Walk into any mall in America and ask people if they would like a new car and I would suspect the vast majority of them would say yes. Walk into that same mall and ask people if they would like to pay more for their car insurance and I would suspect the vast majority of people would say no. The reality though is that these two things are not mutually exclusive.
In my last article I talked about intentional spending and I believe one of the greatest things intentional spending can help you avoid is phantom costs. I personally take a broad definition of phantom costs, from closing costs on your residence that are rarely mentioned until late in the process, to foreign transaction fees, to subscription services that you have forgotten about, to the examples below. Just as the Phantom in Phantom of the Opera, phantom costs are fees that lurk in the shadow of purchases that if you are not careful can destroy you.
I own a 2006 vehicle and thankfully due to the age of my vehicle, and my profession keeping the mileage down on my truck as I am rarely home, I pay very little in car insurance. If I were attempting to keep up with the Jones’ and were to purchase a new model, as Eddie Izzard jokes, “Americans hate old things”, not only would I have to pay $22K+ to purchase a new one, but my insurance would raise a minimum of $400-750 every six months. Think about all the times someone tells you about their new vehicle; they will brag about how they negotiated the price down and how they got a good deal, but they won’t tell you about how much their insurance went up, or how much more they now have to pay in property taxes. We like to conveniently ignore these costs, even though they can add up to be a not insignificant portion of our income. Completely ignoring the $22K that I could have invested as I have a perfectly good vehicle, the $1000 extra a year in insurance is a decent domestic vacation I would be sacrificing.
When I was living in NYC the way of the world was to never have food in your fridge and always order off of Seamless. I really liked the idea of not having to leave my apartment after returning from a long day of work and really wanted to follow the trend. The phantom costs though always prevented me from ordering. I would find places listed that were only a 5-8 minute walk from my apartment where the food itself would only cost $12, but if I were to order it delivered after the delivery fee and tip, which I view as phantom costs, I was looking at a minimum $17 and usually much more. An extra $5 every once in a while is worth it, especially after a really rough day at work, but when it is your modus operandi that is $25-30 extra dollars a week just for dinner. For the year this $25-30 in phantom costs adds up to around $1,500. That $1,500 could be rent for a month or two.
If we do not buy things intentionally, the cheap option can actually wind up being more expensive due to phantom costs. On tour I have gone to staying in Airbnbs almost exclusively as I can usually find options cheaper than the hotels that are being offered. If I was not being intentional and looking at the entire expense from every angle, I would just find the cheapest housing I could with good reviews and book it. Depending on the distance from the venue, doing it this way could cost me a hundred and fifty dollars or more from the cost of the Uber/Lyft to and from the venue. Thankfully, looking at every aspect of my purchase I am able to consider these costs before incurring them.
One of the most annoying phantom costs to me is service charges on Broadway/concert tickets. I have a show that I am going to see in August where the ticket cost is around $28. I went online to buy my ticket and selected the $28 ticket, but when I went to pay the price had jumped to almost $40 because of service fees. The next day I called box office and they told me that if I bought a ticket at the venue box office I would not be charged these extra fees. I posted on facebook asking for a favor and a wonderful friend who works about a block from the venue was able to purchase me a ticket thereby saving me $12.
Now, you may be looking at the above and thinking that that is way too much energy to spend just to save $12, but to me that is why phantom costs are so dangerous. We like to conveniently forget about them, or just look at them as the price of doing business, but when you add up all of your service fees and your delivery fees, etc. you are easily talking about thousands of dollars a year that can be avoided by making small tweaks to your habits. Intentional purchasing allows you to shine a light on every area and make sure nothing is hiding in the shadows.
