Consider a nice round sum, like fifty bucks. Not exactly enough to assure your financial independence, but enough to start you thinking about different ways to spend it. So what will $50 get you these days? Here are a few ideas:
1. A relaxing, well-earned professional massage
2. A hoodie with your favorite band/team/brand logo
3. One night’s stay at a local airbnb
4. One (!) very low end Nike shoe
5. Date night at the movies including soft drinks and popcorn
6. First month of a standalone wifi contract
Now take a look at that list again. There’s one item there that’s very different than the others. Okay, you probably can’t buy just one Nike shoe, but no, that’s not the aspect I’m driving at. Can you spot the oddball?
It’s the last one! All the other items on the list are things that you buy one at a time. Each one is a separate $50 decision. Even if you repeat the date night regularly, or buy a different hoodie for every day of the week, those are individual decisions, at $50 a pop.
But the wifi contract is nothing like that! The contract represents an entire stream of expenses, vastly more than $50.
The decision to enter into it is much, much more than a $50 decision. $50 is just the first installment. Even worse, it’s only one part of the first installment. Worse still, the $50 portion of the first installment is as low as it’s ever going to be. It’s going to go up, possibly by a lot, and possibly more than once! See what I mean?
The wifi contract is like a wolf in sheep’s clothing: a massive, destructive gauntlet of expenses trying to innocently disguise itself as a mere $50 decision. The distinction is absolutely critical to your financial health, and now that you understand it, you’re able to view all your past and future spending habits with a powerful new insight.
Don’t bother searching financial sites for these terms, they’re Net Worthy lingo. As a general rule, we avoid coining new terms at I Am Net Worthy, because financial jargon is challenging enough. However, streams and pops are so critical to understand that they get special treatment. They’re even nugget-worthy!
Big pops tend to be either very bad, or very good. When you turn the corner in your car and the transmission fails - ouch.
Getting your car back into drive-able condition is a big, bad, unexpected pop. On the other hand, if you save up for months to take the trip of a lifetime, that’s a big pop too - but this is a pop you’ll be excited about. Either way, bad pop or good pop, it’s front and center on your financial radar screen. It’s extremely unlikely that you’re going to forget all about your upcoming transmission repair - or your fast approaching travel adventure.
Streams are the exact opposite, in every way. They occur over and over and over - sometimes as monthly bills, sometimes as everyday habits, and every variation in between. They’re a steady drip, drip, drip from your financial bathtub, and they lull you to sleep. You’re aware only when you begin a new stream, but even then you dramatically underestimate its effect as the size of the first installment, not the size of the entire stream. When the second installment comes around, you’ve already accepted it as the new normal, and don’t give it much thought at all, if any, thereafter. Unaware of the effect of one stream, there’s little to stop you from adding another, then another. “It’s only a few bucks a month!”
How many times have you wondered, “Hey! Where’s all my money gone? I keep thinking that I ought to have enough for some really great pops. I don’t remember making any big, unusual purchases, but still, there never seems to be anything at the end of the month.
So where did it all go?”
Now you know where it went.
Those deadly streams snuck up on you. Don’t feel bad, you just didn’t understand the danger. But now you do, and it’s a whole new ball game!
Let’s go back to the wifi contract. How big is that stream, really? How big of mistake have we made by thinking of it as a $50 decision?
Most important point first - the $50 rate doesn’t last. It’s only there for the first few months, to entice you to sign up. Then, it goes up, usually to whatever the provider deems is the “prevailing rate” at that time. You actually gave them permission to do that, in all that fine print that you agreed to, but probably didn’t read. Anytime you see an ongoing stream of expenses, with the first few payments lower than what follows - these are called teaser rates. Teaser rates are designed to make you say “oh, boy!” but from now on, you’ll say “uh oh!”
So now, let’s add up the whole stream - the expiration of the teaser rates, then all the charges on top of the rate, like taxes, regulatory fees, rental charges for the required equipment (router, modem, etc.) required, installation - all presented in a murky, hard to decipher billing statement. Are you ready for the total? If it’s a one year contract, your total wifi stream ends up being about $1,100.
Gulp. If it’s a two year contract, more like a whopping $2,400. That’s not a $50 decision, that’s more like a $50 decision times fifty!
Now, in the cold light of day, you can see exactly how the seller has tried to game you.
They want you to think about a $2400 decision as if it were a $50 decision. They want you to spend as much time deciding about wifi as you would picking out a hoodie.
Trust me, the sellers are not confused at all on this point.
It’s called a recurring revenue business model, and it’s the Holy Grail of retail sales. They know that if they can get you to sign up for an expense stream, you are extremely unlikely to do anything to stop it. Better still if they can get your payment information in advance, and automate the whole stream. Better still if they can get you to authorize an automatic renewal (a continuation of the original stream) in advance. They’ll pitch all that to you on the basis of how very convenient all this is for you.
They’re extremely aware that this is no $50 transaction, even though they’re doing everything they legally can to get you to think of it that way. This is a very old tactic, but the age of smartphones, apps, and ecommerce has given the recurring revenue model an explosive resurgence. Entire industries (cable and satellite TV, cellular plans, subscription plans for content of all kinds) are built on it.
The wifi example is an illustration of a stream at its nastiest. Call it an extreme stream, complete with teaser rates, payment authorization required in advance, agreement to bewildering legal terms and conditions up front, the works. But streams come in all shapes and sizes.
Even an expense that you completely initiate yourself each time can turn into a habit that you repeat over and over without thinking about it. The classic example is a daily trip to the coffee shop for a latte. It’s much lower stakes, but the stream mentality is just the same, even without teaser rates or contracts.
You think about the price of the latte the first time or two, then after that, it’s a mindless habit.
But here’s the truth: it’s NOT a $5 latte, it’s a thousand dollar annual habit, and deserves the same amount of consideration as any other thousand dollar decision.
Wrong mentality: “It’s only five bucks!”
Right mentality: “If I could only have one, would I choose a coffee shop latte every workday, or a thousand dollar trip somewhere I’ve always wanted to go, to a new destination every year, or an extra thousand dollars each year into my Roth IRA where it can compound towards my financial independence?”
As long as you frame the question that way, there’s no wrong answer. It’s your money, you can spend it how you want to. (I get it, some people really like their coffee!) All too often, however, people end up choosing the first option, without ever really realizing that it means giving up the other two.
The point here is not: never sign up for a stream.
Instead the point is: evaluate every stream for what it really is, and make your decision about it with your eyes wide open to the true financial effect. If you do, you’re far less likely to say yes to a new stream.
Streams won’t kill your financial standing suddenly or dramatically.
The effect is subtle and seductive, cumulative and corrosive.
Since it’s so easy to add stream after stream without really realizing that’s what you’re doing, you can slowly, incrementally arrive at a position where your whole discretionary budget is gobbled up by streams. You might dream of a life where you’re regularly enjoying some really meaningful, fulfilling pops - sometimes this is called intentional spending - only to discover that such a life isn’t possible when you’re held hostage by a motley collection of random, impulse-buy streams.
It’s a frog-in-a-pot-of-boiling-water situation.
If you haven’t heard that illustration before, it goes like this: throw a frog in a pot of boiling water, and that frog will immediately jump right out of it. But if you put a frog in a pot of cool water, then raise the temperature of the water by one degree an hour, eventually the water will be boiling, but the frog will stay put because the change was too gradual to be noticeable at any one moment.
Maybe that’s you!
Maybe you’ve added a stream here, a stream there, without fully realizing how big those decisions were. It doesn’t take too many “$50 decisions” that were underestimated by a factor of fifty to leave your monthly budget in a badly damaged state. Maybe that’s why reading about all these streams has got you boiling mad!
There’s only one way to jump out of that pot, and that’s to take a thorough, item by item inventory of your streams. Once you see them, listed out and added up, then you’ll be a position to make some big, game changing decisions. You might quickly identify some streams you can kill altogether, either immediately, or as soon as the current contract expires. Maybe there are other streams you can replace with other, much smaller streams. Of course, there might be a few that you feel fine about leaving as is.
The sooner you take an inventory like that, the sooner you can escape that boiling water!
We’re here to help. Now is the time to replace years of casually accumulated streams with a conscious, deliberate and intentional approach to spending your money.
Below is the Net Worthy Monthly Stream Calculator. You can use it to do just that. To help get you started, below is an explanation of the major categories of stream expenses.
Streams are broken down into these four primary categories, with one page in the calculator per category:
1. Precommitted Streams
A stream is considered precommitted if you’ve made a formal agreement to pay over a specific period of time. Usually a lease, or some other form of contract is involved. Typically, you’ve also provided some kind of payment pre-authorization (credit card or bank/credit union). You might be able to shut off this kind of stream, but it may involve a financial penalty if you do. Sometimes the best thing to do is to let it run its course, then replace it with a smaller stream, or not at all.
Rent and mortgage payments are included in here, too. They’re special kinds of streams to consider (see Volume 5 of the I Am Net Worthy series, Houses) because you have to live somewhere; even so, the same familiar “stream mentality” and all of its pitfalls often comes into play. For example, if you’re renting in a place because of a particular amenity that you find you never use, remember you’re continuing to pay for it each and every month.
Another consideration: if you’ve got some extra space, and want to really cut your stream down to size, consider what adding a roommate/tenant or two would do to your monthly living expense stream. These may be the hardest, most inconvenient types of streams to change, but they can also be where the biggest opportunities to reduce total streams are.
2. Insurance Premiums
This category of stream is special in that we’re definitely not encouraging you to cut down on your streams by eliminating whole insurance policies. Instead, the idea is to see if there are sensible ways to cut down on the the overall insurance stream. One way to do that is to investigate bundling, i.e. get a single insurance carrier to provide multiple policies for you, such as car and renters/homeowners policies. Another possibility is to raise some of your key deductibles in order to reduce the monthly premiums. Still another is to look for areas of overlap between policies which can be trimmed or eliminated; if you’re injured in an auto accident, both your car insurance and health insurance may be covering you redundantly.
3. Prearranged Streams
The modern world makes certain things sooo-ooo convenient - like spending your money. Widespread connectivity, smartphones and thousands of apps have combined to make spending money virtually effortless and instantaneous. That’s where “prearranged” streams come in. Unlike precommitted streams, you haven’t specifically made any obligation in advance to spend a specific amount. But it’s just so darn convenient to spend, that you usually do - month after month.
“Prearranged” means you’ve already established a relationship or account, and a convenient way to pay. Food delivery services. Ridesharing services like Lyft and Uber. All kinds of entertainment content, from Netflix to Spotify to Hulu. No one of these may be huge, and (you tell yourself!) ”I can cut these to zero any time I want to.” Maybe so, but it’s certainly worth going through the whole prearranged category and getting a good handle on the total amount that’s “conveniently” coming out of your financial bathtub each month.
4. Everyday spending habits
These don’t need a special explanation; the help bubbles in the calculator will give you all the guidance you need. You’ll get the idea right away.
Your monthly savings goal is super important. You’ll arrive at this specific, quantitative goal after careful thought and consideration, and you’ll only change it on rare occasions. It's called your "magic number."
One-time windfalls represent special opportunities to accelerate your progress, and you should consider them carefully. Before deciding what to do with a windfall, impose a cooling-off period.
A pay raise is another special opportunity to accelerate your progress. Decide how to handle such an increase consciously and deliberately. Consider this strategy for building net worth: a little for now, the rest for the future.