Death By A Thousand Cuts
Quick note: if you want to learn more about the possible origin of the title, check out this article [content warning: moderately disturbing images, descriptions of torture/execution]. Luckily, NONE of this will be discussed here.
So, this isn’t gonna be about how tortuous it’s gonna be to cut back on expenses. We’ll save that for another time. Rather, it’s going to be about one of the ways that lifestyle creep manifests itself.
The Rise of Subscriptions
I’m just gonna lay it out: I am a huge fan of keeping expenses low OR limiting their growth, where possible. I try my hardest to limit any new expenses, especially monthly expenses, which is kinda hard to do in the age of monthly subscriptions. Right now, subscription-based services are super popular and you can now meet many of your household needs through a subscription service. For your entertainment needs, there’s Netflix, Hulu, Disney+, and HBO Max. For meals, it’s Blue Apron, Hello Fresh, and Freshly. Need a fashionable razor kit? Dollar Shave Club has you covered. What about your pets’ needs? Hello, BarkBox!
Monthly subscriptions are EVERYWHERE and just about every major company offers some type of monthly subscription-based product. They can provide incredible convenience. Heck, I use some of the services mentioned about (Netflix and Hulu).
Payments, Payments, Payments!
While we’re at it, let’s talk about monthly payments on financed consumer goods (we’ll save cars and homes for another day). Need a bed that happens to cost $1,800, but can’t afford it outright? No biggie, the sales rep can get you a $75/month payment (0 down, 24 months, 0% APR). Same for a washer/dryer set that could set you back $1,600. No worries, you can leave with them for only a $66.67/month payment (0 down, 24 months, 0% APR). I can go on and on, and on and on, and on and on. Financing and monthly payments allow you get get what you want and not worry about draining your savings.
And yet, I do not like monthly-subscription nor do I not like monthly payments in general (especially for consumer items like furniture and appliances). In fact, I downright loathe the idea of payments. To me, payments make it easy to fool yourself into believing you can afford something AND it makes it easier to commit more of your monthly income into things that you could either save for or do yourself.
Running the Financials
I’m gonna focus on the “committing more of your monthly income” aspect because it’s super important. One of the many keys to financial stability is to maintain a healthy gap (in the positive) between your income and spending. Simply put, the more things you put on payments monthly (especially for wants and luxuries), the less money you’ll have at the end of the month. What do I mean, well let’s explore with an example: Average Joe.
Average Joe (AJ) has recently graduated college and makes an income of roughly $51,000 a year. To attend college, AJ took out loans and as a result, has a total debt of around $30,000 and some credit card debt of around $6,200. AJ lives in a MCOL area and likes to enjoy the lifestyle his income affords him. Let’s take a snapshot of his expenses.
The expenses for the “4 Walls” (the essential expenses needed to maintain one’s livelihood) seem very reasonable. But when you look at debts and discretionary spending, you’ll find that it eats up a decent chunk of AJ’s income each month. If you leave out the line item for eating out, AJ has roughly $458 worth of payments/subscriptions in addition to $560 worth of payments towards debts (on growing balances) each month. That’s roughly 31% of his income going to debts and payments. This is what irks me about subscriptions and payments, each payment cuts into your available income. The more line items you add, the cuts you make into the income available for you to spend. The worst part is that AJ might not even realize what’s happening until the payments cripple his finances totally.
The Takeaway
I may have kept another reason for my dislike of payments and subscription-based services (some of which I use…). The decision to add a monthly service or payment is usually made without consideration towards its potential effect overall on one’s monthly budget. As mentioned above, they are often made in either the pursuit of convenience or to live above one’s means (though this is often framed as a “need”, i.e., AJ needed a new sofa, so he bought at a higher price).
With each decision made in isolation, if one doesn’t budget properly and keep track of their finances, they could find themselves with barely under $200 left over at the end of the month, or less… or maybe even in the red.
This is death (metaphorically speaking) by a thousand cuts.
