How hard is it for middle Americans to charge $10,000 in a year?

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Another post from The Man:

Mommy Points is away being Mommy Points at a blog conference, and, after editing her recent twin travel interview, I thought to myself, “Self, getting the business and personal cards from Southwest might be achievable for the average person, but is $10,000 charged on two cards in one year feasible to secure a year-long companion pass?  A Companion Pass requires 110,000 Rapid Reward points earned within a calendar year.  Getting the 100,000 Southwest Rapid Reward points from the two credit card sign up bonuses, plus 10,000 points from spending $10K on the card, would get you 110,000 points.  With Southwest, that would essentially equate to $1832.60 in “Wanna Get Away” fare credit.  So, you would have over $1800 to use on the first ticket, and then the companion would fly free for the duration of the companion pass.  I have learned that a companion pass is good for the remainder of the current year, plus all of the next year.  Therefore, there is some value in doing this at the very beginning of a calendar year.

Let’s take a fictional example of a family of three: Sue, Pierre, and baby Theo.  Sue is a full-time office manager earning $38,000 annually.  Pierre stays home with Theo, and earns about $7000 a year as a freelance short story writer.  This family earns the national median, or middle, income (according to the 2005 census) of $45,000 collectively, before taxes.  Assuming a 15% tax bracket for a married couple filing jointly, this would be a take-home income of $38,250.  Unfortunately, although we are six years beyond this census, incomes on average have not increased substantially, yet cost of living is arguably higher.  For the purposes of easy math, we’ll assume that Sue’s had a Roth IRA for years, and puts $2,250 of annual post-tax income into this investment vehicle, primarily to help send Theo, who possesses an impressive percussion proclivity, to Juilliard.  The remaining income is $36,000, which over the course of twelve months, works out to an even $3000 a month.  Isn’t Sue smart?

Pierre and Sue rent a nice home from Pierre’s uncle, Miguel.  Although Miguel picks up the cost of landscaping, water, sewer, trash, and electricity, their monthly rent is  $850.  If Miguel were able to accept the rent payment through a credit card, this exercise would already be over: 12 payments of $850 on the Southwest cards would exceed the minimum spend by $200.  But for the purposes of their story, Miguel still wants his rent in a check, because he likes to visit with the nice tellers at his credit union when he deposits his rent payments.

Sue and Pierre are down to $2150 after rent.  Sue’s commute to work is 36 miles one way.  She drives Pierre’s old truck now that the family car is needed to transport baby Theo, and there’s not enough (comfortable) room in the truck for a baby seat.  The truck gets 12 miles to the gallon.  It sits at home on the weekends, so fifty weeks out of the year, it’s driven five days a week, for a total of 18,000 miles a year.  At an average of $3.25 a gallon for gas, Sue can put $4875 on the personal Southwest card each time she fills up at the tank.  Since Pierre has his own Southwest business card, he fills up the family car throughout the week as needed, and charges an additional $1600 a year in gas.

After gas and rent, Sue and Pierre are down to $1610.42 left per month.  They both are huge Apple fans, and have a family plan for their iPhones which costs them $110 a month.  This is another $1320 toward the companion fare, which now puts them at $7795 total.

Sue and Pierre are not big TV watchers.  They don’t have cable, or satellite, and really don’t miss it.  They keep their grocery costs down by working in their backyard garden, which produces more than enough fruits and vegetables for them year-round, but they aren’t vegetarians.  They buy their supplies, meats, drinks, and staples at the grocery store like everyone else.  With the arrival of baby Theo, costs at the grocery store have risen; Pierre estimates that their twice-a-month trips to the grocery average $450 a month (he can’t wait for Theo to be done with diapers!)

By putting only three of their living expense costs on two cards, Sue and Pierre, with their median family income, have charged $13,195 in one calendar year.  They pay the balances each month, as these are not big charges that create debt.  Sue still has some student loans, and Pierre has $4300 charged on an old Sears account from when he furnished his first home out of college.  The couple still enjoys some of the things he purchased, but Sue’s sense of style required a lot of it to remain out in the garage when they moved to Miguel’s house after getting married.  Long-term charges can be very detrimental to current financial positions, but our heroes are managing.

The key piece to note about Theo’s parents and their financial activity is that they are not wealthy by American standards.  They are not debt free, she drives an expensive (to run) vehicle, and they pay their taxes diligently.  Sue even puts some money away, despite the hardships it creates some months.  All in all, they still have over $700 a month that is either discretionary spending, or goes to non-budgeted items, like new tires, holiday decorations, or birthday gifts.  They do not live an exorbitant lifestyle, and the only thing that really sets them apart is that they aren’t raising Theo to be glued to the tube.  Sue tries really hard to put at least $200 into the vacation fund each month, because what good are free flights if you have no money to take a trip?  Theo loves Donald Duck, and is going to see him when he turns two.  In the mean time, Sue wants to use the first two trips while he is younger and can fly free to visit her parents.  Pierre doesn’t mind while Theo is still young, but loves this strategy of earning miles with every-day purchases, because he knows Theo will love to see the marching band at Pierre’s alma mater, Notre Dame, when he’s a little older.

I may have taken some creative liberties with fleshing out the characters of this family, rather than just showing a spreadsheet and going, “See, it’s easy!”, but this little narrative was meant to demonstrate that there are very few people who can’t take advantage of the opportunities to travel at reduced cost.  Granted, credit needs to be at an acceptable level, and being diligent about what is affordable is always necessary, but an average young family should have no problem enjoying the ability to travel the world (almost) for free.  You can get some additional ideas on how to increase your points earning by just being more strategic about how your family pays for day-to-day expenses by reading this previous post that Mommy Points wrote.

You may make more or less than Sue and Pierre, but are you working on your miles and points?  Do you have a family member that is in a similar situation who would love to travel but isn’t aware of the opportunities to earn free flights?


Pingbacks

  1. […] My hunch is this 50,000 point offer ($833 in Wanna Get Away credit) will probably be back at some point (though you never know), but if you want in on it now, I would do it by sometime early tomorrow – November 11th.  You can read more about what the Southwest card can do for you here and the possibility of obtaining a companion pass by getting two 50,000 point cards here. […]

Comments

  1. “This family earns the national median, or middle, income (according to the 2005 census) of $45,000 collectively, before taxes. Assuming a 15% tax bracket for a married couple filing jointly, this would be a take-home income of $38,250.”

    That’s not how our tax system works.

  2. @Flyer, very astute! In actuality, this hypothetical family would pay $5,900 in taxes, not $6,750, as the first $17,000 of earnings would be taxed at 10%, not 15% (for the current tax year). Unfortunately, Pierre has his wages garnished by $32.69 every other week due to a difficult spot in his pre-family history, but I was going to leave that part out and assume the message of the piece could be interpreted beyond my lenient calculations. Huge forest, tiny trees.

    –The Man

    • I’m guessing this family lives in Texas where they don’t have to fork over their hard earned dollars to the state as well as the feds 🙂

  3. Very interesting article! I’ve always wondered how much I charge per year, or could charge if I wanted to, but never bothered to figure it out. Thanks for doing the hard part!

  4. @ Peter Kang, absolutely correct. This family would have some deductions as well, which would offset additional taxes to some degree. I’m sure we can all agree that there is a possibility that this family has a final after-tax take-home income of $36,000, and then start the story from there. Thanks for reading!

    — The Man

  5. @ Asen, absolutely agree. Currently, they’re somewhat stuck, as a new or used vehicle would tap their savings or create a new vehicle note that would eat into their available funds, and going down to one car would mean leaving Pierre and baby Theo without reliable transportation… A tough position for many families right now.
    @ Jimgotkp, Thanks! I enjoy pinch hitting for MP when I can.

    — The Man

  6. Your story reminds us all the everyday expenses add up and we should realize which regular expenses we can use to meet our spend requirements. As too Pierre’s second point of looking forward to lower expenses when Theo is out of diapers I hate to burst his bubble but having raised three children they don’t say cheap for long. The time between diapers and baseball, soccer, dance, cheer leading, music lessons, scouts, and summer camps is short. And this assumes a public education which is not free but low cost. The good news is Pierre and Sue will have money again after their youngest graduates from college and gets a job.:)

  7. nice write up about the family of Sue! Loved it.

    But by the time they make the spend, Theo is a pilot for Delta and they non rev. or the freakin’ promo changed aka UA MoM and you cant get the bonus any longer for the $10k spend. Or it was a mistake by Cartera AKA AA/Verizon. Or Southwest is belly up and bought by JetBlue but then they don’t pay out to Sue either because they is gonna lose millions for that Tarmac thing in CT.

    Instead, Sue finds some scheme a guy like me would post cryptology about on FT with blokes like AlohaDaveKennedy and the next thing she knows, she’s got tons of miles but it’s all she talks about so her friends thinks she’s nuts. She loses whatever job she’s got, gets kicked out of where ever she lives and the miles expire when she’s in the mental ward.

    Sue emerges some years later as a greeting card designer who’s afraid of flying. 🙂

  8. Heh. Probably best if none of the participants in this story meet up with Marathon Man. They’ll likely either hole up in their house afraid to leave or spend all of their time experimenting with ways of unwrapping dollar coins!!
    .
    Nice writeup, although of course pretty much any couple can put a couple thousand a month on credit cards using methods discussed on FT and elsewhere. And probably they can get a lot more out of $10K spend than the Southwest offer, although their geography and travel plans may make that the best option for them.
    .
    The real issue for a lot of people is the Credit aspect. I get the sense that only a small percentage of the population really understands and properly manages credit. Actually know what their credit score is and how to improve it. Have the discipline to spend no more than they can afford on credit cards and pay the bills every month. Have good enough credit to get the good travel cards in the first place.
    .
    Ike

  9. Fun story but in reality most people that are worried about a companion pass and airline miles would make more than this but for argument sake let’s use this family. Most likely they would get a tax refund in the form of the welfare vehicle Earned Income Tax credit for little Theo and for a family of 3 earning $45k per year it is a minimum of $1,000 per child on top of the fact that they will most likely get back all of federal taxes they had withheld so that those of us that are “rich” (and I use the term loosely) can pay their share of taxes plus give them $1,000. So let’s say they get a tax refund / EIC “refund” annually of about $3,000. They can use that to buy a new appliance, trampoline for the yard or other junk at walmart using their SW card so they are already up $3k plus the groceries or gas give them the $10,000. The following year they can use the $3,000 on vacation using the SW card for hotels and such for a free vacation for 2 anywhere that Southwest flies which should include the Air-tran routes in the Caribbean by then. OR they could use the $3,000 to play the US Airlines Grand Slam 2012 earning both Pierre and Sue 120,000ish miles that they could use to fly anywhere in the world.

  10. @ Diane – Yeah, Pierre is pretty naive when it comes to the cost of a child, as Theo is his first. I think it’s just a subconscious desire to move forward toward potty training, as diapers can get pretty overwhelming…

    @ marathon man – Love it. Interestingly enough, Sue comes up with the rather ubiquitous greeting card slogan, “Don’t hate flying, hate being grounded” which becomes a motivational battle cry for agoraphobics worldwide, and eventually she becomes a talk-show host opposite Ellen. Unfortunately, the Electrician’s Union eventually takes offenses to the slogan, and she becomes a media pariah, ending up back in the same mental ward.

    @ Ike – You caught the point precisely. Anyone can play, everyone wins! There are plenty of great ways to travel at low cost, and as you mention, there is a ton of information out there. What’s most important is that people begin to take advantage of these opportunities while they are offered, regardless of their preferred carrier and hub, or card vendor. And yes, good credit is paramount.

    @ Dan in STL – You and I would probably get along famously. What I find interesting is that the census from which this median household income was taken is nearly seven years old, and yet, as a nation, we haven’t improved appreciably (both in earnings and taxation). Hopefully Pierre and Sue, eager to be giving back as much as possible, put half of the $3,000 refund toward their debt position, and the other half toward a political campaign eager to institute a flat tax for all earners. I do like the Grand Slam idea though… MP is looking at 100K miles for less than $400 all in, so by that math, Pierre could play for everyone, including Miguel, and get 400K miles for $1200. That’s a boat load of Biscoff.

    –The Man

  11. Fun story.
    Just for jollies I thought I’d mention how I achieved the $10000 in spend credit, purchased $1000 of Marriott gc during the promo offering 1200 for every $100, thus more than needed and truly ready to travel.

  12. Good post. IMO the WN Companion Pass has been neglected for years by some travel guys who are wedded to the first/business-class-to Paris mentality. If you aren’t flying overseas (as many young families aren’t) and if you have someone to serve as a Companion, I think it’s the best FF deal out there.

    The more you follow and think about this stuff, the more opportunities you see to up your spend. You get special offers. You pay for stuff for your parents and grandparents and friends and have them reimburse you. This is a huge one for me; I pay ALL my mother-in-law’s bills and she writes me a check monthly. She happily gets rid of headaches and I get lots of spend toward a CP.

    You ask your boss if you can put some company spend on there. You find something you can buy and reliably resell on ebay to make a little money and get more spend.

    Your supermarket offers a 10% bonus on its and other gift cards, for spending that you would do anyway (yep, Jewel/Osco chain in Chicagoland, something like once a year), so you load up (at least) several months’ worth.

    Prepay your insurance or health club fees to get a discount. Sometimes businesses you buy from demand cash, but will take a CC if you pay part of the fee, or buy a larger amount. Zillions of opportunities.

    Then there are tricks that are a bit more advanced, like determining whether you should be paying for things in Dec. or Jan., asking Chase to change your statement drop date and later changing it back if desired, etc., but that is clear with a bit of thinking.

    After a while it becomes second nature.

  13. @ Nancy – That’s awesome. MP knows all of our tricks that she applies, I just pay the bills. 🙂
    @ toomanybooks – Second nature is definitely the goal. Was it Gladwell that said it takes 10,000 hours to become a master of any given activity? I’ve heard it takes two weeks of constantly doing one thing to make it a habit, but I like Gladwell’s premise. The amount of time MP spends scouring the web and networking about points and miles proves this theory pretty soundly. I just watch (and enjoy) in awe. Sounds like you’ve mastered this craft as well.

    — The Man

  14. Yeah, it can become a time-sink. You have to guard against that.
    .
    Easiest initial method for a couple is to approach both sets of grandparents and offer to pay their bills and get reimbursed. Say the young couple with a baby spends $2K a month on gasoline, electricity, health club, health care co-pays, diapers, groceries, gas, electric, cell phones, cable TV, car insurance, homeowner’s insurance, life insurance, whatever. Say each set of grandparents spends $3000 a month on similar.
    .
    That’s $96K of spend a year already. Almost of the way to renewal. Promise that you will visit more often to get the grandparents to say yes. After all, you will have $1800+ for WN flights and the spouse is free.
    .
    Just hotel-hop a bit on your vacation (choose a chain with double WN points, but check to see what is Companion-Pass-qualifying!) and you are there.
    .
    Hope I am not belaboring, but I urge people to look closely at the WN CP. That’s the first thing I lock down.

  15. Great, but “non-budgeted items, like new tires, holiday decorations, or birthday gifts” ???

    “Infrequent” != “non-budgeted”, or at least don’t have to be. You know you have to replace your tires at least every X years (sometimes sooner, and that’s when you can dip into your extra funds for unexpected car repairs or whatever).

  16. I loved the creative story! I only got the SWA Premier card for 50k points, but find myself being only 30k pts away from a companion pass, and have 24k Choice points coming from their no-fee Barclay’s card, I bit the bullet and transferred AmEx MR points to Choice. When the Choice bonus points hit my account, I’ll transfer to SWA. My 2-yr-old is going to get a lot of butt-in-seat miles visiting family next year as my free companion.
    Note: Choice says their point transfers to SWA can take 6-8 weeks, so I need to act fast! 🙂
    Thanks!

  17. Quick Question….do i apply for both cards in my husband’s name with his RR account number? Or do we each apply for a card separately to do this deal. We want to work towards the companion deal so we won’t start using them until january.
    Jana

    • @Jana, you are going to want both credit cards to feed into the same frequent flyer account, so they would both need to be in the same person’s name. Keep me posted!

  18. I just logged into the southwest website to see how close I was to earning the companion pass, and I realized that Southwest seems to have changed their T&C:

    Companion Pass status is based on taking 100 qualifying one-way flights or earning 110,000 Qualifying Points in a calendar year. A qualifying flight for Rapid Rewards Companion Pass status is a one-way revenue flight on Southwest Airlines from an origin city to a destination city, including any intermediate stops and/or connections on Southwest Airlines. Companion Pass Qualifying Points are earned from revenue flights, points issued on Southwest Airlines Rapid Rewards Credit Cards, and points earned from Rapid Rewards Partners. ****Purchased points and points earned from program enrollment, Tier bonuses, flight bonuses, and Partner bonuses do not count toward Companion Pass status.****

    Even the website seems to be confused at to which points are qualified and which aren’t depending on which view I am in. When I click on snapshot-> then in recent points activity on view all my points->year to date progress towards my companion pass, I only see the one paid flight that I have flown on southwest (and no credit card activity). However, when I click on My Rapid Rewards, and on the left side of the screen I see three boxes: Tier Status, Companion Status, and Recent points activity. In this view, I see that I am very close to achieving my companion pass!

    I am really concerned and feel Southwest may not let me use my credit card bonuses (2*50,000) towards my earning companion pass!

    But, the real concern is how can they change their T&C all of a sudden without any announcements?

    HELP!!!

    • @CJ, first I would take screen shot where it shows you are almost to your CP total. I just checked one of my family member’s accounts who also got in on the 50K deal and theirs shows just as you describe. It is weird, but I think that the credit card points do indeed still count. I can’t swear to it, but that is just what it looks like to me. If you are very close, I would just go for it and keep your fingers crossed. It has worked for many others this year. If you want to call Southwest and double-check, you can also do that. Of course, we all know any one individual rep who answers the phone may or may not give a correct answer, but it may be worth a shot. Their website is a bit confusing for sure!!

  19. I have taken plenty of screen shots. Moreover, in my monthly southwest statement, I also see that I am very close to achieving the companion pass. But, the website did freak me out as I have invested a lot of time in working towards this pass.

    Please let me know if you hear something from other websites, people or bloggers.

    Thanks,

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