You HAVE To Run the Numbers!

IMG_8384-634Bird Shoal near Beaufort, North Carolina

I subscribe to a number of email lists.

Among other things, I enjoy reading what’s on the minds of the movers and shakers in the world of online business and travel.

Ramit Sethi is the author of the well-known but unfortunately named site, I Will Teach You To Be Rich. Despite the name, he actually offers solid advice and guidance in a number of areas.

I recently subscribed to his list.

He sends out some interesting emails with often colorful language, but one last week caught my eye, because Ramit was thinking like an accountant in the best way possible.

Now lest he discover my assertion, and not take kindly to being told that he thinks like an accountant, let me explain.

The email to which I refer had in the subject line:

Ignore your gut and run the damn numbers.

He used a couple of examples to illustrate his insistence, and of course, I liked the following travel example:

Everyone always yells and screams that you shouldn’t EVER pay an annual fee on your credit card, but that’s not always true. This tip alone could save you over $100/year. Check it out.

Card 1: 2% cash back on all purchases
Card 2: 1 point for every dollar sent and mile flown. Need 25,000 points to redeem a flight worth $350. Annual fee: $75. (This is the Citi Premier Pass Elite, which I use.)

Let’s say you spend $7,200 / year on a credit card (average of $600 monthly) . Included in that balance is two round trip flights each year, from Los Angeles to New York – 6,000 miles each.

Card 1: $7,200 x 2% = $144 cash back per year.
Card 2: 7,200 + 12,000 (2 flights) = 19,200 points per year

If 25,000 points = $350, then 19,200 points = $267 per year. A better deal, even with the $75 annual fee.

Your gut will tell you that any credit card with a annual fee is a bad idea. Even as an accountant and someone who is supposed to always “run the numbers” my gut tells me paying the fee is a bad idea.

Not in this case, and not in many other cases as well.

You won’t know though unless you actually do the work of running the numbers.

Running the numbers like Ramit did above, can take only minutes but can save you significant money.

Not long ago I published a piece telling hosted travel agents to do the same thing: run the numbers.

For those not in the travel business, hosted travel agents are travel agents – often one-woman shops (and I say woman because it seems the vast majority are female, so guys, give me a break and don’t take offense) – that utilize relationships with larger agencies with greater economies of scale to get access to the best travel options for their clients.

In return for this access, hosted agents pay the larger agencies either a fee or a percentage of commissions received from travel suppliers (or some combination).

The fee scales vary and some of these larger agencies, known as “hosts”, will offer to provide services to the agents for no fee but a cut of the commissions earned from the travel suppliers. While that seems a safe way to start out in the business, for a agent with any significant business, it’s almost never a good deal.

But your gut tells you to go fee-free and you don’t realize the advantages of paying the fee until you run the numbers.

I should know, as I own a portion of a small hosted travel agency and I didn’t realize the truth until, as Ramit Sethi says, I ran the numbers. I’ll be saving a few thousand dollars next year as a result.

Do yourself a favor, ignore your gut.

Run the numbers.

If you happen to be a hosted travel agent, pick up my free template to help you run the numbers!

And let me know if you have any questions.

The Travelers Guide to Tax Deductions, get it just for signing up!

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