I’m fairly minimalist in my personal life and frugal when it comes to my finances. This mostly comes down to two philosophies in which I believe very strongly:
- Money is a tool but it cannot itself buy happiness
- Control over one’s own choices is key to happiness
Given these philosophies, there are two principles that I focus on any time I’m making a personal finance decision:
- Committing to a recurring payment gives others control over my future (while giving me the illusion of control over my present)
- Collecting a recurring payment and/or saving a recurring amount gives me control over both my present and my future
This may all sound obvious, but the reality is that it’s totally out of line with how the vast majority of Western civilization behaves.
Financing, leasing, and even low-cost subscription models are explicitly designed to maximize the amount of money businesses can make on us per year while simultaneously maximizing the amount of years we will be customers of those businesses.
Let’s take a look at car payments. The average car in the US now costs a consumer almost as much as the median consumer brings home in one year. SUVs and luxury cars push this up to two or three years. Of course, the only reason the price tags are so high is because of the prevalence of financing and leasing, which provide consumers with creative ways to split these payments up into manageable chunks. It started with 36 and 48 month loans. As car prices went up - due to how easy financing made it to buy expensive cars - loans moved to 60 and even 72 month models. And then came leasing, which left consumers making monthly payments forever without owning anything. Notice the feedback loop? Financing and leasing is not supporting higher car prices. Higher car prices are made possible because of financing and leasing.
But cars are a pretty drastic example, right? Alright then, let’s have a look at mobile device plans. Did you know that here in America, postpaid mobile device contracts are the norm, while most of the rest of the world is on prepaid plans? What is the difference, you ask? Very little. The devices, carriers, and services are the same. But from there, there are three very important distinctions:
- Postpaid plans charge us every month, but at the end of the month
- Postpaid plans allow us to split the upfront cost of any device we choose into convenient monthly payments
- The cost of service - not even counting a device - for a postpaid plan is significantly higher
Postpaid plans exist to psychologically manipulate consumers into buying ridiculously expensive devices, commit to carrier services at higher price points than they’re really worth, and get locked into paying for both for a very long period of time - only to get so comfortable with the whole charade that it’s repeated again every two or three years. It’s no wonder why the price of mobile devices have increased exponentially over the past few years.
Of course, it doesn’t start or stop with cars or mobile devices. Mortgages, video and internet packages, student loans, meal kit deliveries, subscription boxes, cloud storage systems, wellness and fitness apps - the financing and recurring models all incentivize us to pay way more than is necessary in the long-run for products and services that often have suitable and more affordable equivalents. And when we fall prey to that, the feedback loop only worsens.
The net result is that rather than making mindful and responsible choices about how we are spending our money, our money begins to control us. We realize our discretionary income has decreased significantly, our “bills” are unmanageable, and our savings are non-existent. We lose our ability to control our destinies.
Does this mean we should never buy nice things or take advantage of attractive recurring pricing schemes? Of course not. But if done mindfully and with respect to personal happiness and fulfillment, then any decision in the affirmative should be rare.
In the end, I couldn’t sum it up myself any better than John Goodman in The Gambler:
(Caution: explicit language)
“You get a house with a 25-year roof, an indestructible economy s***box car, and you put the rest into the system at 3 to 5 percent and you pay your taxes. That’s your base. Get me? That’s your fortress of f***ing solitude. That puts you, for the rest of your life, at a level of ‘F*** you.’ Somebody wants you to do something? ‘F*** you.’ Boss pisses you off? ‘F*** you!’ Own your house. Have a couple bucks in the bank. Don’t drink. That’s all I have to say to anybody on any social level. Did your grandfather take risks? I guarantee he did it from a position of ‘F*** you.’ A wise man’s life is based around ‘F** you.’”*