One Thing Leads to Another

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I love writing this blog everyday.

I love the structure of sitting by myself for an hour and getting my thoughts down on paper (screen).

I love editing my posts and whittling away at the extraneous in order to bring out the central.

And I love rambling on and on about subjects that are interesting to me without risking boring everyone else around me with my ceaseless droning.

But it’s a blog. It’s not a diary. And one of the very best things about having a blog with a growing readership, is reading the comments section and learning new things from my readers.

One such comment came in a couple of days ago from reader, Robert in response to this post.

In his comment he introduced the idea of “carrying costs,” to me,  and in reading his reflection I immediately became intrigued with how complementary this concept was to my initial understanding of lifestyle inflation.

In my post “blowing up,” I wrote about how I experienced lifestyle inflation upon transitioning from cardiology training, to private practice.

My explanation was almost entirely behavioral, or psychological. If I had to boil it down to one sentence it would be something like this: We are psychologically wired to always want a little more than we can afford, and this tendency makes it very difficult for us to live within our means.

But the explanation of “carrying costs” is more structural, and less psychological.

To use the example of the purchase of my house which I wrote about in “blowing up,” it’s not simply that I was a baby who wanted to buy more home than I truly needed. It’s also that in buying a bigger house, I committed to an inexplicit greater future cost. Property taxes are higher on an expensive house than a cheap one. When the roof goes bad on a large house, it costs more to fix than on a small house. Keeping a house warm during an ice storm, is exponentially more expensive in a large than in a small house.

And this observation is obviously not limited to houses.

Expensive cars are expensive to upkeep, fuel, and insure.


There are hidden costs to being classy

Fancy-schmancy gyms have higher monthly dues, more expensive workout clothes for sale, and higher cost classes.

Expensive hobbies like golf, skiing, and sailing all have expensive equipment to buy at the start, but continue to cost more on an ongoing basis in terms of new purchases, equipment upkeep, and fees.

And the consequences of these carrying costs can be profound.

So when we spend money on unnecessarily expensive things we are really moving backwards financially in at least three separate ways.

1. Opportunity Cost: We are burning money that could be put to better use. The prime examples of “better use,” being to eliminate debt, or build up savings.

2. Deflation: Money spent, and not saved loses a tremendous amount of its own potential value. We are in a sense deflating our own currency.

3. Carrying costs: Spending too much money now is a commitment to spend too much money later. And this commitment might be the most insidious. As we collect more and more unnecessary purchases, our carrying costs go up in combination with other carrying costs making it more and more difficult to get by on more and more money. It is the ugly flipside to our savings’ compound interest working for us, and silently moving us closer to financial freedom.

And I like the symmetry of this picture.

It is not simply that we are weak, or irrational, in how we make our decisions. There are also fundamental mathematical factors at play here that are not immediately obvious to us.

For me the antidote to mindlessly following my own irrational yearning for more was the realization that buying things was, in effect, spending freedom.

Perhaps the antidote for unnecessarily taking on carrying costs will simply be to realize that they exist.

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4 Responses to “One Thing Leads to Another”

  1. Robert February 11, 2014 at 6:11 am #

    There is also a psychological carrying cost associated with accumulating toys. I found that the more stuff I had, the more there was to stress about. Stuff breaking, needing maintenance, etc. It isn’t just a financial cost. There is a definite psychological cost. I describe it as feeling the albatross around my neck. Letting go of extra stuff not only reduces financial carrying costs, it also reduces psychological carrying costs. Thus, simplicity brings freedom in more ways than one.

  2. Miles Dividend MD February 11, 2014 at 3:35 pm #

    Great point Robert.

    I have an inherent discomfort with spending money that can be explained in part by your psychological carrying costs.

    I’m not sure where it comes from, and I will admit that this discomfort can be another barrier to my own “freedom,” but maybe I’m getting too far into the weeds.

    Thank you for your always excellent perspective. As you can see I benefit greatly from it.


  3. Syed February 13, 2014 at 7:47 pm #

    Love the carrying cost concept. Well not for myself but for seeing how ludicrous it can be to buy expensive toys. A new $50,000 luxury car requires specialized maintenance and can carry higher insurance costs than a used $20,000 car from the same manufacturer (Lexus vs Toyota anyone?). It’s a sure way to slowly erode the power of your money.

  4. Miles Dividend M.D. February 13, 2014 at 8:34 pm #


    Thanks for your point. It is a good one.

    I think the “carrying cost” concept is an important one too. (I’m so glad reader Robert introduced it to me.)

    I try not to judge conspicuous consumption too harshly because I’ve been guilty of it myself! But I do think it’s very empowering to be given the tools to see the true cost (and value) of things, in order to avoid further unwise decisions in the future.

    If one felt that a Lexus was worth all of the additional cost over a Toyota, then who could argue with him purchasing it? My intuition tells me that if people saw the true cost of things, though, they would usually choose differently.


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