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The Deadly Monthly Payment

I’ve been operating on cash for many years now. I bought my condo in cash and I make all purchases in cash. Well, not like physical cash but I don’t use debt. So the other day when I was walking by a house for sale in my neighborhood for $500,000, my first reaction was daaaaamnnnn that’s a lotta money.

Below the for-sale sign was: “Only $2,100/month”.

For a minute I got really confused. My mind was doing a double-take, trying to figure out the connection between such a tiny monthly payment of $2k and a $500k price tag.

One of the pitfall of personal finance is that deadly monthly payment. This recurring payment is one of the most potent tools used by marketers to get us to part with our wealth too early in our lives.

As medical professionals we are wealthy. So when we see a cell phone selling for $800, we can pay for that in cash. But I would imagine low-income individuals look at it as $15/month. What a psychological mind-fuck, yet how damn effective.

 

Framing the purchase question

Can I afford this?

When you ask yourself if you can afford something, you might be tempted to look at it in terms of the monthly payments. You can easily afford $500/month but what about a $40k car?

You can easily afford a $3,500/month mortgage but what about a $700k home?

$210 for a cable modem or $12.99/month?

The problem is that you don’t pay just $3,500/month. You’ll be paying somewhere around $1.2M over the lifetime of that purchase. You’re not making individual monthly payments, rather you are held accountable for the entire amortized amount.

 

Plight of Physicians

Marketers target dentists and physicians because we are considered whales. Doctor are paying $2,000/month for a car lease. We can afford $2k/month but not the $100k car.

Our debt is high and we are pressed for time. We don’t start out with a lot of liquid cash but we have very high monthly incomes. We often assign this monthly income way too much spending power. Not realizing that this money could do much more for us in the future if we saved and invested it – or paid our debt down with it.

We want nice shit. What is it about doctors wanting nicer shit than others? Maybe it’s our competitive nature. Maybe because society has such a hardon for medical professionals. Maybe because we feel more authentic if we live a more luxurious lifestyle.

 

Monthly payments add up

In 2012 when I started budgeting and got my financial shit together, I created my first budget in YNAB. The YNAB forum nerd recommended to create a “Stuff I forgot about” category. Why? Because there are so many things which your mental accounting loses track of.

I’ll be honest, that first year it was frustrating as fuck budgeting because every time I was getting a little further ahead, a new bill would pop up which I’d forgotten about.

  • utilities
  • cable/internet
  • cell phone
  • debt payments (SL’s, CC, auto)
  • health insurance
  • lawn/pool care
  • bank fees, credit card fees
  • entertainment subscriptions (Audible, Netflix, Hulu, Amazon)
  • medical subscriptions (Uptodate, JAMA, medical societies)
  • medical licensure, DEA
  • HOA, mello-roos
  • gym membership
  • beauty/hair
  • gifts
  • property tax
  • insurance payments

 

Harder to cut

I’ve found it hard to cut out an expense once it becomes routine. I start framing it in my mind as something necessary in order for me to enjoy my lifestyle. It becomes so routine that cutting it takes a ton of effort.

I recently cut my cell phone plan and even though it made no difference in my lifestyle, it took so much mental energy to make the decision.

When you think about all the headaches a car brings – insurance, repairs, maintenance, accidents, tickets, parking, storage – you would think that getting rid of your car would be easy. No, fuck no.

 

Insourcing

I insource as much as my lifestyle as possible. I don’t even like depending on the grocery store for my bread. I try to bake it as often as I can just so I don’t end up relying on store-bought bread.

I don’t have a Netflix account and though I have a friend’s login, I try not to depend on it for entertainment. I have a few old movies which I downloaded way back in the day – I rewatch those when I need to shut this mind off. The rest of the movies I get from the library.

Transportation – my feet.

Healthcare – prevention.

Condo maintenance – wrench, Band-Aids, and YouTube.

Entertainment – reading a book, going for a walk.

Insourcing allows you to live in your own economy. It’s a way to stretch your dollars and achieve financial independence sooner.

 

Mindful spending™

I know, it’s so fucking cliché to use ‘mindful spending’. But it’s the best phrase I could come up with.

Look, it’s hard when your ass is raising kids and you’re employed full-time and hustling hard to make it from one appointment to the next. The convenience of a monthly payment makes everything easier.

We spend money to solve problems. Imagine having to save $650k to buy a house. That’s a monumental feat when the alternative is flashing our FICO score and signing on a dotted line.

Mindful spending is doing your best to minimize your spending categories. It’s cutting your discretionary spending and relying less and less on what you spend.

This allows you to become financially independent sooner and gives you so many more options. That’s what I’ve realized at least so far.

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