The Key to Frugality: Avoid the Fear Tax

By G.E. Miller on 14 September 2010 (Updated 6 July 2012) 5 comments
Photo: Capture Queen

Have you ever purchased something for one of the following reasons?

  • If you didn't, you wouldn't look good enough.
     
  • If you didn't, others might think less of you.
     
  • If you didn't, you weren't rewarding yourself like you should be.
     
  • If you didn't, you would be missing out on something more in life.
     
  • If you didn't, you weren't safe enough.

We all have. And probably multiple times every week. And we probably didn't think about it at the time we handed over our hard-earned money, but we were paying a tax on our fears. And in doing so, we were playing right into the hands of marketers and advertisers. Damn! (See also: Look, But Don’t Touch: Avoid Marketing Manipulation)

Almost every purchase has a fear tax option

Perhaps there are a few items out there still that don't have a fear tax on them, but in my little brainstorming session here, I'm having a hard time thinking of them. Sometimes these purchases are more expensive versions of necessities. Other times, they are the things we don't need at all. There are the obvious ones:

  • You want to have a nice looking vehicle because anything less might be looked down upon by neighbors, co-workers, or the next hot date, no?
     
  • The shiniest, fastest, most advanced cell phone to stay on top of the latest trends.
     
  • Your entertainment? HD and Blu-Ray is the wave of the future. You wouldn't want to get behind and miss out on the obvious upgrades.
     
  • That custom tailored suit so that you can look the best in your next interview or business meeting.

Then, there are some less obvious but incredibly costly purchases that you'll be taxed on:

  • An MBA from a top 5 business school. Otherwise, why would the best employers want to bother with you?
     
  • The extra $300k on your spouse's life insurance beyond what you realistically need if they were to pass away.
     
  • That lower deductible on your car insurance, because why the heck would I want to pay $2,500 if I got in a total wreck?

And even the most basic of necessities have a fear tax associated with them.

  • The organic dog food vs. the regular version because Fido will be healthier and live longer.
     
  • The organic human food vs. the regular so that you can live longer.
     
  • That premium gasoline so that your vehicle's engine lasts longer.
     
  • And don't forget the 2-ply toilet paper, because one is never enough!

Is overcoming the fear tax the key to frugality?

Not 100%, but it sure is a huge part of it. There are smart frugal things you can do to shop for the lowest price, cut down your total consumption, reuse things, etc. — but even then, the fear tax is at least an influencer in all of those strategies.

So how do you become '"fear tax exempt"?

It takes years of training, goof-ups, and trial, but it all starts with one simple question you should ask yourself every time you are about to complete a transaction:

"Am I purchasing this (or paying too much) out of fear?"

If the answer is no, then congratulations.

If the answer is yes, the follow-up question you may want to ask yourself is:

"Is it worth it?"

Overly simple? Yes. But it's a practice that many of us forgo all to often.

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Guest's picture

Great post! I've never really thought of these type of purchases as "fear" purchases before, but you're totally right! In some cases, paying a higher insurance premium or other such things may be beneficial, especially when we are in high-risk situations, but on most occasions the insurance never ends up being used, and lower cost plans suffice. I think it's so important to classify "needs" vs "wants", and the fear purchases definitely don't fit into the "need" category. We also need to make sure we're not convincing ourselves that we "need" something out of fear. For more on classifying "needs" vs "wants" and for more tips to avoid overspending, check out my blog post on Living on Less: http://jaynsteele.wordpress.com/2010/05/21/strategies-for-living-on-less/

Guest's picture
Nick

Great post! I just did a post about a similar topic - needs v. wants. Here is a list of questions I like to ask:

Do I need this;
Why do I actually need this;
Is there a better alternative;
Is there a simpler alternative;
Is there a cheaper alternative;
Do I need this now;
Why can't this wait; and
Why do I need to buy this exact product or service, from this company, at this time, from this store?

Guest's picture
erzebet

You may be right about some of them, but even then, some things are more valuable for you than to others so it really pays to pay more upfront. You might also say that people that have an emergency fund do that out of fear - but i find it the most rational way of dealing with bad days. Maybe i am scared when i prefer a good cheese to some junk cheeseburger, but the taste is a lot different:) Some choices are not made out of fear, but out of good ol' planning.

Guest's picture
Guest

This is a good article but, in my day this was called trying to keep up with the Jone's . Thanks for sharing . http://hubpages.com/hub/Frugal-Granny

Guest's picture
Kari

When it comes to food I guess I fall into this trap. I have a really hard time buying generic food. What worries me is that the ingredients won't be as good of quality or it will be in a factory that is dirty or does things half @ssed. I think, there has to be some reason that this is cheaper and not a good one.