Money Hacks: The maintenance mental model

A few weeks ago, we asked our users to share the models they use to help them make better choices. We’ve received excellent feedback, like the below submission from Gerrie Butler. We’ve been spending more time on models, because decisions can sneak up on you. When you have to process a lot of information in the moment, it can be difficult to separate important information from noise. Mental models are templates we can use to make sense of information in order to make better decisions. This applies to our finances, for sure, but we can use these models for any decision.

The maintenance model

Around the same time I discovered The Fat Wallet Show some three years ago, I developed and obsession with maintenance.

Everything you have in life needs to be maintained: from physical assets to investments to personal relationships to your job, your health and your mental state of mind. The more you have, the more you need to maintain. Some of these “things” are extremely maintenance-intensive and in some areas you have finite resources available to support this maintenance. In absolute terms, the maintenance model has some flaws but for me the principle is sound.

Non-tangibles: maintaining your abilities and relationships

Let’s get a few non-financial ideas around maintenance out of the way first. If you are a professional athlete you have a lot of skill and fitness you need to maintain. That maintenance comes at a cost. The time, effort and money you spend on maintaining your athletic ability inevitably requires sacrifice elsewhere, whether it be in time or finances or experiences (like skipping bubbles). That doesn’t mean you shouldn’t do it, but owning that ability requires maintenance. It leaves fewer resources for other things. Likewise, you can have 2,000 acquaintances, 50 friends and perhaps three or four very close friends. Why? Because it takes resources to maintain relationships. Even if you don’t think about relationships it in terms of maintenance, it is right at the core of it. Some relationships require so much maintenance that you have to completely forego others.

Physical stuff: Ownership = maintenance obligations

Consider wheels: almost everyone wants automotive bling with power and features. Most of us consider what it takes to maintain a full tank of fuel so we grapple with the necessity of a trip and the fuel economy of the vehicle. I’ve been blessed to earn a decent income. In the days before I discovered Fat Wallet I spent it recklessly. As a result I own a luxury British SUV and acquired the fastest car that I could find under a Swedish brand. I love both cars. The Swede is super reliable, but costs a fair share to service now that it is out of maintenance plan. The Brit is horrifically expensive to keep on the road. The brand is loved by outdoor enthusiasts and drug lords alike but is notoriously unreliable. I never miss a service and have been lucky to have no major breakdowns in the 13 years that I’ve had it, but to give you an idea – replacing the windscreen cost me R12,000 a few years back. Had I discovered the maintenance model of decision making earlier in life, I would never have bought it. It’s not worth much at the moment and for as long as it remains reliable I will maximise the cost per use.

For a list of the most and least reliable car brands, this video is a must see.

There’s an equally long story about my house which you’ve already covered it on the show. Big house, massive maintenance, inclusive of utilities and people just quoting you more to do the same job.

Recurring expenses – maintaining future commitments

The single biggest factor in my own financial wellbeing is my aversion to recurring future expenses. I hate them. I would rather spend money I have now than tie up my future self with financial commitments. Almost all debt is avoidable. Wait, or go without. Pay upfront when you have the cash. If you don’t have the cash, wait until you do. Buy cheaper, rent, Uber, or take the bus. If the math suggests a car, buy the cheapest reliable car until you can afford to buy another one cash. Don’t ever take a cell contract that includes a phone. Buy the phone and look after it. Put 5% of your phone value into your emergency fund on a monthly basis and don’t insure it. When your emergency fund is stocked, split out your self-insurance portion and start diverting your insurance premiums to your own account. If possible, rather buy software than rent it. MS Office cost me something like R2,000 once-off, but now it is only R120pm for the rest of my life. Do the math. Be very careful when you subscribe to anything. Don’t sign up for anything that you can’t cancel at any point. By means of example, I support Outa and Daily Maverick and a number of charities, but I can cancel all of them in five minutes flat should my finances go south. You can’t do the same with DSTV or your Vodacom contract.

Investments demand maintenance

There is an implicit maintenance cost in almost all investments, whether it be the TER or EAC. It’s a somewhat liberal interpretation of the word “maintenance”, but for me the TER is nothing other than what it costs the service provider to maintain their financial product. I also need to invest my time and grey matter to establish and maintain my investment strategy. The idea is not to avoid all maintenance, otherwise we’d all keep our money in cash. The idea is to maximise return for the maintenance it requires. That’s why passive investing appeals to me – it offers little maintenance for relative outperformance. Please don’t send me glossy market reports or invite me to free seminars just because you ripped me off elsewhere. Investments don’t need climate control, seven airbags or twin superchargers. I’ll take the Toyota Tazz, thank you.

Money hacks

Each week, we receive incredible money hacks from a growing audience. This week’s submission comes from Gerrie Butler.