when you transfer those points and you try to book your flight directly from the airline account, you are able to pay substantially fewer points for that flight. And so, I want to make that clear is you're not just getting 1 cent per point, you're getting 3 cents per point, 5 cents per point, 7 cents per point as I did when I booked my flight to South Africa. So, I think that's really important to understand.

Dr. Jim Dahle:
Now, although there is a downside to having it in the airline program or whatever, it feels like particularly now that the pandemic is over, it feels like the companies are becoming less generous with what you can buy with those airline points for lack of a better term. And so, when you move it out of the credit card to the airline accounts, you do have that risk that the airline will make them worth less as you go along.

QUANTIFYING THE VALUE OF CREDIT CARD POINTS AND TRAVEL

Quantifying, I know you've run some numbers before, Devon, I'm sure you've run numbers. What do you think? An average trip, not the best one you ever lined up, but an average trip and you count the value of your time and opportunity cost and all that, what are you really getting?

Dr. Devon Gimbel:
Yeah. And I think that obviously this is going to be different for every person. I don't know how to actually account for the value of my time. Because again, I think a lot of people who do this is because they actually enjoy it. And it's not that if they weren't doing this, they would be equally enjoying picking up extra shifts. And as we all know, physicians are all compensated at different rates.

I don't honestly know how to add in a calculation about value of time. But what I know how to do is look at what value did I get out of my points. I used X amount of points, again, averaged over the course of a year, because I could tell you all of the extreme examples. Again, I got some crazy value flying solo first class to Tokyo. Okay, that's not probably an average redemption. But the vast majority of my travel is what I consider to be average family travel.

I look at how many points do I use over the course of an entire year, all my travel? What is my out of pocket cash spend? Because you still have to pay cash for taxes and fees even on a flight that you book using points. And then I look at it and say, “Okay, if I was to book the same exact stuff, points didn't exist, what would just the cash value of all of those things be?” And I make the comparison that way so that I am looking at least over the course of a year, I'm factoring in five to seven trips between my family travel, my solo travel, my professional travel that I'm using points for.

And so, for me personally, the best thing I can do is say, this is the value I'm getting, what would I have to spend, again, on a card that's getting 2% cash back to get the same value. And for me, that is enormously, enormously outsized. I already mentioned before, I'd have to spend on the order of $7 million to $9 million a year to get the same value from a 2% cash back card as I would from my points.

And also, I think what's more important for people to be able to hear, because there is no actual formula. There's no formula that any of us can give you that says, “Plug in how much you spend total on credit cards over a year, plug in this one value, it's going to spit out and guarantee you that this is what you're going to get from points and compare it to cash back.”

But as Lisha already talked about, there's really two main parts of this equation in terms of points. It's at what rate are you earning points for the amount of money that you're already spending, and that rate is variable. It can be very low, and it can go up higher. And how much value are you getting out of those points when you cash them in, redeem them, trade them in for flights or for hotel stays, specifically travel is what we're focusing on here. And that can range from, again, very little, if all you've ever been taught how to do is cash them in at the rate that your credit card company is going to give you, and it can also go up very, very high.

So, what I think is actually better to look at is if you are someone who only ever is going to earn at a very low rate, meaning you're going to have one credit card that only earns you one point for every dollar you spend, if you're going to turn those points in, also at a low rate, just by booking travel straight to your credit card account, I would argue that you would do much better off with a cashback credit card.

If you can already identify that you're a person who only wants one card, you don't want to learn the different ways that you could sustainably earn more points, you really don't want to learn how to turn those points in, wonderful, don't get into this hobby or don't even learn this. I think it would be a waste of your time.

If you are someone who's willing to learn one of the two sides of this equation, you can commit to one of the two, I'm going to learn how to earn accelerated amounts of points, again, not doing anything crazy, but I'm going to learn how to earn accelerated points for the spend I'm doing with credit cards or I'm still going to just use my one credit card, but I'm going to get really good at learning how to redeem them.

I think that you can more than easily overcome what you would get as 2% cashback. And if you want to learn how to do well at both, this is where you can start seeing, you get exponentially more value out of your points than you do cashback. But I think a lot of that has to do with, again, what is your level of interest in learning this?

And I don't ever want to pretend that points are exactly the same as cash. I said this at the beginning of the episode and I will reiterate it here. I don't think you're going to find anybody who's going to say, apples to apples, I would just rather have points versus cashback. With cashback, you can do anything. You can save it, you can invest it, you can put that in an emergency fund. It is liquid. Points are not liquid.

I don't really think that you can also say, as long as I'm getting the equivalent of value from my points as I would from a cashback card, those are the same. No, no, no, I think you should be getting exponentially more value from your points than you would from a cashback card to really truly make this worth it.

Dr. Jim Dahle:
Yeah. Now let's encapsulate this credit card hacking hobby, whatever you want to call it, and talk about how it relates to the rest of your financial life. My sense is that people don't take the difference and save it and invest it for the future. They're just buying more, essentially. They're able to buy more without having to spend more. They're saving the same amount of money.

What do you think? Are people accelerating their wealth building process by doing this? Or is this just a fun hobby that makes life a little more enjoyable for those who like the process?

Dr. Devon Gimbel:
I think it's in between. I do not think, and nor have I ever taught, nor do I think would I ever teach that points are equivalent to other wealth building activities. I do not think this is the same as putting money in a triple-tax-advantaged HSA. I do not think this is the same as putting your money into a low-cost index fund and letting it compound and grow for 30 years.

But here's how I think it fits into the overall picture. I think for people who are interested in personal finance, who feel comfortable having set up their personal finance life in terms of, like you mentioned, this is my plan. These are the different accounts I'm going to set up. I have a reasonable projection of what this is going to give me 20, 30, 40 years from now.

To me, points is all about expanding your travel budget. The way that it works in our life is that we have our financial priorities. We meet all of those. And then based on our disposable income, we say, “How much disposable income do we want to allocate to travel this year?” It's not that I'm saving all this money on travel and then putting it into my kids' 529. No, 529 gets priority. Then we look at our disposable travel budget.

For me, what points does is dramatically increase that travel budget. I am not spending $150,000, $180,000 of cash in travel a year even if the “equivalent” of what I'm booking with my points could potentially be that. But what I am doing is taking my travel budget and saying, “Hey, let's say I'm going to spend $25,000 on my travel for the entire year.”

The way that's going to look is very, very different if I'm spending $25,000 worth of cash or if I'm spending $25,000 worth of cash and I have access to my points and I can use all of those to then book the equivalent of $150,000 worth of travel.

To me, this is not a replacement for any sort of traditional personal finance, wealth building activity. This is once you have all of your other blocks in place, this can be a really wonderful and frankly fun way to expand your travel budget. It's not a replacement. And so, this is not something that I tell people, “Oh, get your credit card set up first and then think about your tax advantage savings.” I think that that's completely backwards.

Dr. Jim Dahle:
You're not going to borrow your way to wealth.

Dr. Devon Gimbel:
No, you're not. This is extra. Nobody needs to do points and miles. We do, at least I believe, we do need to set ourselves up for financial security in the future. To me, the whole thing about points and miles is it is fun, I think it's incredible, I think it's amazing, but it happens after. It happens after the really foundational, fundamental personal finance stuff.

Dr. Jim Dahle:
Okay, Lisha, how does this fit into the rest of your picture?

Dr. Lisha Taylor:
I was thinking about Devon's answer and I agree with it, but if I'm being honest, I will say that I think it allows me to do those other parts of personal finance more sustainably. I talked about this at the beginning, I feel like I'm constantly choosing between YOLO and delayed gratification. And this hobby prevents me from having to make that decision so often.

I don't have to choose between putting money towards my student loans and going on this vacation that I really want to go on. I can do both. I can put my cash towards student loans or building an emergency fund and I can use my points for this other fun part of my life.

And so, I think it makes it more sustainable because Jim, if I'm being honest, I think that's the reason why so many doctors are not as financially well off as you and I believe that they could be is because it's hard to sustain that delayed gratification. Some people are better at it than others and the people who are better at it tend to have higher net worths over time. But if you could give yourself some rewards along the way, if you could allow yourself to really enjoy your life in a way that doesn't jeopardize your financial priorities, I think it makes it more sustainable over time.

And then I will add along with what Devon said, it expands your travel budget. But as I mentioned earlier, for me, it allows me to take more trips. You know what I mean? When I went to Cabo, I didn't pay anything. I probably wouldn't have gone to Cabo if I had to pay something. And so, because I got essentially a free trip, I was able to take more travel. I was able to give my family or my friends more experiences. And so, I think that this fits in really well.

One of the things that Devon and I talk about is turning your expenses into assets. And I think that this hobby of credit card hacking allows you to do that. All of a sudden, it's not, “Oh, I'm spending money or I'm saving money. It's okay, I already have to spend money, but now I can get some money or some currency back in return. And then I can use that money or that currency or those credit card points or those miles for a trip down the line.” So, it's not a sunk cost. It allows you to really benefit from it.

FINAL THOUGHTS

Dr. Jim Dahle:
All right. Well, our time is short. What have we not said about credit card and travel hacking that the audience really needs to hear?

Dr. Lisha Taylor:
Yeah. I tried to mention earlier about transferable points. Not all points are created equal. And that one of the ways to really get this outsized value from your points is to transfer your points from your credit card account into the airline or the hotel account. You mentioned, Jim, yeah, when you do that, sometimes the airline or the hotel can devalue those points. That is true, but it is also true that oftentimes when you transfer those points, you still end up getting substantially more value out of those points than you would have otherwise.

And the reason I bring this up is because if you are somebody who is hearing what I am saying or hearing what Devon is saying, and you're intrigued, you're like, “Okay, sign me up. This sounds great. I want to go to the Maldives. I want to go to South Africa.” We're like, “Great. How do you get started is probably the next question.”

And one of the things that I would say is maybe you should look into getting a credit card that earns you these transferable points so that you can put yourself in position to earn this outsized value. And so, when we talk about earning these transferable points and earning these points that you can redeem for outside value, not every credit card, not every credit card company allows you to do that. You have to get certain kinds of credit cards.

And yes, there are lots of options, but when I boil it down, when Devon boils it down, there are a few different companies that really allow you to take advantage of this hobby the best. That's American Express, that is Capital One, that's Citi, that's Chase Bank, and that's Built. Those are those five core companies that allow you to take advantage of this hobby. So, it's understanding that.

And then the next thing I think is really taking a look at your expenses and asking yourself, “Where do I spend the most money already? And then let me find a credit card that allows me to earn high points for that spend.”

For some people who live in a high expensive area, maybe you live in San Francisco or Los Angeles and you spend a lot of money on rent, there is a credit card called the Built card that allows you to earn credit card points for paying your rent. Maybe you might want to start off with that credit card.

If you are like me and you spend an exorbitant amount of money on food because you either eat out way more than you want to admit on a public podcast, or you are buying groceries from expensive grocery stores because you're trying to convince yourself that you're eating organic and being healthy, if you are like me, then maybe you should consider the American Express Personal Gold Card. It allows you to earn four times points on grocery spend and four times points when you eat out.

If you are someone like Devon who loves to travel all of the time, or like me who loves to travel all the time, maybe you should consider a credit card that allows you to earn bonus points on travel.

And so, those are the two main things that I would add is try to look into getting a card that allows you to earn transferable points, point number one. And point number two, identify where you already spent a lot of money and get a credit card that allows you to earn bonus points on that spend.

Dr. Jim Dahle:
Yeah, I need the one that gives me like 5% cash back on taxes paid. Is there one out there that's got a bonus for paying taxes? That's the one I really need.

All right, Devon, last words. What have we not talked about that we should have?

Dr. Devon Gimbel:
We have talked about this, but I really think it's an important point to reiterate. And I think that Lisha just gave some amazing advice, amazing tips, got into some of the details a little bit more. And I really want to bring this back to the fundamental basics, which is that so many of us, and I think especially those of us, Jim, who have loved learning from you and everything that you've done with White Coat Investor is that I think conventionally, a lot of us in the personal finance community, we're on board with this idea that our money can be leveraged to grow and to support us in the future.

I think all of us are like, “Yes, this is why if we have disposable income, we're probably not leaving it in bags of cash in the house. We're probably not putting all of our money into just a savings account. We are very comfortable with this idea of leveraging our incomes, leveraging our money, and putting them in vehicles where they are going to do work for us.”

And what I want to invite everybody listening to this to think about is our expenses can also be leveraged. Again, I do not think they're the same thing as saving money in a tax advantage retirement account, but I do firmly believe that your expenses can be leveraged to get you more than just the thing that you are spending money on. That can be straight cash back. It can be rewards and travel, as you've heard on this podcast.

But more than anything, I want people to start feeling like they are looking at their expenses as something that they can turn into more value for them, not just looking at their assets and their money and their investments that way. And I think once you make that fundamental shift in the way that you start conceptualizing your expenses, then you start seeing so many more opportunities to truly benefit from them. And that is ultimately what I want for everybody listening to this podcast.

Dr. Jim Dahle:
All right, Devon and Lisha, thank you so much for your time being on the podcast, doing another Friends of WCI episode and helping us to learn more about credit card and travel hacking. We appreciate your time.

Dr. Devon Gimbel:
Thank you so much for opening up this conversation. It has been so much fun, and I'm so excited for your audience to hear this.

Dr. Lisha Taylor:
Same.

Dr. Jim Dahle:
Okay, I hope you enjoyed that interview as much as I did. My wife, Katie, she loves to travel. We're really blessed in that we've had the opportunity to travel more than we want to travel. And I've discovered how often I actually want to travel. For me, a couple of international trips a year is good. That's really all I want. When I'm doing three, four, five, or I'm doing a bunch of business travel, I don't like it. I don't like sitting on planes. I don't like going to airports. I don't like Ubering around new cities and staying in hotels. That's not fun for me.

But I like when I get where I'm going, that's a lot of fun. I like experiencing new things and seeing new places, but the actual process of traveling, I'm not a big fan of. Katie actually likes traveling. Sitting on the plane, she thinks that's cool, kind of like Devon does.

And if you are the type of person that loves to travel, this is a fantastic little side gig for you. To be able to take instead of $20,000 that you spend on travel in a year, maybe now you can get travel worth $100,000 a year. I think it's great for people that love to do that.

Those who don't want to put in that sort of effort of figuring out how to redeem that stuff or put in the effort to make sure you're on the best card or getting good signup bonuses, that sort of a thing. Well, maybe you're going to operate at the one-on-one level like I do. If I counted up all the credit cards in my wallet, it's probably six or seven. And I'm making sure I'm buying the right things on the right cards, but I'm not getting too involved in it.

But we're also at that point where we've been financially independent and still working now for like seven years. We don't have to do this. We can just buy the travel we want to do. We can get the flights we want with minimal hassle, et cetera. But we still do occasionally buy flights with points. So, it's not unusual to have some sort of a mixed approach to this, and that's perfectly fine.

What I want to caution you about is don't think that you can borrow your way to wealth. You cannot somehow master the travel hacking game and have that make up for the fact that you're not doing the other stuff. You still got to save 20% of your gross for retirement. You still need to take advantage of your tax protected accounts. You still need to stay the course with some sort of a reasonable investing plan. You still need to have adequate insurance. Your travel hacking is not going to help if you get disabled. You need to have disability insurance.

So, get all that other stuff in place. And then if you want to spend your additional time and effort and money on something else, this is perfectly reasonable to do. Other people delve into entrepreneurship. Maybe they build a portfolio of short-term rentals and that's where they put in the extra effort on their finances, and that's okay. Figure out your thing and do that.

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Keep your head up and shoulders back. You've got this and we can help. We'll see you next time on the White Coat Investor podcast.

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The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.

INTRODUCTION

This is the White Coat Investor podcast Milestones to Millionaire – Celebrating stories of success along the journey to financial freedom.

Dr. Jim Dahle:
This is Milestones to Millionaire, podcast number 210 – Engineer becomes a multi-millionaire with a six-figure HSA.

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All right, don't forget, WCICON is coming up. By the time you hear this, I think it's only like two weeks away or even less. But you know what? You don't have to come in person. You can come virtually, and you can get $100 off until February 27th by using code VIRTUAL100 when you sign up, when you register for the conference. We'd love to have you there virtually. We find lots of people just come virtually every year, but for others, it's a little bit of a gateway drug. They come virtually once, and it looks so fun to be there in person. The next year, they're there in person.

But either way, we'd love to have you. Go to wcievents.com, use code VIRTUAL100, and save another $100 off the conference price. Not to mention, you save the travel costs, you save the hotel costs. You save a lot when you come virtually, I suppose. But here's another $100 you can save doing it.

All right, today we've got a great interview. It's not a doctor. It's somebody else. And it's pretty cool because it's a little bit of a classic FIRE story. So, afterward, we're going to talk about FIRE, Financially Independent Retire Early, and the FIRE community, and all things about financial independence and early retirement.

INTERVIEW

Our guest on the Milestones to Millionaire podcast today is Ben. Ben, welcome to the podcast.

Ben:
Great. Great to be here.

Dr. Jim Dahle:
Tell us what you do for a living, how far you are out of school, and what part of the country you're in.

Ben:
Yeah, I live in the Midwest. I am an automotive engineer. For my job, I test vehicles, basically. I'm about 13 years since finishing grad school.

Dr. Jim Dahle:
Very cool. And this is a master's? This is a PhD?

Ben:
Yeah, I got my master's degree because when I graduated, the market wasn't so great. And so hanging out in grad school turned out to be really beneficial. And then I've been working at the same company ever since I graduated.

Dr. Jim Dahle:
Very cool. And tell us what milestone or milestones we're celebrating today.

Ben:
Yeah, I'm excited because our HSA finally hit six figures, and it's been a milestone that's kind of been on my mind for a long time. And it's harder to achieve because you're limited in how much you can contribute to an HSA. But we were just really excited to get through the six-figure HSA milestone. And then also our net worth has recently creeped over $2 million.

Dr. Jim Dahle:
Very cool. You're a multi-millionaire.

Ben:
Yeah, pretty exciting.

Dr. Jim Dahle:
Yeah. Did you ever see this happening 13 years ago? Did you ever think you'd be a multi-millionaire?

Ben:
I knew someday I would, but I didn't expect it to happen within 13 years of leaving. I thought I'd have to work for 60 years or so, and eventually I'd have a couple million when I retired. I just didn't expect how quickly it would be able to come.

Dr. Jim Dahle:
Very cool. Well, let's talk for a few minutes about the HSA. I also have a six-figure HSA. Ever since I got out of the military, I've been using a high-deductible health plan and been eligible for an HSA and maxed it out every year and invested it aggressively and really didn't withdraw from it. And when you do that, it grows pretty quickly, especially with market returns the last couple of years. Tell us the story of your HSA. How'd it become a six-figure HSA?

Ben:
Yeah. It really was an evolution though, because I just thought that it was a health account. And so, I invested minimally. I was still trying to pay off a little bit of student loans that I had. I realized quickly that this was a way to reduce the amount of taxes that I was paying. And so, I started running one of my expenses that I could through the HSA.

And then I realized that you were limited on what you could contribute through payroll based on that enrollment period. But I found out that you could contribute after tax if you wanted to, and then write that off on your taxes. So then I started to max it out, but I was still running all my expenses through it.

And then I got the idea that you had presented where if you save up this nest egg, it creates a snowball and you can basically let that money continue to grow and live off of the inertia of that. And so, that's when we decided to cut all spending on it. I basically have 10 years of receipts inside of my filing cabinet, which I can pull out at any time.

And actually that really enabled me to do something else, which was to really reduce the amount of money that I had cash on hand for an emergency fund. And instead of taking that money and just leaving it in a high yield savings account, I actually put that into a brokerage account because I know that at home I have a stack of 10 years of receipts that I can pull out at any time for my emergency fund should I need it.

Dr. Jim Dahle:
Have you added them up? How much do you have in receipts after 10 years?

Ben:
It's not that much. We've been pretty fortunate. There's probably like $20,000, I guess, that we could submit at any time. We do have a little bit of more of an emergency fund, but it's certainly helpful to know that that's available.

Dr. Jim Dahle:
Yeah, it's very cool. And sometimes people forget that you can get into these accounts for a lot of different reasons. There's a bunch of exceptions to get into retirement accounts before age 59 and a half. And of course, any receipts or expenses you have, start making HSA money accessible even before age 65 or without a new healthcare expense. So, very cool. 10 years you've been eligible to contribute to it. How many of those years do you think you maxed it out?

Ben:
I would say every one of them, maybe like the first two I didn't, but after that I did.

Dr. Jim Dahle:
Okay. So that's $5,500, $6,000, $7,000, $8,000 or so you put in there every year. And what have you invested it in?

Ben:
Just S&P 500 index funds, pretty boring.

Dr. Jim Dahle:
Well, that was a fortunate decision for the last 10 years, wasn't it?

Ben:
Yes.

Dr. Jim Dahle:
Very cool. Mine's in essentially the same thing, a total stock market index fund, which it's almost identical performance over that time period. And that certainly helped it grow without a doubt.

Okay. Well, that's awesome. And obviously a significant part of your net worth, but you're a multimillionaire. You're doing a whole bunch of things right. Let's talk about your income. What's your income average over the last 13 years?

Ben:
Well, right out of grad school, it was about $75,000. And then my wife and I have both been working recently, but originally she's just stayed at home. And so, our household income has fluctuated from that $75,000 up to about $220,000.

Dr. Jim Dahle:
Okay. Never knocking the top off the stadium by any means. For most of the people listening to this, that sounds like a very reasonable income to make $220,000. And yet, despite only making $75,000 to $220,000, you have become a multimillionaire in just 13 years, which is incredibly impressive. I assume you save quite a bit of your money.

Ben:
Yeah.

Dr. Jim Dahle:
Do you have any idea how much?

Ben:
Yeah. We have a goal to have at least a 50% savings rate.

Dr. Jim Dahle:
50% of gross or of net?

Ben:
Of net.

Dr. Jim Dahle:
Okay. So still, that's probably what? Something like 40% of gross?

Ben:
Yes. And we've been able to go over that several years, especially early on before I had learned a lot about financial independence, we had maybe too much in our savings. Some of those years to reduce the savings, we invested more. I think that that rate has gone all the way up to 90% in some years.

Dr. Jim Dahle:
Wow. Wow. This is clearly important to you.

Ben:
Yeah.

Dr. Jim Dahle:
To become financially independent relatively early. Why is it important to you?

Ben:
I just want to be able to do whatever I want and not have to be having the stress of knowing that I have to work for an employer and being able to have the flexibility to continue to work if I want to, which is likely going to happen because testing cars is an amazing job and it's a lot of fun. But I wanted to be able to have that freedom to be able to make that choice and volunteer if I wanted to instead.

Dr. Jim Dahle:
Very cool. At some point, there was a conversation with your spouse where you guys decided you were going to save a whole bunch of money that you could be spending and still be financially secure. Tell us about that conversation.

Ben:
Yeah, I think that we both had a frugal background growing up and that helped a lot. My wife helps balance that too because she helps us to make sure that we're spending and using that money for a good cause to make memories and have vacations and do things like that.

We also, just because I'm an engineer, I tend to like to optimize stuff. We like to use credit card rewards and points and just try to be really efficient in the way that we do it. Even for the groceries that we do, we just try to lean towards a little bit of optimization and not let it inconvenience us too much. But really, I feel like that's one of the huge enablers that we've had with my wife and I is we just try to optimize. The aggregation of all those marginal little gains really does add up and that's why I think we're in the situation we are today.

Dr. Jim Dahle:
You sound like you work for British Cycling. They're always talking about marginal gains and 1% improvements and those sort of things, but they do add up. You're absolutely right about that.

Well, very cool. Let's talk a little bit about your net worth. How's it divided? How much of this is home equity? How much is in retirement accounts? How much is in a taxable account? And obviously we know how much is in the HSA.

Ben:
Yeah, yeah. $120,000 in the HSA and then I have about $1.2 million in my 401(k). We've been very fortunate that our employer allows for mega backdoor Roths. And so, we've been pulling that lever every single year that I knew about it. And then we have about another $300,000 in IRAs, $200,000 in a brokerage account and $300,000 in our equity in our home.

Dr. Jim Dahle:
Very cool. I bet you can tell me your ratio of Roth to tax deferred money, can't you?

Ben:
I don't have that calculated right now, but it definitely is heavy on the Roth side. Ever since our income, we're in our higher earning years now. I've tried to shift some of that, our employee contributions are definitely traditional, but everything else is Roth.

Dr. Jim Dahle:
All right. There are people out there that maybe they're not docs, maybe they're making an income of 75,000. Not that there aren't docs making that. That's about what residents are making these days, $65,000, $70,000, maybe $75,000. They want to do what you've done. They want to have this financial success. They want to have this sort of freedom that you now enjoy by mid-career. What advice do you have for them?

Ben:
I think that the best thing to do is to get started. When I was in grad school, actually, I audited a personal finance class and the instructor told me that in order to audit his class, I would have to create a financial plan, which was a ton of work. And he said that if I didn't do that, I would have to buy mint brownies for the entire class. And as a starving college student, I was not going to fork over that kind of money.

Dr. Jim Dahle:
Better to make a financial plan than make brownies.

Ben:
Oh, yeah. Yeah. I am not going to do brownies for the class. And so, I was forced to create this financial plan. And in so doing, it helps me get off the couch, so to say, and to actually get my hands dirty. And then that financial plan created a passion for me to learn more about it and then also to make the calculations and figure out what I would need to do and how I wanted to invest things and how to make sure that my estate was taken care of.

I personally believe that that financial plan has saved me millions of dollars. And those brownies are million dollar brownies at this point. And I definitely am glad that I chose to write the plan instead of buy the brownies

Dr. Jim Dahle:
Give us a sense of what your lifestyle looks like. You mentioned you live in the Midwest, so presumably a relatively low cost of living. But tell us what you drive and what vacation looks like for you, what sort of a house you live in, et cetera.

Ben:
We were fortunate that when we graduated, it was at the bottom of the housing market in the Midwest. And so, we got our house for pretty inexpensively. But we live in the typical middle class neighborhood for vacations. We still travel. We love to go to Puerto Rico and we love to go out West to visit family that's out there. But a typical 09:00 to 05:00 job. For work, actually, I drive test vehicles every day. So every day is a different car, potentially.

Dr. Jim Dahle:
And mostly electric, I understand.

Ben:
Yeah, mostly electric.

Dr. Jim Dahle:
Yeah. So you've got a fast car.

Ben:
Yes. And so, yeah, pretty typical 09:00 to 05:00 job for the most part.

Dr. Jim Dahle:
Very cool. All right. If we had your spouse on this call with us, how would she describe your financial habits?

Ben:
That is a good question. I think she would say that I'm passionate, maybe more than she is. There's a lot of times where I come from my commute. My commute is about an hour and I'm listening to you and I come home and I'm so excited to tell her about all the things that Jim has taught me. And the kids are going crazy. And so she's like, “Ben, just calm down. I'm not ready to talk about this quite yet.” But then later on, she's really able to listen to that. And she's just so supportive. I think that she would say that I'm passionate about it. She's totally on board and supportive. And she does a lot to make sure that we're able to do what we're able to do.

Dr. Jim Dahle:
All right. Very cool. What's the end game look like? What would it take for you to loosen the purse strings, spend a little bit more money, et cetera?

Ben:
I think we do have a number in mind for being totally financially independent. At that point, we potentially might follow our kids out to school and then I could be an advisor to one of our engineering teams at college or something like that. But I think we want to be able to serve and help the communities that are around us.

I would love to actually teach some personal finance coaching type classes and just to be able to help other people. It's tough because I want to be able to tell everybody about these milestones, but it feels like you're bragging sometimes. And I think that sometimes the world receives that as bragging, but I just wish that more people understood that even with a not a doctor's, a surgeon's salary, you can still make this goal achievable. We were able to do it in 13 years. And even if it takes you 15 to 20, that's a much faster trajectory than most people think is possible.

Dr. Jim Dahle:
Yeah, for sure. That is the attitude in general out there in our culture and our society. People actually celebrate with you your milestones, your net worth. Lots of bloggers have published their net worth as they go along. Until you get to about seven figures and then nobody's celebrating with you anymore and envy rears, it's ugly head. And that's kind of a truism that I've noticed over the years.

Well, very cool. This is pretty exciting. You talk about a number where you're financially independent, that number is not much higher than where you are given what you're spending and what you have. So you will be there very quickly, I suspect barring a massive market meltdown. And so, I suspect that's your next milestone. Is that what your next goal is?

Ben:
Yes. Absolutely.

Dr. Jim Dahle:
Very cool. Well, congratulations to you, Ben, on your success. It's well-earned. You've been working hard for 13 years and obviously paying attention to all this stuff and it's paid off and you should be proud of yourself. And we're grateful for you for coming on this podcast and using it to inspire others to do the same. Thank you so much.

Ben:
Yeah. Great. Thanks, Jim. You've been a huge part of that. And I’m so grateful for all the work that you do to give us the tips and tricks and the assets that we need to be able to make this happen. Thanks so much.

Dr. Jim Dahle:
We appreciate your kind words.

FINANCE 101: FIRE

All right. I hope you enjoyed that interview as much as I did. Ben is a classic example of a FIRE person. Figured out financial independence or financial literacy early. He took a class in college that forced him to make a financial plan and there's nothing quite like starting at the beginning. If you become financially literate at the beginning and start applying all this stuff very early in your career, it's amazing what can happen.

I wouldn't say I was financially literate right at the beginning, but certainly by the time I was midway through residency, I was. And so, when I became an attending, we hit the ground running. We had a high savings rate. We were investing intelligently. We were checking the important boxes when it comes to our financial plan. And it all worked out very well.

We became millionaires about seven years out of residency, multimillionaires a few years later, and we ended up becoming financially independent at about 43 years old. I was 43, Katie's younger than I am. And that's pretty cool because it gives you independence. It gives you financial freedom, gives you the ability to choose what you want to do with your life without having to pay attention to the financial ramifications.

Everybody chooses something different when that happens. And your why matters, because as you can see, to get there and get there quickly, if you don't just become very fortunate and happen to start a company that really takes off like we did, it takes a lot of discipline. It's a lot of discipline for money that you could spend. But instead, in order to become financially independent early, you have to save, you need a big fat savings rate.

I tell people to save 20% of their gross income for retirement, more if you're saving for other goals like a second house or college savings or something like that. That's not for financially independent retire early. That's not to be financially independent at 40 or 45. That's to be financially independent at the end of your career. If you want to be done financially by mid-career, you got to save more than 20%. That's not quite enough. And in fact, your savings rate is actually the most significant number in that calculation. The more you save, the sooner you're financially independent. That's just the way it works.

As Ben mentioned, he saved one year 90% of his net income. And that's hard for a lot of us to do. It's particularly challenging if you live in a high cost of living area. And if you pay more in tax than Ben likely does. If you're making $300,000 or $400,000 or $500,000 a year, you're not going to save anywhere close to 90% of your gross income I can tell you that. Because 20, 25, 30, 35% of it is going to be going to taxes. Maybe you can get to 90% of your net income, but that's tough in a high cost of living area.

But anyway, what can you do with financial independence? Well, you can make these decisions without thinking about the financial consequences. Let me give you an example of this. I'm going to brag on Katie for a minute. Maybe she'll listen to this episode. Maybe she won't.

Katie's on the school board. She ran for election this fall while I was busy getting my head right after falling off a mountain. She was campaigning. We had a gazillion campaign signs in our garage and they're put up all over the neighborhood and she's off seeing people and at these meet the candidate nights.

Anyway, she got elected. And that's something that you can do when you're financially independent. You have time to go pursue something like that. Now it's technically a paid job. I think it pays something like $13,000 a year. It also qualifies us for health insurance, but she turned both of those down. She's actually doing this for free, just like she was volunteering in the schools on the school community councils and the PTAs and all that sort of stuff. She's doing this essentially as a volunteer thing as well.

And a lot of people don't have that option. They don't have that option in their mid-40s. They don't have that option even in their mid-50s. Why not? Because they need to be working and they need to be earning and they need to be earning more than $13,000 a year. But financial independence gives you options like that. And that's the really cool thing about it.

All right. So, how does this work? If you want to be financially independent, if you want to do it as fast as you can, well, the key is to have a plan and follow the plan just like it is anything else. Now, the sooner you get started earning the better. That's why you hear about all these people in the tech world that are in the FIRE community. Become financially independent by 32. A lot of us weren't even out of training at 32. This doesn't translate very well to the life of a doctor. But if you come out of college at 22 or 23, you get a tech job paying six figures, save $80,000 a year for the next eight or 10 years. Yeah, you become financially independent. It's pretty amazing.

The doctor version of that is likely coming out of your training in your early 30s, knocking out your student loans within a couple of years, saving some big chunk of your income, 40, 50% of your net income perhaps. And there you'll be 10 years from then, you'll be financially independent.

What do you do with the money? Well, you stuff it into retirement accounts. You invest it in taxable because most people saving that much don't have enough retirement account space to put it all in there. So, you end up with a big taxable account as well. And you invest it in some reasonable mix of low cost, broadly diversified index funds. Probably need to be relatively aggressive in the beginning, mostly in stocks, things like a total stock market fund, a total international stock market fund, maybe a little bit in a bond fund, a muni bond fund if that's appropriate for you and you're having to do it in a taxable account, those sorts of things.

I run into people as well who pick up a second gig, a lifestyle job, whatever you want to call it, of direct real estate investing. They go out and they start buying some properties, they buy a new property every year. And after eight years, they've got eight properties and a bunch of them are partially paid off and they're all cash flowing. And all of a sudden, when you look at that income, in addition to what they have saved, they're financially independent.

There's lots of different ways you can do this investment-wise, but the key is you've got to have the money to invest. And the way you do that is just by having a really high savings rate. It's probably higher than 20% of gross, it's probably something more like 40% or even 50% of gross. If you're paying 25% of your money in taxes and you're living on 25% of it, that gives you 50% that you can save. And if you do that for a decade or so, you're going to have a lot of money. That's the way it works.

I got an email the other day from a surgeon and I can't remember what the question the surgeon was asking was, but this surgeon had provided enough other information that I made an additional comment and said, “Hey, I think the surgeon was about four years out of training and had about $120,000 saved up for retirement.”

I know what surgeons make. Even the average general surgeon is something like $350,000, $400,000, $450,000 a year, something like that. Well, if you're saving 20% of that, by the time you're four years out, you probably ought to have something more like $300,000, $400,000, $500,000. And this doc was sitting there with $120,000. And so, I made a comment about the importance of maybe bumping up that savings rate a little bit more.

I don't think that situation is uncommon at all among doctors. I think a lot of doctors they come out and all of a sudden now they've got to make their student loan payments and they just bought that big house they deserve because they spent so long in school, eight years in school and five years in residency and maybe a year in a fellowship after that.

They've been deferring gratification for so long. They want that nice house now. They got a couple of payments on a Tesla. You got to have a Tesla and you got to have a nice truck and a boat to go with it. And all of a sudden that savings rate gets so low that it's not only not going to get you to FIRE by mid-career, but it might not get you to financial independence by the time you hit normal retirement age in your mid or late 60s.

So, pay attention to that. Whether you want to FIRE or not, your savings rate is a number worth calculating every year and seeing where you're at. And if you calculate it and you find you're at 18 or 19%, okay, I'm not going to yell at you. There's nothing magical about 20%. It's just kind of a rule of thumb. But if you calculate it and the rate is 6%, that's a problem. 6% is not enough. It is not enough to get you where you want to be by the end of your career. A number needs to be much closer to 20% for most doctors.

Pay attention to financial independence. It gives you a lot of options in your life. Hitting early financial independence or even retiring early might be among your financial goals. It might not be.

When I got there, I found I didn't want to stop working. I enjoyed my jobs. I enjoyed what I was doing. I thought it was a meaningful part of my life. It gave me purpose and it allowed me to help a lot of other people. I didn't quit working when I became financially independent.

Now that in itself certainly has lots of financial benefits. We're allowed to support a lot more charities than we ever thought we were going to be able to support. But you don't have to retire early. Just become financially independent. You can continue to work, but you're now working on your terms.

And I tell you what, it is fun to work on your own terms. I work the number of shifts I want to work with my group. I work the types of shifts I want to work with my group. Nobody even asks me to be on committees anymore because they kind of know the question they're going to get. I'm still on a couple of committees. I help with the 401(k) committee and I help with the recruitment committee. But nobody's coming to me and asking me to be the medical director because they know the answer is going to be no if they ask. And that's okay. I'm working on my terms and that's what you can do when you become financially independent.

Work hard. Make sure you're getting paid fairly. Save a big chunk of your money. Determine your financial goals. Write them down. Make a written financial plan and follow it. You'll be amazed what you can accomplish in the first 10, 15, 20 years of your career.

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That's maybe something else we ought to mention while we're talking about financial independence. The fun thing about locums is they generally pay your expenses too. So if you come out of residency and you do nothing but locums, they're paying all your living expenses plus paying you a pretty darn good wage. And so, all of a sudden, your expenses go way down, your income goes way up, very high saving rates are possible. And all of a sudden, five, six, seven years, you're looking at financial independence.

It's pretty magical. If this is important to you, it is still possible as a doc. You're probably not going to be financially independent at 32, but it is hardly impossible to be financially independent by 40, if that's something that's really important to you.

All right, this has been the Milestones to Millionaire podcast. We'd love to have you on this podcast. You can apply at whitecoatinvestor.com/milestones, and we'll bring you on, celebrate your accomplishments and use them to inspire others to do the same.

Until next week, keep your head up, shoulders back. You've got this. We'll see you next time on the podcast.

DISCLAIMER

The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.