I have this theory about money.
Over the years, I’ve had several conversations with numerous friends on the topic of saving. On more than one occasion, I’ve had friends tell me they know they should be saving and they want to save, but they just don’t have enough money to save seriously. Maybe after this next promotion, this next bump in BAH with their next PCS, they’ll be able to start saving.
I, unable to keep my opinions to myself when it comes to money—even other peoples’ money—tell them the same thing. You won’t suddenly start saving once you hit a magic income number. Saving is a habit, a skill you have to consciously cultivate no matter your income.
My theory about saving is similar to the Fundamental Law of Road Congestion.
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The Fundamental Law of Road Congestion
The Fundamental Law of Road Congestion, while not the original research on this topic, was most recently popularized in a 2009 National Bureau of Economic Research Working Paper by Gilles Duranton and Matthew A. Turner. They research would later be featured in the American Economic Review Volume 11.
Duranton and Turner’s research on U.S. cities revealed that the kilometers of roadways, specifically highways, increased proportionally to the number of vehicle kilometers traveled. In other words, the more highways capacity, the more cars on the road.
I like this analogy because at first it seems counterintuitive, as do many principles of money psychology. There should be less road congestion as road capacity increases. How can more space for vehicles lead to more traffic?
According to their research, Duranton and Turner found increased highway capacity lead to an increase in commercial truck traffic, local resident traffic, and, to a lesser degree, general human migration.
Curiously, they found public transportation (specifically buses in this study) had little impact in decreasing road congestion. They noted the increased capacity created by someone taking the bus, instead of driving, was then replaced by yet another driver. However, they noted there could be other public welfare benefits to increased bus service besides decreasing road congestion. They did identify the increased price of driving, specifically tolls, was effective at decreasing congestion.
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In other words, the more highway capacity, the more people will use highways. The less capacity, the more likely people will avoid peak hours, reduce their number of trips, or presumably, use alternate transportation like buses, walking, or biking.
Unless you’re generally interested in city planning, then you’re probably wonder what this has to do with saving anyway? So, here’s my analogy. All this to say, human behavior is not static and will generally change proportionally to changes in their environment. I think this is true of driving as it is with money.
…And of Money
Now think of the highway capacity as your income and the road congestion as your spending. Using the Fundamental Law of Road Congestion as an analogy, without intervention, your spending will increase proportionally to your income. This itself is not an unusual concept. After all, why make more money if you can’t increase your standard of living?
Why don’t I just call it “lifestyle creep”? Good question. Perhaps it’s simply because I hate driving and hate that American cities were built for the automobile instead of the human—our wide streets, our narrow sidewalks, our treeless highways, and our isolated suburbs miles from the nearest food source. In modern American cities, the car is the chief resident, with human dependents.
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I hate this lifestyle, chiefly because it assumes car is king, without ever really asking the question, why aren’t humans? This mindset is probably why I’ve adapted to the urban (North)East Coast lifestyle so quickly despite my initial reservations. The simple fact is the Northeast was colonized before car was king, so the primary residents were, shocker, humans.
I have a colleague at work in her early 30s who does not own a car and doesn’t feel she needs one. It helps that she grew up in the Northeast and has never owned a car in her entire life. She let her lifestyle choices (i.e. where she wanted to live, go to school, and work) dictate the need for a car rather than letting a car dictate where she can live.
This dependency on the car is like our dependency on our external income to survive—we’ve so internalized this relationship in our culture that it seems the natural state of things, rather than by societal design. Depending on our jobs for income is usually our reality, but it doesn’t have to be our goal. While the reality of modern, community living is usually trapping pedestrians in vast, hot asphalt deserts where their lives (and livelihoods) are shackled to the reliability of whatever machine they can afford to buy and enslaving them to the soul-sucking job they can’t afford to leave—as if there were no other way.
Young millennials were taught, “if you love what you do, then you’ll never work another day in your life.” This was the “solution” to our capitalist cage but, we quickly found, was also a convenient tool to shame us for wanting more when our jobs didn’t provide the self-actualization we were promised.
“The sense of fulfillment isn’t enough for you? What a lazy, entitled generation,” we were told. But a sense of accomplishment won’t, after all, pay our student loan debt or the mortgage-like childcare which provides no asset, but merely the opportunity to work to afford childcare.
The true irony here is if communities were just built closer together, we would rarely need cars. And perhaps if we weren’t constantly fed the extravagant lifestyles of the rich and famous, we wouldn’t feel compelled to live at, or even slightly beyond, our means.
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We’re so accustomed to letting our income dictate our lifestyle that, in the beginning, it can be hard to conceive of any other way. This is just the way the world is, we sigh with resignation. The reality is, this is just one world of many. When was the last time you made a conscious decision about how you wanted to live, rather than what you wanted to live?
Money can buy much much more than things.
I started saving with $50 a month back after I graduated from college and moved back in with my parents. I had applied to the Air Force, but was still in limbo. I was making $11 an hour, taking home about $1,500 a month, and even in Iowa, even with no rent or mortgage, I was dipping into my savings about $100 a month to cover my basic living expenses and student loan payments.
Despite this, I invested $50 a month in an Edward Jones mutual fund. My cousin had recently started working for them and we opened my first investment account.
I didn’t know how exactly I was ever going to afford to move out of my parent’s house if the Air Force fell through. But I knew I had to start saving something anyway. Even if it was only $50 a month, I had to begin building the habit.
The Fundamental Laws of Saving
Building bigger roads does not reduce road congestion just like more income does not automatically increase saving. Your income and your savings are two distinct variables which need two, distinct plans for tending and growing. Saving is not intuitive in a capitalist culture designed for spending. The first time you start some new behavior, it will probably feel awkward and effortful. So, start small.
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First, we must actually want to avoid road congestion. We must have a reason to save be it something big like supporting a young family, buying a home, or being able to one day not work. Perhaps something small will be easier to start like releasing yourself from worry over whether you’re going to be able to pay an unexpected bill or not, or being able to say ‘yes’ to a spontaneous trip.
Second, we must have a transportation alternative to sitting in road congestion. We must have a vessel to put our savings. This is most likely going to be opening a High Yield Savings Account (HYSA), Individual Retirement Account (IRA), and 401K with your employer if you don’t already have these accounts. It’s hard to save if you have no meaningful place to put your savings.
Third, our new behavior must feel as natural—or ideally more natural—than our old behavior, otherwise our motivation will fade before habit can take over. For most people, this means setting up automatic contributions to your savings and investment accounts. It’s hard to miss what you never even had and it can be so motivating to watch that same money grow into a tool to buy whatever it is that you really, truly value.
Conclusion
Humans are often as simple as they are complex. We generally prefer the path of least resistance. Even if we hate traffic, we will commute an hour or more each way because we it’s no less convenient than any other method. Then, we will petition our community leader to build wider highways instead of simply building things closer together. It can be difficult to override this auto-pilot mentality, but with a little practice, it becomes easier and easier.
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Just as wider highways do not decrease road congestion, more income will not automatically lead to more savings. Saving is a distinct habit which we need to cultivate independent of income. We must…
First: want to save,
Second: have an effective place to put our savings, and
Third: make savings as easy as spending.
As we like to say in this blog, make a deliberate decision, not a decision by default. In this case, don’t let your current income dictate your lifestyle, decide the life you want, then utilize your tools to build it.
Easier said than done, I know. The reality of this journey is a multi-year, maybe multi-decade pursuit. The duration will depend on how lofty your goal. Only you get to decide your financial independence number. Only you get to decide what brings you real joy, real meaning, real value.
If you ever feel daunted in this journey, know you are not alone. There is an entire community of Veterans striving toward their personal, financial goals. And, after all, in the words of Theodore Roosevelt, isn’t it far better to, at best, know the triumph of high achievement, and at worst, fail while daring greatly rather than neither knowing victory nor defeat?
You may be out, but your story is far from over.
SOURCES
Duranton, Gilles, and Matthew A. Turner. 2011. “The Fundamental Law of Road Congestion: Evidence from US Cities.” American Economic Review, 101 (6): 2616-52.
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