The Monthly Payment Illusion
Terry Jones as Mr Creosote and John Cleese as the Maitre ‘D in Monty Python’s The Meaning of Life
In the Monty Python film, The Meaning of Life, Terry Jones plays a character called Mr Creosote, a grossly obese restaurant patron. After surveying the menu, Mr Creosote decides to order all the dishes, together with numerous bottles of beer and wine. As Mr Creosote consumes each course, he vomits over himself, much to the disgust of the other diners.
Eventually Mr Creosote finishes the meal and accepts the maître d's offer to eat a single "wafer-thin mint", whereupon his stomach rapidly expands until it explodes. A bemused Mr Creosote survives with his insides exposed. The maître d' then calmly walks up to him and presents, "monsieur, the check".
I think the Mr Creosote sketch is a great, if exaggerated, metaphor for a major issue that affects many people in relation to their money. That their spending gets so out of control that eventually it leads to a financial blow up.
Lifestyle creep is the term used to describe the tendency for one’s lifestyle costs to rise in line (and sometimes at a faster rate) with rises in income – and how this crowds out our ability to save and build wealth. I’ve previously written about zero budgeting, but in this post, I want to focus on how lifestyle creep is aided and abetted by what I call the monthly payment illusion.
Writer Seth Godin makes the point that money is the stories you tell yourself, and those stories can either help or hinder your financial wellbeing. Those stories are grounded in a mixture of your identity, your mental and physical state, and the cues you take from your environment, in the form of the people around you and the marketing messages you are exposed to.
Marketing is designed to make you feel inadequate, unfulfilled or out of step with other people. Buying the goods or services being marketed are held out as being the solution to your ‘problem’. Whether it’s that exotic holiday that will banish your blues, a beauty product that will make you more attractive, that sleek new car that will give you status and freedom, or the latest smart phone that will enable you to enjoy life more, money stories are all around you.
But there are other money related stories that are more subtle. Buying a house, or too much of a house, as a tangible sign that you are successful. Eating out too much to avoid loneliness or seek fun and excitement. Going on that stag or hen weekend in Prague of someone who isn’t a close relative or friend because you want acceptance. Buying the latest 52 inch smart TV (naturally with Netflix, Amazon Prime Video, Brit box, Now TV and Disney streaming services) so you can enjoy those nights in, when you can also order a takeaway from Just Eat or Deliveroo to avoid the hassle of cooking.
Marketers wants to help you justify and rationalise spending on non-essential and luxury things, and they also want to make it as easy as possible for you to buy by reducing what is known as ‘buying friction’. Some examples of how they do this include:
Buy now, pay later
Interest free credit
Car personal contract plan (PCP)
New build house purchase stamp duty refund
House part exchange for new build property purchase
Smart phone contract plan
Introductory discounted mortgage rate
Free legal and/or valuation fees on mortgage or re-mortgage
Unlimited cinema access
Zero interest on purchases for initial period on a new credit card
What all the above have in common is that they make your spending seem inconsequential, harmless and more affordable than is usually the case. They make it easier for you to justify such spending and to tell yourself a story that rationalises it.
“Monthly payments make your spending seem inconsequential, harmless and more affordable than is usually the case.”
In the episode of my podcast Sally’s Car Buying Folly 25 year old Sally tells how a few years earlier she convinced herself that she needed a new car and could afford the significant monthly finance payments. This was despite the fact that she had modest earnings, lived in a city well-served by public transport, and had the use of her father’s second car when he was away for months on end working on oil rigs.
Sally came to her senses a few weeks after buying the car and, despite losing over £2,000, she sold the car back to the dealer and cleared the finance. Sally told me that the £2,000 cost was a wake up call and made her realise that she needs to buy what she really needs and will value. For Sally it was a brilliant, if expensive and painful, money lesson to learn while she was young.
When I was looking to buy a nearly new car last year, the local car dealer couldn’t understand why I wanted to pay for it in cash, when he could arrange finance for me at ‘just’ 5.99% APR. As well as the dealer earning commission from selling me finance, another reason he wanted me to think in terms of monthly payments, rather than capital expenditure, was because that made it easier for him to sell me a more expensive car. When I explained that, in addition to the fact that I didn’t want to pay more – in the form of interest - for the car than the selling price, I didn’t want to have the monthly payment, the dealer seemed bemused ‘No one thinks like that these days!’.
The fact is the higher your fixed monthly living costs, including making allowance for those things that aren’t monthly but happen every year, then:
The less flexibility you’ll have in the event of a reduction of or stop in your income (one of the biggest causes of expensive unsecured debt)
The more you’ll need to earn to fund your lifestyle, possibly causing you to do work you don’t like or that causes you stress
The higher your emergency reserve will need to be to cope with future financial shocks
The less scope you’ll have to save regularly and build financial wealth
The higher probability that your sense of financial control and freedom will gradually reduce
Zero or low interest balance transfer offers (although they typically incur an initial fee of between 2-4%, and so aren’t technically zero interest) on new credit cards arise from existing debt, but they still contribute towards your monthly payment burden.
I’m not saying you shouldn’t spend on fun and luxuries, just that you need to be more mindful and intentional about such spending and try to avoid the monthly payment illusion and how it contributes to lifestyle creep.
My wife and I have relatively low fixed monthly lifestyle costs, which are aligned with our values and what makes us happy. If we want to spend on a luxury or fun thing we can, but it comes from our savings, not by taking on a fixed financial obligation. This in turn makes us more mindful over such spending, as we have to weigh up the benefit of the spending, with the permanent loss of the money from our savings account, and the implications that has for future freedom of choice and flexibility. And part of that flexibility is about the type and the amount of paid work I do. Low monthly lifestyle costs allows me to pick and choose who I work for and the terms on which I do so.
For many people the real cost of an expensive lifestyle caused by high monthly payments is a gradual slide into less choice, less freedom, and less options. Once you’ve built some savings and wealth, and got a firm grip on spending and have a lifestyle that is aligned with your true values, you’ll be living a truly rich life, not one based on the false money stories presented to you by marketers.
Say no more and yes less to harmful and unnecessary spending and avoid your own Mr Creosote moment.
Warm regards,
Jason
PS You can watch the entire 6 minute Mr Creosote sketch here but don’t do so if you’re about to eat!