The Rule of 173

The simple Rule to see your actual cost of expenses

What is the true cost of your payments?

I remember the first time I went to a car dealer and bought my Jeep Wrangler 2012. First off, I did everything wrong you think you could do. I went on January 1st, bought impulsively, and gave the dealer all the cards when selling to me. And he sold me well. Thankfully I paid off the car in a year, and I will never buy a car like that again or finance it.

One thing that stuck out to me while we were "negotiating" (or fleecing me for all I was worth cause of how naive I was) was that he pitched the monthly price, not the total price. I thought, "Yeah, I could afford $500.00 a month." That nice new jeep that wasn't like my old beat-up cars of the past.

Why did the dealer do this? Because he didn't want me to focus on the considerable scary number of the total price but focus on the smaller monthly number. He even used a paper to illustrate the monthly price and kept asking me. "Do you think you afford this price?". It was masterful, and looking back on it, I learned a lot from that experience.

If you take one thing from this story, don't go to a car dealership on January 1st; research before you go. I tell you this story because the salesperson did to me what we do to ourselves every day. He made me focus on the smaller monthly expenses and not look at what would cost me in the long run. With the Rule of 173, we want to do the opposite. We don't just want to look at a small monthly expense. We want to see what the value would be in the long run had we invested it instead.

The nitty-gritty of the math

The Rule of 173 estimates how much a monthly expenditure would be if you chose to invest for ten years, assuming a conservative 8% return. For example, if you paid $10.00 for a Netflix subscription (remember when it was that cheap). You would calculate its total value in ten years. $10.00 * 173 = $1,730.00, meaning that $10.00 monthly is worth almost $2k if you invested it.

Why this is important

It is just another way to feel the expenses and spending you have. Anytime I want to buy something with a monthly fee like a subscription, this helps in decision-making. This is especially helpful if you are a natural spender starting your financial independence journey.

Who shouldn't use this

I love using this method when thinking about the potential cost of something. However, there is a tension to manage. When you spend your money, you should be able to enjoy it. If you have your big rocks taken care of: your savings rate is a baller, and you are maxing out your retirement plan and budget fun money, then stressing about a $3.99 monthly subscription isn't necessarily the best use of your time.

Conclusion

The Rule of 173 is a great way to feel the impact of your recurring monthly expenses when investing in it. This allows us to create a gap between impulse and spending so that we consciously put our money toward our values. Don't let it paralyze you in spending on things you genuinely enjoy but do let it help you from impulse spending!

Disclaimer

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This article is informational; it should not be considered Health, Financial, or Legal Advice. Not all information will be accurate. Consult health, financial, or legal professionals before making any significant decisions.

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Updated 11/2/23