AAR65 - Where Are People Wasting Money?

0:00Now, this episode may seem kind of negative from the title, and I promise it's only slightly negative, not entirely negative. The goal here is, as always, never to shame people, but it is to acknowledge some consistent financial issues with people's spending that may be a bit off, that might need a bit of a wake-up call to make the changes they need. There's no shame in that. There's no issues. Just some of us need to kind of have things said aloud to make a big financial change for ourselves. And I know that I have had decisions in the past that if people didn't kind of acknowledge aloud or if I didn't hear kind of a parallel story to it, I never would have fixed it.

0:33I would have just kept kicking the can down the road. So enjoy and I hope you can find something that helps.

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2:35Good morning, everyone, and welcome back to at any rate. My name is Evan Ray and we're here to help you make sustainable financial changes without breaking a sweat and this morning please welcome back again the investor who has never wasted a single cent in his entire life Andrew Sather how are you doing oh man do not go back like no time machines on this please yeah yeah no time machines and also no going back one episode two episodes when we're specifically talking about mistakes that you made financially. Yeah. Yeah.

3:08Evan:That's like every episode at this point. I almost don't want to shop anymore. Yeah, that's fair. That's right. It's kind of a negative space for you and it might happen again this time. Who knows? It depends on whether you resonate with any of these or not. 100%. So the goal of today's episode, like, uh, like I mentioned in the, in the intro is to discuss some things that are kind of common financial missteps that people make that cause them to just, we're going to use the strong word here of waste money. It just causes people to throw money down the drain for something that maybe they do or don't realize.

3:42It doesn't have to always be some big intentional act, you know, of your torching your money on purpose in some direction. But sometimes it's just silent things that you may not even realize is an issue up front. And if you are doing some of these or have done some of these, there is nothing wrong with that whatsoever all we want to do is improve and if you're doing none of these then congrats i guess you passed this episode with an a plus plus and i'm happy for you're probably in a pretty dang good financial situation yeah um for the rest of us though for the for the rest of us one or two of these isn't it doesn't hurt too much um so the first thing we're going to start off with here is financing things that you specifically things that you either can't afford or should just pay for in full um this is something that that i haven't done but it is something that i have see constantly available to me and it kind of came to mind because i had a recent example where there's this concert that my wife and i want to go to in november i think it is regardless some some concert festival that we want to go to and you know it costs like 150 160 bucks or something like that which is not cheap but but frankly that's sort of normal for concerts nowadays i mean we can talk talk all day about how expensive things have gotten but that's not an outrageously high amount of money to spend on something like that necessarily but the immediate option that pops up to you when you're starting the checkout process is well if you just put 20 bucks down today then you could get into this concert and you don't have to start paying us off you know until the until the concert happens and then you start paying us back or whatever um you know it's interest-free for x number months and and i've talked about it before where when we purchased all of our furniture for our house how mind-boggling it was to walk around furniture store and see lamps labeled as two dollars fifty cents or see couches labeled as twenty four dollars because it was all this is how much you would pay per month if you purchase this and again it would be interest-free for x number of months or whatever i think that that mindset that that's kind of being injected into society is is just crazy it's awful and it shows how unaffordable things have gotten um but i think that if you start applying that to things like concerts things like lamps or couches or whatever which are things that either either you can afford and you should buy or in full or you can't afford it and you just need to save up for it um there shouldn't really be a middle ground there in my opinion i think that if you try to go into the middle ground you're gonna you're just gonna start paying out the nose um or not properly planning your finances because suddenly you lock yourself in yourself into all these monthly payments to pay off all these things that you don't really account for or budget for necessarily because it's so many pieces to keep track of and it just your finances become chaos if you start falling into this trap um so my hard and fast rule like i said is either pay for it in cash if it's not you know we're not talking about a car or a house necessarily but if it's a reasonable to purchase below that pay it in full or save up for it if you can't afford it that's crazy how much they're pushing it down their throats like even i was on amazon the other day and it was like

6:58Evan:oh yeah you're missing out on like 500 bucks because you're not opening our credit card or whatever right uh when i go close shopping same thing and even i was like buying a plane ticket the other day and it was tempting like i was completely intending to pay it in full but they make it sound so appealing um so like obviously we know the consequences of that as it can spiral and then now you're paying up for things that was like three years ago and it's just like you have nothing left for today so what would be your advice idea for somebody who's gotten in one of these spirals of like, how can you say today is the day I stop?

7:40Evan:And, uh, and then, you know, this is something I just don't do moving forward. Yeah, that's a, that's a good question for the, I will say since I've never, uh, used any of those services, I don't know what the payoff requirements look like. If they allow you to, to pay it off easily without any, you know, fees or prepaying interest or whatever. Um, then I think the first goal would just be pay off whatever balances you're currently holding on all those and i would say to be able to pay it off and also to avoid doing this in the future really focus on having savings built up somewhere for purchases like this whatever it was for you maybe like like andrew mentioned maybe it was a plane ticket or a vacation you know you bundled something with expedia and then and then paid it off as you went or it was a couch or a concert whatever it was make sure that that you structure your finances is such that you have a separate amount of money it doesn't have to be a separate account but some separate lump sum amount of money that you that you deposit into periodically or every paycheck or every month and you build up spending money over there that's sort of like people called a sinking fund short-term savings fund whatever money that you save up that you know you're going to spend relatively soon but you're not going to spend it yet and so you're setting it to the side that way when that vacation comes up or when that you decide to get a new couch you have moneyed to directly pull from so that you know you can pay it off instead of saying oh now i want to buy a couch i don't really know where to pull this money from i haven't really planned to because i wasn't planning to buy a couch necessarily and so i didn't save up for one and now i i have no way to afford it other than using you know the the interest payments or the partial payments but if you have some kind of general sinking fund that's not necessarily destined for anything specific then again you have that lump sum of money to pull from to pay for it directly and not only is this good because it stops you from paying it off or forcing yourself to pay it off in installments but it also it gives you a lot more peace of mind when you purchase that couch because even if you you decide to go with the installments nobody's going into that stress-free you feel like you're locking yourself into something you may not entirely understand the impacts of it or want to you know look into the impacts of it but you know you're signing up for something and but the the peace of mind that you have of okay i want to buy this couch let me just pull this money that i already set aside anyways boom couch is paid off now i own the couch and it's gone from your mind that is a very different workflow for your for your stress levels for your your um just peace of mind during that purchase that is for me the most enjoyable way to purchase things is knowing you have the money to pay for something instead of scraping by to pay for it or in this case not even being able to pay for it in whole whatsoever yeah it really is a feeling like that i didn't expect would feel so good um you can actually spend money without guilt which is very yeah um the only other thing i would add to that 100 agree with all of it we did a episode aar 58 where we talked about if you have debt that you've piled up, the different ways you could go about fixing it.

10:53Evan:And Evan and I sparred. And it wasn't as exciting as a robot fight, but that was still a pretty decent fight. So you can hear the different sides of strategies that people use to pay off debt. Yeah, beautiful. That was a good episode as well. And we did get into each other a little bit there. It got a little bit serious. But if you just look up AAR58, you'll be able to find that on any podcast platform. We'll go ahead and move on to the next topic, Andrew. Yeah. So the next one is going to be upgrades you don't need. This is stuff that maybe can be impulsive. It's you, you don't realize at the time you're like, Oh, I, especially if your personality is like, you just get really excited about things.

11:37Evan:And then you just look back and it was like, what did I do yesterday? they you know um and that can be kind of a crappy feeling too of um it seemed like you needed this thing or that it would really be a level up in your life and then you you look back and you're like ah i really should have had some money to buy this or or whatever it is so things like and uh you kind of like i felt like you're attacking me here but like personal items like phones die the newest iphone like i feel now like a hypocrite i didn't realize this was going to happen but like i do finance my iphone there you go i don't there you go um because that's a bill that's different that's your cell phone bill um now i'm realizing maybe that's not the best move but playing tickets getting getting the the extra first class or or something these all things are like when you can afford it, when you have the cash set aside, a hundred percent, like no, no, no, no, no changes need to happen.

12:46Evan:But if you're in this place where you're like, man, I feel like I'm not making progress. Uh, I feel like I just run out of money by the end of the month. Uh, I feel like I'm not investing like I should, then these are all things to be cognizant of and try to live with more awareness of, of really where your spending is going. Um, I don't know, in my mind, having a budget really helps identify these because you might not even realize you do it. Upgrades around the home, I think, can be a huge one too. Yeah, I think the caveat to all this is, like you said, if you have a budget or if you have a sinking fund set aside, if you deliberately make sure you save and invest enough, but you also throw some spending money to the side, then you can blow that money on whatever the heck you want.

13:34You've already budgeted that in and made sure that you can save. But if you don't do that or you're just kind of flying by the seat of your pants or kind of approximating things or just doing it mentally, doing the math mentally or whatever, then I would say that you shouldn't be spending on any of these for that reason that you're just going to dig yourself a hole in one way or another. Phones is also something that I fall into so that we can check both of ourselves for that. But phone installment payments are so easy to sign up for, and they're bundled with your plan, and there's upgrade paths, early upgrade paths and everything.

14:08They're so easy to fall into, and frankly, until we were just discussing it, like you felt, it was just one of those things I kind of took for granted. I almost exempted it from any other installment payments, but I completely agree with you. it shouldn't be exempt and i think that it should be included in you know pay for it with with a sinking fund of some kind have money set aside and then whenever you decide to get a new phone pull it from there pay the phone off in full and just handle it that way um and so that that will now be my goal to to reach that point where the phone is paid off and then i just buy a new phone in full whenever i decide to um but in terms of upgrades upgrading my phone was also something i I fell into very, very strongly in the past.

14:57Previously, believe it or not, I was even more of a nerd. Well, maybe not more of a nerd, a different nerd. And so I was obsessed with phones and phone upgrades and what new was coming out. And I would always keep track of it and watch all the YouTube videos on all the changes that were happening and the upgrades, even the minor little things. and I would get so obsessed and into those little changes and little upgrades that were happening that I would want them so bad that I constantly wanted to upgrade my phone and try the new thing and not miss out on having access to that thing, you know, for a year or whatever, until the software comes to the older phones, all those games that companies play, I would fall into absolutely all those.

15:35I've gotten a little bit better about that now, but like we talked about, I still have a phone payment. I still have a phone installment payment. and so even though I'm not using the newest phone I'm still locking myself into these payments so for upgrades that you don't need I actually watched a YouTube video pretty recently of a guy talking about how he has tried to conquer the issue of overspending on new upgrades like retail therapy like we kind of talked about before the episode just spending because it feels good or it feels exciting and he was talking a lot about how he focuses on what what will change with the output of whatever that device or you know service or whatever that purchase is um so say it's a phone for example what what output in in your life would change for you if it would just be little experiences on the phone then that doesn't change much if it you know say say you do work on your phone and you know you you use the camera on your phone for work and there's a big camera upgrade on the new phone then okay that could be a genuine output change of the device and so it could be worth it for you but if the camera didn't really change or you don't you know use photography as a job then the changes that happen on the phone are probably going to give you no new output or value in your life and he was giving the example of cameras he he's into photography and he wanted to buy a new camera but when he really looked at what would he be able to make with that new camera that he couldn't make now there was nothing and so it kind of took away that that uh that excitement of something new in his head and replaced it with the with framing it as okay well now i want to get excited about what will change and when there's nothing for the excitement to land on then it kind of just dissipates and makes it a lot easier to decide not to just purchase something new because it's exciting um and so that's a mindset that i kind of want to try to take forwards as well i think it's something that i've kind of passively done here there but if it's not really a focus of mine then i'm just going to let it go in the long run so i want to focus on any new purchase that i want to make or upgrade that i want to make focusing on what kind of new output will that give me or change in output or improvement in output will that give in my life how have you focused on trying not to just willy-nilly spend money on upgrades just because it feels good?

18:05Evan:Yeah, I think for me, it's like awareness and visibility. Again, to beat a dead horse, but budgeting is really such a huge thing for me personally for getting my finances in a place where I feel good about them. And a lot of it too, it's not just about creating rules for yourself of like, I can't do this or can't do that. But like half the battle is actually being aware of where your money is going now. So whether that's through like a budgeting app that kind of does it for you and makes it really visual or whether you're like me and you like spreadsheets and you like to count things, doing that exercise, if you've never done it before, it really shows you like where you're spending money, where you're spending upgrades that maybe you didn't even realize.

18:50Evan:uh one of the things i know it's like maybe a touchy subject uh especially today because like so many people are going on vacation this summer like um that's been on the news and stuff but like we go on vacation what to rest relax recharge and so sometimes some of these upgrades feel like well this is what i need to rest recharge you know maybe i need to um go to the fanciest restaurant or whatever it is, or upgrade your plane ticket so you feel more pampered. Not saying any of those things shouldn't happen and that that's not the point of a vacation, but there's more strategic ways to do it where if you have budgeted, okay, I'm spending$1 ,000, I'm spending$2 ,000 on this vacation.

19:42Evan:Then it goes instead of like, I'm not allowed to do any upgrades, it becomes more a decision. do I want to go to a five-star restaurant or do I want to go first class? You can choose which of these upgrades you want to prioritize. And that way you've planned for this. You've been mindful. It still fits in the budget. And so you can kind of tackle all the things that you were already trying to do. I like the way you phrased it, output. What's the output of this? I'm going on vacation to try to recharge. Okay, you can still make that happen. you can still do these upgrades that make you feel pampered if that's what you're going for, but you're doing it in a strategic way where you've already thought about it and you've already allocated the capital.

20:26Evan:And I think it's just like a more powerful way to live. Yeah, I think that's a really good framing. And to add kind of using the example of vacations, I think that when we try to bundle a bunch of upgrades in our life, like say maybe you're getting a new car and you're like, well, I deserve a nicer car, but I also deserve this upgrade on the car and I think I need this package on the car and you suddenly start stacking things on there I think that um when you kind of improve everything about a certain purchase again could be the car could be the vacation it it makes none of it feel that special because it feels like well it's all big it's all extravagant and so no part of it is is particularly special or unique whereas using the vacation example say you know it's going to be a relatively budget vacation a reasonable vacation but we're going to have one you know five star dinner on there that's going to be a big deal and it'll be a celebration or whatever that makes that five star dinner feel so much more special and unique and a standout part of the vacation whereas if you just start blowing money on every aspect of the vacation then suddenly it it all it like it'll all be fancy and all be enjoyable for that reason but none of it will feel like some big standout thing because it all just blended it was all luxury you know whereas if you make things stand out then you can look forward to them and maybe the cars is another example where you get a decent car you don't get all the upgrade packages but you love having really comfortable seats and so you get you know the seat upgrade package with a nicer leather or whatever now every time you get in that car you're going to see those leather seats as something unique and special that you decided to spend money on and it brings you happiness and excitement every single day.

22:03Whereas if you just went and bought a hundred thousand dollar car, those leather seats just blend in everything else. And it kind of just becomes a, you know, the hodgepodge of luxury where nothing really stands out to you.

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24:43Evan:Or why something is the greatest thing since sliced bread? There are answers to those questions. Everything Everywhere Daily is a podcast for curious people who want to learn more about the world around them. Every day, you'll learn something new about things you never knew you didn't know. Subjects include history, science, geography, mathematics, and culture. If you're a curious person and want to learn more about the world you live in, just subscribe to Everything Everywhere Daily wherever you cast your pod. Moving on to the third topic here, we've got just piling money. And specific, this is piling money with there's no compounding, There's no focus with the money.

25:20There's no buckets of the money that you're putting it into. This might not be as long of a topic as the others, because it's very similar to a lot of the other content that we focus on and harp on. But we're not harping on it just for the heck of it or to fill space. We're harping on it because of the genuine impactfulness of it. But if you're somebody that just piles up money in a random place, specifically savings account, checking account, or cash, those are really the worst places that you could just stockpile money in. And if you're somebody that is specifically saving and piling to any of those kinds of places, then I would say this moment, stop.

25:55Please stop and start putting the money somewhere else. It's okay to have some money accessible to you. If you want to have a little bit of money under your mattress for a rainy day, I don't know what good the money is going to do you with the rain. It can't stop it. But regardless, have some money for a rainy day. Then that's completely understandable and reasonable. That's your sort of emergency fund and you want it liquid and accessible to you. I will concede that. but if that is your primary place to pile up and save money then that is just a flat out mistake in my mind there are places that you can put the money where it can build up and compound and turn into a lot more money in the long run while still saying still saying very accessible to you and completely liquid and you still own the money you're not you know giving your money to some dude who's gonna go invest it in crypto and promise you 10 000 bucks by the end of the week it's still in a very reasonable insured place.

26:47And some of the best places to just shift it over to would be something like a high-yield savings account, or you can put it in funds, sorry, not funds, bonds, or money market funds, somewhere else where the money's going to be locked in. It's not going to be going anywhere. If you want it to be really liquid and still always accessible to you because you're worried about it, then a high-yield savings account is probably the best place. If you're willing for it to be a little bit more locked up but still secure and insured and nothing's going to happen to it and it's predictable how much it's going to grow then something like bonds or money market funds could be a good place as well but the important thing is that if you're just letting it save up in cash it's it's just going to dwindle away in the long run um you know if you think about your grandparents for example if they 60 70 years ago started just piling money up under their mattress for them a lot of money for for to have saved under a mattress might have been a thousand bucks nowadays that would no longer be a lot of money to have you know just piled up over years and years and that shows clearly that if you just left it there it would turn into nothing whereas if theoretically grandma and grandpa had access to a high old savings account back then and they started stockpiling the money in there then it could have turned into tens and tens or potentially hundreds i don't i don't have the math in front of me right now so don't quote me but it would turn into many many more thousands of dollars than it would have if it just sat there doing the way due to inflation um so i think this is one of the the easiest or probably the easiest mistake on this list to avoid but arguably the most impactful because that doing the right thing now is only going to compound and and make a bigger and bigger difference over the long run

28:30Evan:yeah and you know i get the i get the philosophy behind it i've heard stories you know entrepreneurs or six figures in the checking and just doesn't want to think about it, doesn't want to look at it. But with interest rates now for high yield savings around three, three and a half, 4%, depending on the month, like you really are leaving money on the table and it doesn't need to be this huge thing where you're in there every week, you know, fiddling with an account over here and account over there. Again, And a one-time effort to put some automations, and it can still work in the background where you don't have to touch it, but you're still automating and the things are going automatic.

29:14Evan:So yeah, you like to just keep everything in your checking account because you don't have to think about it. That can still happen through a couple of simple automations, and you'll still be making interest on that money, which, come on, why not? And then you can use that if you want to treat yourself like you're leaving money on the table. It just, I don't know. No use in leaving money on the table. And I understand the wanting not to have to think and worry about it. There's ways to do it where just put a little bit of time into it at the beginning and then you'll have benefits from doing that.

29:56yeah and and like kind of alluded to there are literally no downsides to doing it's still i mean potentially you could even see it as an additional upside in the way that it might feel secure under your mattress but if something happens to your home if you get robbed whatever that money can just be gone out of nowhere if that money is in a high old things account and something happens to that company well that account was fdic insured and so it's insured by the backed by the government up to like 250 grand. And so you will get your money back from the government because you basically had insurance on your money.

30:27Whereas your cash, it's not insured. It could get ripped up, it could get stolen and it turns into absolutely nothing. And that's kind of a patent example of a situation that I think it's very common to just pile up money. But for me, it made a massive difference was when we were saving up for our home, for a home down payment, we were saving that money in a high old savings account. and that was for the reason that we didn't know exactly when it would happen and so we wanted to make sure it was liquid and accessible without paying a bunch of taxes or you know trying to make a bunch of sales and all the markets down right now you know not falling in any of that but just from having the money in a high old savings account instead of having the money in a checking or savings account where it would have been just as liquid but it wouldn't have been growing we we earned thousands and thousands of dollars on interest just from the money sitting in a different account.

31:16And I know for a lot of people, if you're thinking, oh, you know, within the next couple of years or whatever, we think we want to buy a home, so we'll pull money and put it in a checking or savings account so it's accessible to us. Logically, that makes sense, but you're just going to be missing out on having a lot more money by the time you purchase the home by just having the money in a different account versus a high-old savings account or something like a high-old savings account. That made a genuine difference for us and made a genuine impact on what our down payment could be and also how much money we were able to have left over after the down payment.

31:52Just as a kind of anecdote for us, if it hadn't been in a high-old savings account, either we would have had to reduce our down payment by that much or we would have kind of been scraping by after the down payment and had hardly anything left over for just general life spending but also like an emergency fund in case something happens to the home right after we get it or whatever. that was a massive peace of mind a huge piece of importance for us that we would not have had or would have had to tweak a lot if we hadn't put the money in a high-eld savings account yeah I mean great example for sure

32:27Evan:let's move to the next topic which I struggle with this because I don't struggle with this so I don't really have good advice but it's overspending on gifts I've heard that there's the love languages and one of the love languages is gifting to other people so maybe this is something you would have better advice on but for me it's just not my thing receiving gifts, giving gifts so you can call me a Scrooge if you want I still do give gifts but I do it in the context of a budget so that just sounds all terrible and not fun so I don't know Like, I don't know what the antidote is to overspending on gifts.

33:12Evan:I know it's all well intentioned and, and, um, obviously it's a way to express love to the people you care about. Like as a receiver of a gift, I don't want you to go into credit card debt to buy me a gift. You know what I mean? So, um, I don't know, like it could be a, a, a sensitive thing for, for some people out there. yeah i think that the key for he uh for me here is that the issue isn't spending at all on the gift or spending a little bit of money or a good bit of money on a gift it's just over spending on a gift it's it's blowing a ton of money towards something that you don't need to and instead for me a gift is about showing effort and showing care and thoughtfulness and that doesn't have to cost a lot of money obviously it can if somebody really loves a particular color on a yacht and so you decide to buy them that yacht with that color then okay fine they went together but often we just spent we overspend on gifts just because we we kind of substitute spending a lot more money for coming up with a thoughtful genuine gift and i think that that's kind of just part of the american culture sort of that's something we're used to and this kind of seen as normal but also frankly credit card debt is seen as normal and making bad financial decisions is seen as normal.

34:33And I think that spending a ton of money on gifts is one of those examples. Um, I think that the dollar value is far less important again than the effort that you put into it. And I know that there are also a lot of people to kind of feed into a previous topic here is there are also a lot of people that will buy, for example, jewelry for their partner that they can't afford to pay in cash. And so they will finance this, you know, this gold necklace or something like that, that they purchased for a partner just because they can't afford it up front. And I, this, this, from my point of view, this is becoming a more and more common trend.

35:06And I bet you it's going to be an even more common trend once Christmas time comes around this year and people go buy a ton of gifts and they just say, well, I guess a bracelet costs, you know,$800 now, and I can't really afford to spend 800 on just a bracelet. So I'll just finance it. And people just get themselves in the, in the tough financial situations, um, just to overspend when, again, you could have made that person feel much much more special if you'd come up with something unique and thoughtful to them than just found something with a high price tag to try and make it seem thoughtful just from the amount of money you spent on it yeah and if uh if that person only loves you because you got them the bracelet or whatever then maybe you reconsider that person yes yeah 100 100 i it's just it's it's it's conflating spending a bunch of money with with actual care and that is that's dangerous for for any relationship and it's dangerous for your money um but speaking of kind of holidays if you want to save up and spend more money then that is completely okay but just make sure to set up something like a sinking fund or a christmas fund ahead of time if you save towards it and you can afford the 800 bracelet then it doesn't necessarily become overspending that is money that you prepared to spend and had enough saved for the second that it becomes something that you have to finance or something that you're scraping by to make happen or makes you uncomfortable to spend that amount of money any of those actions or feelings i think are good indicators to pull back and cut it back significantly and maybe you know cut the amount of money in half see how you feel and then go figure out something that fits in that amount of money um and i guarantee you if the first amount of money made you uncomfortable, half of it will probably still be enough for you to get something decent.