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Principles of Reward Finance


Finance is all about managing things of value. Each of us makes financial decisions every day when we thoughtfully consider how to earn, spend and invest money. We believe that, in a similar way, we should also make thoughtful decisions about rewards. Here, we outline the central philosophy that guides our reward advice. We call these the Principles of Reward Finance.

What is Reward Finance?

Reward Finance is the term we’ve coined to describe the application of traditional financial concepts to how we each make decisions about the use of frequent-flyer miles, hotel points and credit card rewards. Our key Principles of Reward Finance are as follows:

  1. Rewards are assets
  2. Credit is a source of value
  3. Maximize return on redemptions
  4. Optimize risk
  5. Act now

Let’s dig in.

Principle 1. Rewards are assets

A currency is anything that can be exchanged for something of value. Points, miles and other rewards are currencies in that they can be exchanged for travel — which is really valuable! They can sometimes be used for other things, but usually at a much lower value. Clearly rewards are currencies. That makes them assets!
Cash is a better currency. Cash has more uses, is fungible, and doesn’t have restrictions like limited availability. The same dollar bills that you earn from your paycheck can be used with any vendor in the country. Rewards have many restrictions, so we definitely want to use them in place of our precious cash.

Principle 2. Credit is a source of value

When it comes to earning rewards, there is simply no avoiding the fact that the best source – by far – is earning through credit card spending and sign-on bonuses. While flying across the globe might earn you a few thousand points here and there, a single credit card approval could easily net you tens of thousands of rewards. The type of cards that earn the best rewards for travel are ‘premium’ cards, and the only way to get approved for them is to have good credit (a score of 720 or more should do it). When making reward decisions, we always keep credit score in mind. In Reward Finance, good credit is your best friend. It’s the reason why people who manage Reward Finances tend to have great credit.

Don’t fear credit card applications. Most people don’t really understand how credit works. There are so many common misconceptions about credit that the common knowledge has gone awry. This is particularly true when it comes to applying for new credit cards. The old-world thinking is that applying for credit cards is inherently bad. This may have been true decades ago, before credit cards became the norm. Nowadays, Americans spend about $550,000 per minute online, and the internet doesn’t take cash!

Applying for a new credit card has a small impact to your score. This impact is temporary, and literally if you apply for a card and did nothing else, your score would likely improve simply from adding additional borrowing power and over time the credit ‘hard-pull’ will dissipate. Credit agencies are even exploring removing all impact from credit card applications. It’s that unimportant to what they’re actually trying to measure.

Principle 3. Maximize value

The primary goal of Reward Finance is to maximize our overall cash savings. This doesn’t mean you should never pay cash for travel. On the contrary, it means that sometimes it makes more sense to pay cash for travel if the rewards you would have used can be used in the future to save even more cash.

  • Example: suppose I have 5,000 points and want to visit 2 hotels in the next few months. The first hotel would cost me $125 per night, and the second would cost $200 per night. If each can be booked with the same 5,000 points I’m better off paying cash for the first hotel and using my points for the second hotel. Overall I’m $75 richer than if I paid for the first hotel with points and the second in cash.

Because of the complex nature of reward programs, the best way to maximize value is with a computer algorithm that knows how to analyze your situation and what options are available to you. RewardStock is the first of its kind solution that solves this challenge. Getting the most value from reward programs involves at least taking advantage of:

  • Partnerships: Many programs partner with each other, allowing you to use rewards from one program to purchase travel with a different provider
  • Transfers: Some programs have the ability to completely convert rewards from one program into rewards from another program, and different exchange rates apply depending on the program
  • Non-standard Redemptions: Often, even within a single program, there are better value redemption options that can save you thousands of points if you know what to look for

Principle 4. Optimize risk

If you can earn rewards with little downside risk, do. No investor wants to leave money on the table. If a given situation poses no downside risk, you should clearly claim the value that is available to you in the form of rewards.

If you can earn rewards with significant downside risk, don’t. When faced with an opportunity to generate huge amounts of value, it’s easy to go overboard. But simply put — don’t. There are enough legitimate ways to earn plenty of rewards for travel that it just isn’t worth pushing the limits. Sometimes extreme attempts at acquiring more rewards bring risks in the form of credit impacts, increased debt that can’t be paid off quickly, making significant interest payments, or using strategies that are clearly loopholes or that could result in account closures. We do not advocate strategies that pose these risks.

Pace yourself. Don’t attempt to move too fast at once. Most people should not be applying for dozens of credit cards at a time. On the other side of the coin, most people should re-evaluate their portfolio of credit cards at least once a year, and be willing to get new cards where appropriate.

Have a reasonable tolerance for credit cards, and stick to it. If you’re comfortable with only 1 or 2 new cards per year, you can achieve a lot. Be diligent, earn your rewards, and maximize their use.

Principle 5. Act now

There are many reasons to start now. Wherever you are in the reward process. Maybe you don’t have a trip to plan at the moment. You should still be earning rewards and planning ahead.  Here are some of the reasons to act now:

  • Rewards tend to lose value over time, don’t let your hard earned rewards get devalued before you use them
  • You need to plan ahead for the best results – we recommend at least 9-12 months in advance in advance. This gives you time to earn rewards if you need to, and also gives you the best chance at availability
  • Offers go away, and you don’t want to miss out because you waited to long to act
  • The point of all of this is to get out and see the world! So go travel somewhere!


If you’ve made it this far, you should now have a very solid foundation for the finance principles behind Reward Finance. Congratulations!

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