Biggest Finance Mistakes in the FI Community

[user43423]

I'm curious which areas people feel those in the FI community leave the most money on the table, so to speak.

Two things come to mind for me:

• Churning Credit Cards: There should be far more attention paid to the benefits of churning credit cards and using them for everything. A good rewards card can more or less earn you free vacations every single year, and save additional thousands on repairs for out of warranty items, as well as basic insurance against some levels of theft, damage, and manufacturer defect. People should put every single purchase they can on cards, but I almost never see this stressed outside of the churning communities like Flyertalk
• Learning to Cook Well: I know many people in the FI community eat in because it's cheaper, but I mean really knowing how to cook well. Buying prepared food from the Supermarket instead of going out is a good first step. But if one is able to take a few, healthy/raw ingredients and make something delicious and healthy, the long term effects are staggering. Other than the obvious benefit of saving money on dining out, your long term health care costs will likely be significantly reduced because of greater overall health

What other areas do you think people overlook that can lead to huge savings down the road?

[Cheddar Stacker]

Paying off debt too quickly. I'm still shocked the poll I started over the summer resulted in ~75% of people voting they would pay down/off debts rather than invest heavily in a scenario where a reasonable person would ask themselves that question. But, there are a lot of ways to accomlish your goals. Not one size fits all.

[user43423]

Paying off debt too quickly. I'm still shocked the poll I started over the summer resulted in ~75% of people voting they would pay down/off debts rather than invest heavily in a scenario where a reasonable person would ask themselves that question. But, there are a lot of ways to accomlish your goals. Not one size fits all.

What was the situation you gave? Something like paying off a 4% mortgage versus putting that money in an index fund?

[Grid]

Paying off debt too quickly. I'm still shocked the poll I started over the summer resulted in ~75% of people voting they would pay down/off debts rather than invest heavily in a scenario where a reasonable person would ask themselves that question. But, there are a lot of ways to accomlish your goals. Not one size fits all.

What was the situation you gave? Something like paying off a 4% mortgage versus putting that money in an index fund?

It's here.  (Beat you to it CS!)

[user43423]

Paying off debt too quickly. I'm still shocked the poll I started over the summer resulted in ~75% of people voting they would pay down/off debts rather than invest heavily in a scenario where a reasonable person would ask themselves that question. But, there are a lot of ways to accomlish your goals. Not one size fits all.

The answer is really "It depends", but I have seen many make the same mistake. I just finished paying off $80k of student loans last year, but they were at 8% so I feel like I made the right choice.

[fields]

Can you say more about churning credit cards?  It seems like a lot of bother for little return.  What am I missing?

[Paul der Krake]

Can you say more about churning credit cards?  It seems like a lot of bother for little return.  What am I missing?

Signup bonuses are where the real value lies. The 1-2% for purchases is just a very thin layer of icing on the big, fat, morbidly delicious cake.

[deborah]

Paying off debt too quickly. I'm still shocked the poll I started over the summer resulted in ~75% of people voting they would pay down/off debts rather than invest heavily in a scenario where a reasonable person would ask themselves that question. But, there are a lot of ways to accomlish your goals. Not one size fits all.

Depends upon your particular tax situation. In Australia, investment earnings are taxed, but PPOR payments are not, so you actually need quite a high earning investment to match the guaranteed return on paying off your mortgage. This is just one example  of when asking a really broad question gives a different  "best answer" in different situations.

[Cheddar Stacker]

Paying off debt too quickly. I'm still shocked the poll I started over the summer resulted in ~75% of people voting they would pay down/off debts rather than invest heavily in a scenario where a reasonable person would ask themselves that question. But, there are a lot of ways to accomlish your goals. Not one size fits all.

The answer is really "It depends", but I have seen many make the same mistake. I just finished paying off $80k of student loans last year, but they were at 8% so I feel like I made the right choice.

I agree, you did. 8% is too high in this environment. I was intentionally vague in the poll. We always discuss 4-6% being a range where you might consider investing. Anything above that is a no brainer.

[RetiredAt63]

The argument for/against paying off a mortgage is also country-dependent.  If the mortgage interest is not a tax-deduction, it may make more sense to pay it off. 

[Cheddar Stacker]

Paying off debt too quickly. I'm still shocked the poll I started over the summer resulted in ~75% of people voting they would pay down/off debts rather than invest heavily in a scenario where a reasonable person would ask themselves that question. But, there are a lot of ways to accomlish your goals. Not one size fits all.

Depends upon your particular tax situation. In Australia, investment earnings are taxed, but PPOR payments are not, so you actually need quite a high earning investment to match the guaranteed return on paying off your mortgage. This is just one example  of when asking a really broad question gives a different  "best answer" in different situations.

I'm sure there are many scenarios where it makes mathematical sense to pay down debts first. No argument from me there.

Where you can argue it can be a "mistake" is when pshychology trumps mathematics. Not in all circumstances, in some instances people might literally feel crushed by even holding small debts. But there are a lot of answers in that thread where it seems like reason and accountability are trumped by fear.

It was just very surprising to me, that's all.

[LRM]

posting to follow

[kpd905]

Can you say more about churning credit cards?  It seems like a lot of bother for little return.  What am I missing?

I'd say you're missing about $5000/year in money and travel credit, for a few hours of your time.

I'd estimate that it takes me around 20 minutes to sign up for a card, and hit the minimum spend (Amex Serve), so the return is somewhere around $1000-1500 per hour.  If I round up to an hour to pretend I'm researching every card, it is still about $300-500 per hour.

Here is a list of cards, updated when new offers come out: http://www.flyertalk.com/forum/credit-card-programs/1177334-special-credit-card-offers-master-thread-subscription.html

[user43423]

Can you say more about churning credit cards?  It seems like a lot of bother for little return.  What am I missing?

I haven't paid for a vacation in maybe 5 years. All my personal airfare has been completely free because I sign up for credit cards and receive the signup bonuses. Usually these are valued in the $500 - $800 range. I like my vacations, and the monetary value of what I spend on them each year is probably a little over $2k. By churning cards, I'm effectively saving $2k extra every single year that I would have spent on vacation instead. That can add up for a pretty penny over time.

[user43423]

Can you say more about churning credit cards?  It seems like a lot of bother for little return.  What am I missing?

I'd say you're missing about $5000/year in money and travel credit, for a few hours of your time.

I'd estimate that it takes me around 20 minutes to sign up for a card, and hit the minimum spend (Amex Serve), so the return is somewhere around $1000-1500 per hour.  If I round up to an hour to pretend I'm researching every card, it is still about $300-500 per hour.

Yup. Some people get really crazy with it, but I just check a couple blogs a few times a week, look for the top offers out there, and probably churn 4-5 cards a year for $4k - $5k in total value. Not much time spent, not much effort, and some real nice savings.

[dungoofed]

Maybe the credit card thing works better in the US. I have tried pumping spending through the card in the past but never really received much more than a few department store vouchers for my wife. Same with frequent flier miles. Eventually I decided cash was worth it for the privacy benefits, but I understand not everyone cares about this.

Regarding cooking, or outsourcing anything for that matter, I can see the benefit if your time is better spent elsewhere.

Personally I think the biggest mistake in the FI community is having a cult-like mindset regarding index investing.

[chasesfish]

Don't you eventually run out of banks willing to pay you?

I've had Citi, Chase, Amex x 2, plus a few others.

Don't these major issuers catch on when you try to do it again?

[kpd905]

You can get Chase cards again 2 years after you got a bonus.  So I am going to grab the United card and the Chase Sapphire Preferred again in the next few months, giving me another 90,000 United miles.

Other banks have different amounts of time you need to wait.  With the Citi Hilton card, people on Flyertalk have reported getting 10+ in one year, so 500,000 Hilton points.  Not the best value per hard pull, but still worth over $2000 at least.

[WYOGO]

I think churning cards for airline miles to take vacations you may not have taken in the first place is strangely similar to shopping on Black Friday. Often times these "too good to pass up" deals while exceptional may not be needed or things you intended on doing in the first place.

My card strategy is somewhat different. I have a couple solid cash back cards that give 5% in rotating categories with no annual fees. I use these to max out the categories of groceries and gas by buying gift cards in the same category or for things like restaurants I know I will eat at when traveling for work or vacation and essentially earn this higher 5% rate over the things I purchase all year long. A particularly lucrative example is to buy a gift card at a grocery store for $500. You will get 5% back automatically in the category for the purchase. The purchase earns you 2X the points which saves you $1 per gallon at a participating gas stations up to 35 gallons. Use your other card that is offering 5% at gas stations to pay for the discounted fuel you earned by buying the gift card. Total potential savings in this simple transaction is over $60.

The difference between this and getting free airline miles to go to Mumbai and stay three nights in a the Ritz Carlton is that it is much easier to develop desires you never knew you had and this does not save money.

On the other hand almost everyone can benefit from no fee savings on groceries and fuel. Almost...

[mxt0133]

I was just introduced to the credit card churn and rewards travel.  I use mile but I never spend that much so I didn't think that credit card churning was good for me.  Then I was introduced to manufactured spending via a course provided from two forum members.  If you are curious about the basics and strategies I recommend you check it out*, it's completely free and the guys that run it are great.  They give great feedback and the other members are also very helpful.

As for developing spendy habits my highest expenses are air travel, for a family of 5, by far.  I try to stay with friends or family and mostly cook while we travel.  We don't do expensive resorts or theme parks, that's right I'm talking to you Mr. Disney.  So if I can get my air travel paid and some hotels for then that will save me $4-6K a year which significantly lowers my FI number.

*http://www.travelmiles101.com/travel-rewards-course-registration

[happy]

Following

[fields]

I just got an amex card that pays 6% on groceries, which is fantastic. But, it has a 75$ annual fee.  This year that will be offset by a $100 bonus if I spend $1000 in the first three months.  But what about next year? Do I cancel the card then?

[kpd905]

I think churning cards for airline miles to take vacations you may not have taken in the first place is strangely similar to shopping on Black Friday. Often times these "too good to pass up" deals while exceptional may not be needed or things you intended on doing in the first place.

My card strategy is somewhat different. I have a couple solid cash back cards that give 5% in rotating categories with no annual fees. I use these to max out the categories of groceries and gas by buying gift cards in the same category or for things like restaurants I know I will eat at when traveling for work or vacation and essentially earn this higher 5% rate over the things I purchase all year long.

Using 5% back cards isn't bad, but hitting sign up bonuses will get you anywhere from about 20-75% back on all of your spending.

I don't really agree with the Black Friday comment.  I would be taking vacations whether I knew about churning credit cards or not, so now I have brought my annual vacation expense close to zero while still enjoying the same vacations (hit five national parks last year).  This allows me to throw more money at my student loans or into investments.

[Emilyngh]

I just got an amex card that pays 6% on groceries, which is fantastic. But, it has a 75$ annual fee.  This year that will be offset by a $100 bonus if I spend $1000 in the first three months.  But what about next year? Do I cancel the card then?

Do the math.  If the most you'd get with another card is 1%, does the 6% you're getting from this card offset the fee?   Simple math will reveal your answer.   Also, when the time comes and they charge the fee, you can call and ask them to waive it.   I'd just do the math first in case they won't.

We have the Amex that give 6% on groceries and 3% on gas and the math works out that it's still the best deal to use, even with the fee.   We have a 2% card that we then use for everything that's not gas or groceries.

Regarding sign up bonuses in general: I spent about the last year churning through all of the sign up bonuses, made several thousand tax free for minimal effort, but now am afraid that I've done them all and will have to wait a few years before cycling through again *sniff*.   

[PatStab]

We just don't do debt.
Also paid cash for most of our homes.
We don't pay interest on anything ever, the savings can be substantial
Pay cash for our vehicles

Live within our means
I've been at home for years now
Raise a garden
Can produce
Cook at home, yes we eat out
Need to reduce food waste
Buy meat from farmer, chickens are wonderful
meat is sometimes.  Price is much higher, going
to try the amish this year.

I'm going to reduce spending on clothes, I spend
way to much on them, we have racks of clothing
in the basement.  I also sew and have enough
material and supplies for rmany years.

[tomsang]

Biggest Finance Mustakes in the FI Community

We just don't do debt.
Also paid cash for most of our homes.
We don't pay interest on anything ever, the savings can be substantial
Pay cash for our vehicles

Yes those can be huge mistakes, yet some people are so anti debt that they don't see that they are financially hurting their time to FI and their financial success due to emotions vs. math.

[user43423]

I think churning cards for airline miles to take vacations you may not have taken in the first place is strangely similar to shopping on Black Friday. Often times these "too good to pass up" deals while exceptional may not be needed or things you intended on doing in the first place.

My card strategy is somewhat different. I have a couple solid cash back cards that give 5% in rotating categories with no annual fees. I use these to max out the categories of groceries and gas by buying gift cards in the same category or for things like restaurants I know I will eat at when traveling for work or vacation and essentially earn this higher 5% rate over the things I purchase all year long. A particularly lucrative example is to buy a gift card at a grocery store for $500. You will get 5% back automatically in the category for the purchase. The purchase earns you 2X the points which saves you $1 per gallon at a participating gas stations up to 35 gallons. Use your other card that is offering 5% at gas stations to pay for the discounted fuel you earned by buying the gift card. Total potential savings in this simple transaction is over $60.

The difference between this and getting free airline miles to go to Mumbai and stay three nights in a the Ritz Carlton is that it is much easier to develop desires you never knew you had and this does not save money.

On the other hand almost everyone can benefit from no fee savings on groceries and fuel. Almost...

I've always taken vacations and likely always will as I think they're important. When I travel, I usually stay with friends or family, and very rarely stay at hotels. When I do, it's with points or I go really cheap at hostels or Airbnb.

I live in NYC so have $0 fuel expense (ride a bike everywhere), and get 3 free meals a day from my employer so my grocery bills are pretty minimal too. But I understand that I'm an outlier in this regard.

[user43423]

I just got an amex card that pays 6% on groceries, which is fantastic. But, it has a 75$ annual fee.  This year that will be offset by a $100 bonus if I spend $1000 in the first three months.  But what about next year? Do I cancel the card then?

Yeah I usually cancel the card once the annual fee kicks in. If you call, they may throw a few more points your way to keep the card or waive it altogether. The only two cards that I permanently keep are the Chase Sapphire Preferred and Amex Starwood Preferred card as these are the two best when it comes to rewards.

Everything else I'll churn through based on the current bonuses.

[user43423]

I think churning cards for airline miles to take vacations you may not have taken in the first place is strangely similar to shopping on Black Friday. Often times these "too good to pass up" deals while exceptional may not be needed or things you intended on doing in the first place.

My card strategy is somewhat different. I have a couple solid cash back cards that give 5% in rotating categories with no annual fees. I use these to max out the categories of groceries and gas by buying gift cards in the same category or for things like restaurants I know I will eat at when traveling for work or vacation and essentially earn this higher 5% rate over the things I purchase all year long.

Using 5% back cards isn't bad, but hitting sign up bonuses will get you anywhere from about 20-75% back on all of your spending.

I don't really agree with the Black Friday comment.  I would be taking vacations whether I knew about churning credit cards or not, so now I have brought my annual vacation expense close to zero while still enjoying the same vacations (hit five national parks last year).  This allows me to throw more money at my student loans or into investments.

Exactly. If you never take vacations, then I get the argument but I think most people do (and probably should) take some form of it. Vacations/travel tend to be pretty expensive, but if you're creative, you can really minimize your travel bill. For example, I rent a spare room in my apartment on Airbnb while I'm there and have made friends across the world through that. I book travel based on who I can visit and when, and get to stay with them for free and a couple nice meals. While I'm gone, I can rent out my entire home on Airbnb for about 2x of what I get for the room, bringing me even more income while I travel.

So I just use points/miles to fly for free, stay with a friend for free, and rent out my home while I'm gone for $200+ per night for 2 weeks. I come back wealthier than I left.

[PatStab]

We didn't hurt ourselves, net worth is $1.4M

[ioseftavi]

Aversion to productive debt.  Paying cash for a home vs. having a conventional, low-interest mortgage is an example of this.

Tendency to hold more cash than needed - sometimes lots more.

Optimizing unimportant/less important stuff.  This one is broad and hard to nail down.  Basically, work on the part of your FI picture (income / expenses / portfolio) that needs the most work, if one of them is severely out-of-whack. 

If you're fiercely underpaid for your field, or not making enough money to move the needle on FI/RE, you should be focusing on getting another job - not trimming expenses by $20 per month.  If you have hair-on-fire high interest debt, quick dicking around with your portfolio allocation and pay off your debt.  If you have a piece of property that's hemorrhaging money or a portfolio allocation that is out of whack: stop fiddling with your expenses and fix your 'stash.  If you've got a solid income and your expenses are out of control, stop pursuing a new job until you get a handle on your expenses. 

I know that we're all interested in further optimizing, but if you have to pick one thing to optimize, pick the one that's going to make the biggest difference.

[Iron Mike Sharpe]

It might be because I am single, but I find it nearly impossible to churn credit cards.   I just don't have that much I need to spend money on.  And a lot of what I do, I can't put on credit cards:  mortgage,groceries at Aldi's, etc.

I was able to do a Soutwest card last year.  Only needed to spend $1000 in three months, but I had a few bigger items I needed / wanted to buy.

[Breaker]

Just posting to follow along and be able to come back and find the websites when I have time.

[RootofGood]

I'm with you on the learning to cook well and churning cards.  We do both. 

We spend around $500/month on food for the 5 of us, but only spend maybe $25-75/month on dining out (mostly take out).  It's crazy up in our kitchen ALL DAY!! 

I got lazy churning cards last fall but I'm back on it now.  Working on 2 British Airways cards for another 100k avios pts (free flights to central America anyone? :) ).  This turns our $5,300 travel budget into an effective $10-15k when we book flights or hotels using points. 

+1 on the failure to keep good debt, too.  I consider rates under 4% to be "good debt" but YMMV depending on your tax situation and overall finances and FIRE goals.  We also have student loan debts at 0.75% that I'm happy to hold forever or until they are forgiven (and there's a thread on that, too). 

[RootofGood]

It might be because I am single, but I find it nearly impossible to churn credit cards.   I just don't have that much I need to spend money on.  And a lot of what I do, I can't put on credit cards:  mortgage,groceries at Aldi's, etc.

You can buy a prepaid visa card at the grocery store (also available at officemax/depot type stores).  Sometimes they let you use a credit card, other times not. 

A $500 card has a $6 activation fee IIRC.  So meeting a $2000 minimum spending requirement leads to $24 in fees, then you can use the visa card you bought at aldi (it works as a debit card).  For me, I can get 11 one way plane tickets for $24 that way (Chase BA card). 

[Gone Fishing]

Funding Roth or Taxable accounts when it doesn't make sense.  See this one on the forum all the time!

[bzzzt]

It might be because I am single, but I find it nearly impossible to churn credit cards.   I just don't have that much I need to spend money on.  And a lot of what I do, I can't put on credit cards:  mortgage,groceries at Aldi's, etc.

Home improvement projects? The materials for insulating my attic netted my last bonus. I don't fly much, so I usually cash them out as a statement credit or gift cards. The $500 Home Depot gift card will pay for the materials to re-work some duct work in the crawl space and insulate, which freed up some cash for a new mountain bike to replace my childhood bike that has been retired to street rides.

[user43423]

Funding Roth or Taxable accounts when it doesn't make sense.  See this one on the forum all the time!

Yeah this is also a good one that I myself am guilty of. I had contributed to a Roth IRA the past couple years when I absolutely should've been going the tIRA route instead. Live and you learn I guess.

[Mississippi Mudstache]

Funding Roth or Taxable accounts when it doesn't make sense.  See this one on the forum all the time!

Yeah this is also a good one that I myself am guilty of. I had contributed to a Roth IRA the past couple years when I absolutely should've been going the tIRA route instead. Live and you learn I guess.

I'm guilty as well. 2014 was the first year that I put 100% of my retirement savings into tax-deferred accounts.

[sleepyguy]

Agreed, free rooms and air fare is where it is.  We usually opt for a free room in a nice area.  We'll send the kids over to the grandparents then have cheap weekend by the lake with a free hotel stay.

Can you say more about churning credit cards?  It seems like a lot of bother for little return.  What am I missing?

Signup bonuses are where the real value lies. The 1-2% for purchases is just a very thin layer of icing on the big, fat, morbidly delicious cake.

[bzzzt]

Yeah this is also a good one that I myself am guilty of. I had contributed to a Roth IRA the past couple years when I absolutely should've been going the tIRA route instead. Live and you learn I guess.

I've been contributing to a tIRA, but is there a good FIRE article on when to pick one or the other?

[BarkyardBQ]

I just got an amex card that pays 6% on groceries, which is fantastic. But, it has a 75$ annual fee.  This year that will be offset by a $100 bonus if I spend $1000 in the first three months.  But what about next year? Do I cancel the card then?

This card is our primary card for everything. We also have Discover and Chase Freedom for Quarterly Rewards 5% on Gas, Home Improvement etc.

We track our yearly projected spending/budget against the proper cash back for each card and category it returns, subtract the fee and we get back 2% of our spending. The bonus is nice, but not the only benefit.

[user43423]

Yeah this is also a good one that I myself am guilty of. I had contributed to a Roth IRA the past couple years when I absolutely should've been going the tIRA route instead. Live and you learn I guess.

I've been contributing to a tIRA, but is there a good FIRE article on when to pick one or the other?

From Reddit:

For most FI’ers, a Traditional IRA/401(k) is the better option- most FI’ers have work income that far outpaces expenses, so their future marginal tax rate (when their only income will be from withdrawals from investments for expenses) is likely to be less than their current marginal tax rate.

However, Roth IRAs do have a few advantages over Traditional IRAs that are worth consideration:

• If your income is over a certain range (in 2013, if your employer offers a retirement plan at work the limits are $59,000 if single, $95,000 if married filing jointly), Traditional IRA contributions are not tax deductible, and Roth IRAs are your only option (other than 401(k)s and HSAs). The income limits for contributions to a Roth IRA are $116,000 (single) and $183,000 (married filing jointly), nearly double the Traditional IRA income limits.
• Contributions (NOT earnings) to a Roth IRA, as well as conversions (from a Traditional IRA/401(k)) can be withdrawn at any time. This means that FI’ers can dip into their Roth IRA (and by extension, Traditional IRA and 401(k)) well before age 59 1/2. See the MMM link in the preceding section.
• If U.S. tax code changes such that your future withdrawals are taxed at a higher tax rate than your current income, then you would make out better under a Roth IRA than a traditional IRA. However, this is essentially making a bet on long-term U.S. tax policy.

[WYOGO]

I think that both types of IRA's are vitally important and serve a purpose along the path to financial independence and are essential to the laddering process. The question is not which, but rather when to use each one.

As it relates churning credit cards for travel, those in the "FI community" that are highly focused on directing every available resource to procuring their freedom at the first available opportunity during the wealth building stage will find travel hacking to be used far less frequently than those already financially independent.

It is unrealistic to think you will incur no travel expenses doing this. Even an 80% cost savings still requires 20% capital to be directed to something that may not need to be during this stage. There is also pressure to use all the points before they expire, redeem in a certain period affecting expenses on other parts of the trip, have account activity within a certain period, keep cars a day longer to get the full benefit, limitations on what may be combined per trip adding further expense, shortages that result in mileage purchases...all resulting in capital being diverted from potential savings and investments.

This is not a conversation about the value of it, but again at what stage along the journey it may be appropriate. During the wealth building stage, trips to Perth are less important than savings on groceries and gas in my opinion. I have over 6 weeks of paid vacation per year and use every single day with most expenses fully covered as my vacations are domestic in nature. There should be plenty of time to go to Perth and Frankfurt in a few years...

In the final analysis, a failure to travel hack is not a mistake for those in the wealth building stage with other, let's call them "priorities" at the moment. Also, most certainly if you have debt then your role in this conversation should be self-evident...

[Cheddar Stacker]

Aversion to productive debt.  Paying cash for a home vs. having a conventional, low-interest mortgage is an example of this.

Tendency to hold more cash than needed - sometimes lots more.

Optimizing unimportant/less important stuff.  This one is broad and hard to nail down.  Basically, work on the part of your FI picture (income / expenses / portfolio) that needs the most work, if one of them is severely out-of-whack. 

If you're fiercely underpaid for your field, or not making enough money to move the needle on FI/RE, you should be focusing on getting another job - not trimming expenses by $20 per month.  If you have hair-on-fire high interest debt, quick dicking around with your portfolio allocation and pay off your debt.  If you have a piece of property that's hemorrhaging money or a portfolio allocation that is out of whack: stop fiddling with your expenses and fix your 'stash.  If you've got a solid income and your expenses are out of control, stop pursuing a new job until you get a handle on your expenses. 

I know that we're all interested in further optimizing, but if you have to pick one thing to optimize, pick the one that's going to make the biggest difference.

Good post Tavi!

Very closely tied to opportunity cost accross the board. I'm currently paying $45/month on my cell phone (gasp) among other silly expenses. But I'm too busy at work to focus on much else, and I'm spending my free time flipping a house, the profits of which could pay that cell phone bill for 30-50 lifetimes. When you can't do both, pick the bigger win.

[ioseftavi]

Good post Tavi!

Very closely tied to opportunity cost accross the board. I'm currently paying $45/month on my cell phone (gasp) among other silly expenses. But I'm too busy at work to focus on much else, and I'm spending my free time flipping a house, the profits of which could pay that cell phone bill for 30-50 lifetimes. When you can't do both, pick the bigger win.

Thanks Cheddar!  Yeah, I think it definitely comes down to opportunity cost...the value of a change has to be weighed against the other tweaks you can make.  Every 'optimization' requires time and effort; we need to focus on the ones that are going to move the needle the most.

Also, keep us posted on your flip!

[WYOGO]

Using 5% back cards isn't bad, but hitting sign up bonuses will get you anywhere from about 20-75% back on all of your spending.

I don't really agree with the Black Friday comment.  I would be taking vacations whether I knew about churning credit cards or not, so now I have brought my annual vacation expense close to zero while still enjoying the same vacations (hit five national parks last year).  This allows me to throw more money at my student loans or into investments.

Hard cash is rarely given freely...

Domestic trips are far less expensive than the associated international travel and expense.

Last year I went to Monument Valley, Arches, Canyonlands, Mesa Verde National Park, Black Canyon of the Gunnison National Park, Great Sand Dunes National Park, Rocky Mountain National Park, Glacier National Park and Devils Tower National Monument. The impact outside of fuel at reduced rates was almost nothing.

I will increase my travel in scope, variety and expense as greater levels of freedom are attained. Make no mistake, financial independence is far more important than delays that may be incurred due to certain vacation types that otherwise should be postponed. And that is my perspective even with a personal savings rate that hovers consistently at around 80%.

Remember taking kick ass vacations does not necessarily have to mean Phuket...

[BarkyardBQ]

Optimizing unimportant/less important stuff.  This one is broad and hard to nail down.  Basically, work on the part of your FI picture (income / expenses / portfolio) that needs the most work, if one of them is severely out-of-whack. 

If you're fiercely underpaid for your field, or not making enough money to move the needle on FI/RE, you should be focusing on getting another job - not trimming expenses by $20 per month.  If you have hair-on-fire high interest debt, quick dicking around with your portfolio allocation and pay off your debt.  If you have a piece of property that's hemorrhaging money or a portfolio allocation that is out of whack: stop fiddling with your expenses and fix your 'stash.  If you've got a solid income and your expenses are out of control, stop pursuing a new job until you get a handle on your expenses. 

I know that we're all interested in further optimizing, but if you have to pick one thing to optimize, pick the one that's going to make the biggest difference.

I think that both types of IRA's are vitally important and serve a purpose along the path to financial independence and are essential to the laddering process. The question is not which, but rather when to use each one.

As it relates churning credit cards for travel, those in the "FI community" that are highly focused on directing every available resource to procuring their freedom at the first available opportunity during the wealth building stage will find travel hacking to be used far less frequently than those already financially independent.

It is unrealistic to think you will incur no travel expenses doing this. Even an 80% cost savings still requires 20% capital to be directed to something that may not need to be during this stage. There is also pressure to use all the points before they expire, redeem in a certain period affecting expenses on other parts of the trip, have account activity within a certain period, keep cars a day longer to get the full benefit, limitations on what may be combined per trip adding further expense, shortages that result in mileage purchases...all resulting in capital being diverted from potential savings and investments.

This is not a conversation about the value of it, but again at what stage along the journey it may be appropriate. During the wealth building stage, trips to Perth are less important than savings on groceries and gas in my opinion. I have over 6 weeks of paid vacation per year and use every single day with most expenses fully covered as my vacations are domestic in nature. There should be plenty of time to go to Perth and Frankfurt in a few years...

In the final analysis, a failure to travel hack is not a mistake for those in the wealth building stage with other, let's call them "priorities" at the moment. Also, most certainly if you have debt then your role in this conversation should be self-evident...

These two concepts applied together are gold.

[HawkeyeNFO]

Signup bonuses are where the real value lies. The 1-2% for purchases is just a very thin layer of icing on the big, fat, morbidly delicious cake.

Unless you get into manufactured spending.....If you can do it efficiently, manufactured spending can be VERY lucrative, exponentially more than the signup bonuses. 

[tomsang]

We didn't hurt ourselves, net worth is $1.4M

What?  You were posting in the forum for the biggest finance mistakes.  You did hurt yourself, the question is by how much.  You can take the value of your house at 80% and compare that with a 3.5% mortgage vs. what the stock market would have done over that period of time.  I think you will see that you left a few hundred thousand on the table.