I came to realize recently that I am a ripoff artist. No, I don’t sell people shitty game advice at exorbitant rates or pilfer the cheese trays on the way past corporate meeting rooms. I do however get around two of the pernicious money pits of modern urban living, much to the chagrin of their vendors, in ways that have been critical for my health and wealth.
DON’T ORDER DRINKS
I’m told that many restaurants make their money on drink sales – beverages are sold at massive markups (like a drink that costs 25 cents or less to put in the glass goes for $2.50 or more, a 900% markup) and food items, particularly meats and sandwiches, function as inverted “loss leaders” (items sold at break-even or at a loss to stimulate the purchase of other more profitable items).
Now, when I started doing serious athletics in high school, our coaches emphasized drinking a lot of water and getting sodas and sugared-up drinks out of our diets. I followed that advice to the letter and developed a habit of drinking only water. I was so glad I did after I found out more about how nasty soda is for your body and your teeth. Caramel color and high-fructose corn syrup? Athol Kay called it “diabetes on a layaway plan.” And it becomes an easily-trained habit in America to add liquid nutrition without really thinking about it. “Would you like anything to drink?” “Sure, bring me a pop.”
When I got older and started buying my own meals, I noticed that due to my health habit, I was saving $2-5 a meal by forgoing the soda or juice and sticking with the free ice water at dine-in establishments. Now I had two motivations driving a beneficial behavior – if I was slacking on my health, I could still appeal to my frugality, and if I wasn’t bothered by spending extra money, I could tell myself to stay healthy. Either way, it kept me from buying those drinks.
I’m not 100% orthodox about this. I get the occasional coke or root beer if I’m feeling wild, and I’m prone to order a cocktail or glass of wine if it’s something intrinsically complementary to the meal. But I’m sure the managers see my tabs on occasion and think “great, another dude who didn’t buy any drinks and is pulling a negative profit margin on us.”
PAY OFF CREDIT CARDS EVERY MONTH
Credit cards are the financial-services equivalent of restaurant soda pop. Interest rates are the “cost” of borrowing money, and the “markup” on money loaned via credit card services (paid as interest on the balance carried over from the previous month’s spending) is astronomical. And like shitty sodas, it’s easy to get into a habit of swiping now and deferring payment until later. Before you know it, you’re playing a shell game to cover the minimum payments and never moving any further above the waterline.
Most people I’ve known who accumulate standing credit card debt, especially most young people, are bootstrapping themselves into a higher lifestyle bracket than they can afford on their wages, or simply paying extra for conveniences they could avoid with better planning or DIY (like planning travel earlier or cooking instead of eating out). I dated a woman who had carried over a large amount of debt from her college years, with the explanation of “I didn’t have any money, but what was I going to do – not go out on weekends?”
I solve this problem not by forgoing credit cards, but by using them as if they were debit cards: I charge expenditures to them, and then I pay off the balances every month – it’s that simple.
In fact, early in my credit career, I signed my two cards up for automatic payment from my checking account where I put my short/medium-term monies (the long-term 10% savings goes into various semi-liquid securities). Unless I’m buying a brand-new TV or a full European vacation, I know I have enough funds in the accounts to cover the balances so I don’t have to worry about overdrafts. I have neither interest nor missed payments, and I don’t have to fuck around with paper bills or logging in on the monthly to fork over the dollars.
It gets better – both my cards are among those that offer cash back percentage rebates. Not paying interest + bonus rebates = they are paying me to use their cards.
There are people who claim that this attitude towards personal debt is judgmental and unrealistic. I’m not going to bullshit anyone – if you aren’t making enough to pay down your credit card bills, then you are living an insolvent lifestyle and need to take a serious look at your income and expenditures. Also, you need to consider that there is no law of nature or society that says your finances are going to just work out; if you hitch yourself to a shitload of debt early in life, you might never get out of the spiral, and it will make your life difficult for decades to come, either in the form of continuing interest payments or in the painful process of bankruptcy. Use some discipline at the source; a stitch in time saves nine.
(Sidebar: I read an interesting discussion of credit-card debt that reframed the issue. Instead of thinking of your credit card balance as a debt that needs to be serviced via paying interest, instead consider the paying off of your credit-card debt as an investment/security of its own, akin to buying a bond or a certificate of deposit. The “yield” of the synthetic security is the interest rate you WERE paying.
For the sake of the argument: if I have $1000 in debt and I’m paying 10% interest on it, I’m paying out $100 a month for the privilege of having borrowed and spent $1000. If I “invest” $1000 in the paying off the principal, I now have $100 extra each month because I am no longer paying the interest on my now-paid-off debt. It’s a very motivating and rewarding way to think about unloading your financial obligations.)
Like the restaurants whose drinks I don’t buy, I’m told credit card companies are quite cross with those who stay out of the interest pool, and even have a pejorative term for them: “freeloaders.” God forbid I opt out of Bernankified loansharking.
Restauranteurs and financial creditors both make it easy for you to acquire a product that’s very bad for you, and to acquire it habitually – a cheap product they can move at high margins to their benefit. Get out of the habit, or better yet don’t get into the habit to begin with.