The Ubiquity of Cyclical Spending

In a theoretical economy, the wages individuals earn through the value of their labor would be spent on the labor of others. A lawyer would use the wages he earns practicing law to purchase groceries from one who distributes groceries, he may also use part of his wages to make car payments to another who distributes vehicles. In theory, his earnings enable him to purchase the labor of others both as he needs and as he sees fit, and each person, adequately specialized, would do so in turn. One’s consumption would be in proportion to ones production, so to speak.

Of course, the real world does not work this way. Jobs are lost and found. Skills become outdated and new skills must be acquired. Decay happens unevenly and perhaps unfairly. Moreover, not all labor is needed or even desired, but ever the chase remains to make one’s specialization valuable to others in order to convince them to purchase your labor. Everyone wants their “pound of flesh”.

The most obvious and ubiquitous persuasion occurs in the context of cyclical spending. For example, the desire for food is cyclical: when we, as humans, are done eating, we undeniably must eat again at some point. Grocers stay in business rather easily, at least from this perspective. They must compete with prices in order to retain an adequate market share, but there is never the fear that the demand for food will renders one’s specialty as a grocer obsolete.

In the past, it was enough to produce a good or service and to sell it to a consumer for a profit. But especially during the 20th century, it was learned en masse that this was not the most profitable of strategies. It was discovered that if consumers could be locked into cyclical spending, either through perceived demand or dependence, then the great fear of inadequate demand could potentially be eliminated from one’s business. At first, straight razors could be resharpened with a lathe, and the one-time purchase of a good straight razor practically guaranteed one a shaving utensil for life. Gillette discovered that by making disposable blades, he could lock consumers into cyclical spending since the blades would eventually all wear out and the consumer would be forced to purchase new blades. This happened in the early 20th century, but we have seen this get even more ridiculous as the blades have gotten more expensive and clever marketing even sends a free razor and spare blades to young men when they turn 18, with the intent of inducing brand loyalty.

Several years ago, Adobe famously switched from selling stand-alone licenses to selling “Creative Cloud” licenses, which have set expiration dates and typically require monthly payments to continue access. As with most software, you hit a point where additional features affect a diminishing number of customers, so many prior customers find that they no longer need to upgrade, as every feature they needed was already included in older versions of the product. This decreases market share and diminishes revenues from new product sales, so the solution must be to force all customers into monthly or yearly payments.

As producers, we love cyclical spending. It keeps us in business. It pays our salaries. But as consumers, cyclical spending is the quickest way to waste our earnings and prevent long-term wealth.

I don’t have any answers to questions about how to balance this. All I can say is that it is not our responsibility to buy products we do not want or need, or to spend money at the sacrifice of what we truly want in life. There are a great many desires in the world and we are largely free to choose from which we please, and this is the great part about a free economy. But make no mistake, everyone wants your money and will try every trick imagined (and then some) to deprive you of it.

Common Cyclical Expenses:

  • streaming services (Netflix, Hulu, satellite TV) {monthly}
  • car payments {monthly}
  • mortgage payments {monthly}
  • food {variable}
  • vacations {yearly}
  • cell phones {release-cycle dependent}
  • gasoline / diesel {variable}
  • utilities {monthy}
  • credit card payments {monthly}
  • vehicle registration {yearly}

Basically, if it’s a specific budget item that gets paid every month, it’s a cyclical expense.

Producers are very savvy at persuading people their products are necessary. Insurance has mastered the art of fear. Automotive companies have mastered marketing new cars as a the only “safe” option for children and families. Internet companies make commercials showing you how much your life would suck without fast speeds. Not too long ago, cell phones didn’t exist. Now we can’t go more than a few days without a handheld computer [guilty].

So although our productive power has dramatically increased over the years, it seems everyone is struggling under the weight of our own expectations. Going car-less in America is for weirdos, having a flip phone is laughed at. Everyone assumes you have Netflix. Many people still believe that they will always have a car payment. Some couples spend $800/month on “healthy” food that they “simply must have”. It happens.

Although it’s impossible to eliminate cyclical costs, I think it’s wise to delay the cycles, and I think this works to our advantage. Many people will immediately buy a brand new car because they fear a $1,500 repair. That’s insane. Your new car probably loses $2,000 off the lot. But the psychology is different; it’s easier to imagine a monthly payment in more manageable doses than $1,500 all at once. This is how you can spend $4,000 per year for 7 years so you “don’t have to worry about repairs”. In the vast majority of cases, this does not work in your favor, unless you’re the car dealership, of course.

And spending $150 on software may hurt in the short run, but it should still be running for you five years later, at which point maybe you need to replace your computer and the new computer isn’t compatible with the old software. You decided against a monthly cycle and pushed for a five year cycle, potentially saving yourself $500 in the process.

Merkur safety razor on stand, with badger hair brush

I own a Merkur safety razor that I purchased about 8 years ago. I think the blades cost me $15. I have purchased a few “cakes” of shaving soap over the years, but the razor itself could easily last me the rest of my life, and unless I decide to nix the beard, I will probably be going through the blades for the next decade.

Instead of spending on new blades at $25 a pop every two months, I’ve gone to once-per-decade on the blades. Guess which one I prefer.

Now, as people, we change. Styles change. Fun changes. There will always be cyclical expenses. But the people who waste the most money are typically locked into the lie that they are slaves to all of these expenses. This is something I’m passionate about trying to break off.

Delay is a valid tactic for saving money. I used to keep a sheet of paper with all of my wants on it. At the end of the month, I’d see which of those wants I could afford. Consequently, I rarely saved that money. But what was amazing was that when I stopped recording my wants, I often forgot about them, and it turns out that if you keep forgetting about the things you want, you probably don’t want them that much after all!

A similar principle applies to delaying your spend cycles. When you have tons of monthly expenses, it produces what I want to call a “chaos” effect. THIS needs to get paid, and THIS needs to get paid, and oh, don’t forget THAT. It’s easy to focus on paying those “bills” and it’s easy to forget that many of them you could easily do without. By waiting, you test what really matters to you. Maybe the cycle doesn’t even repeat for some things, maybe you find that your purchase was one-and-done. Great. But the more urgent the feeling, the less hesitant you are to throwing money out to make the bad feelings go away.

I do this with groceries a lot. I write down every little thing that is getting low and put it on the list. I did this several weeks ago with a favorite hot sauce. In reality, the current bottle still has a long way to go before it’s empty, so it really just tacked an unnecessary $5 to my costs. And guess what? If I’m out of the ingredients for one dish, there are usually plenty of ingredients for another dish! I always get caught up focusing on the “lack” and not focusing on the “abundance”. Hence, it’s probably been over a  year since I hit my grocery budget goals. I’ve considered challenging myself to eat everything I have before buying more.

There’s something to be said for buying higher quality things at a higher upfront cost than buying lower quality things at lower upfront cost. But this is a complex topic because measuring quality is extremely difficult. Some things are easily broken or lost, too, and price truly is not a great discriminator. Case in point, the expensive towels I bought last year are already starting to undo themselves at the seems, which really sucks. Perhaps a little sewing kit could save the day, but for the price I paid, I shouldn’t be dealing with that crap one year later.

I may have mentioned this before, and it won’t be the case for everyone, but when I axed Amazon Prime last year, I magically found myself spending less money on Amazon. By NOT having access to free two-day shipping, I was, unbeknownst to myself, putting my desires to the test. “Do you really want this if it’s going to take 5-8 business days to arrive?” Turns out the answer was usually ‘no’. I’ve saved a ton of money because of this. You don’t think there’s a catch? They wouldn’t do the free two-day shipping if it didn’t make them more money. In this case it feeds off of the spending cycle, and human impatience, to increase purchase frequency. Good for them, unlikely to be good for you (unless Amazon is like your substitute grocery store, or something like that).

One more note on rushed spending: it has become very, VERY popular this past year for companies to ask you if you’d like to “round up” your total to the nearest dollar for XYZ organization or non-profit. I hate this. I always tell them no, because I don’t have the time or the desire to research whether XYZ is full of crooks or not. They feed off of the “rush” to finish the transaction, and they also feed off the assumption that people don’t value their change. I do. That’s why I have $80 worth of change in my coin counter right now.

Anyway. Pay attention to cycles. I think there’s a tremendous amount to learn here, and I feel like there’s a lot I’m missing.

$80 of change

Financially Bored

Bored or plotting world domination?

So I hit my target savings rate. Then I maxed out the 401k. Then I started working on the Roth IRA. Then I started working on my giving fund, the G-IRA. Then I finally waded through the garbage dump of red tape required to invest some of my HSA. But then what? And then what after that?

I log into my Vanguard account for the lulz. Up, down. Up, down. It used to be fun to see the value of my investments. But just like Pavlov’s dogs, I still log into the account even though I know it doesn’t matter, even though it’s hella boring. Ooh, maybe something exciting today? Nope. There never is.

The truth is that money is not very fascinating. I enjoy personal finance and this past year has been exciting as I’ve pushed, prodded, and challenged myself on the path to the venerable 50% savings rate. But once you hit that goal, whatever yours may be, who cares? You’ll either hoard your scraps beyond that, you’ll throw it out and feel guilty, or maybe you’ll just spend it and not care. Who knows? Really it doesn’t matter, no matter how hard I try to believe otherwise.

The only thing for me to be financially excited about is the fact that I’m one paycheck away from from my first big G-IRA “distribution”. That’s cool, but consequently there’s really no movement in my own savings. Maybe I can cash out the $80 worth of coins in my coin bank and use that to round out my IRA? Sure. Woohoo. Otherwise it’s the longue durée from here, and for years to come. January will reset the clock on 401k and IRA contributions, with a estimated limit increase for IRAs, but that’s then and this is now.

I just feel like calling attention to this. There’s a lot of great things about saving lots of money, but ultimately you do get used to it and it stops feeling special.

Do you love me?

I’ve contemplated having a budget line-item for anime. I’m not even kidding you. Just once a month, pick something completely new. There’s probably a service you can subscribe to for that, but I like hard copies. My brain is slowly toying with the idea of returning to my more artistic endeavors, the stories rattling in my head, the world-building, the general enjoyment I get from writing in general. How some of the key pieces to my E.S. Asher Lego project are falling together. My not-too-sucky drawing skills even came out a few weeks ago on my roommates’ refrigerator white board.

I miss economic theory. I have a notebook at home that I once used for recording my odd and sometimes disjointed pet economic theories. Some of them I thought were really good, but the only one I have included in this blog was one on the initial, inherent, and extended costs of things, very likely subconsciously lifted from something I read in the past. The others are all in there somewhere. I saw a few books on minimum wage that may be fun to read, and not those crappy political types of books you find all over the place, like books that really investigate the issue. I miss that.

On the list of subjects I’d like to explore in this blog is the psychology of money. It’s one thing to tell people to stop pissing their money away, it’s another thing to understand why humanity is so inclined to piss their money away in the first place. But even though there will always be something to say about money, I’m pretty interested in talking about other things, too.