• Smart Investing

Save Money by Managing Monthly Subscriptions


In our last Blog post we talked about music subscription services and how the cost is hidden by the “low monthly fee”. Subscription services have become more and more popular as companies have seen that they can make more money from you by charging you a monthly fee rather than charging you a one-time cost.

There are many examples including most software sold to companies and individuals. Microsoft Office used to be sold as a one time license cost that would be available to the user in perpetuity. In reality the license would expire eventually when the version you purchased became obsolete but still the concept was that you paid once and got to use the software for a number of years. But today, almost everyone pays a monthly fee for the same product. Companies have found that the lower monthly cost makes it easier to make the first sale (in the case of Microsoft Office, back when they used to offer both the monthly subscription and the one time option, the Home version was $230 for a one time purchase or $100/year on a subscription – it was easier for most to buy the subscription). It’s not all that different to how leasing has become a more popular way of getting a car over the past few decades. For most people it is easier to decide to pay $400/month for a lease versus $30,000 to buy the car outright (even though most get a car loan).

The change from one time to recurring makes a lot of sense for business. First, it is easier to make the initial sale. How many times have you signed up for the free month of service planning on cancelling after the first month but never getting around to it? Most of us do this, which is why many of us have subscriptions to Amazon, Netflix, Hulu, HBO and other entertainment options when we said we would just do the one month trial and just cancel it. That is also true for the plethora of subscription services we subscribe to – Boxes of consumer goods, meal and produce services, enrichment programs for the kids, dating apps, gyms……etc…..etc…..etc.

In fact, you might not realize just how much you are spending on these subscriptions. Just for fun, take 10 seconds and estimate how much you are spending monthly on subscription services.

10

9

8

7

6

5

4

3

2

1

Got it? Write that number down.

Now, let me give you some categories of subscription services.

  • Mobile phone

  • Wi-Fi

  • Movie/TV services

  • Amazon Prime

  • Music streaming

  • Fashion subscription boxes

  • Gaming services

  • Cloud storage

  • Beauty subscription boxes

  • Book services

  • Home security systems

  • Diet/fitness apps

  • Children’s subscription boxes

  • Identity protection monitoring

  • Digital newspapers/magazines

  • Web hosting

  • Meal-kit services

  • Lifestyle subscription boxes

  • Dating apps

  • Wellness apps

Now, take 30 seconds and referencing the categories above, do a more complete job of thinking through all the subscription services you have.

30

29

28

27

26

25

24

……OK, just take 30 seconds and come up with a second estimate.

What I’ve just did is replicate a study done by the Waterstone Group ("America’s Relationship With Subscription Services”) - of 2,500 consumers (US based). It had three parts, the first two I’ve just asked you to complete.

  • First, people were given 10 seconds to guess how much they spend on monthly subscriptions.

  • Second, it gave specific examples of such expenses (as reminders) and gave them 30 seconds to guess again.

  • Finally, the survey walked them through 21 categories to determine average monthly spending.

The results were surprising (or maybe not if you are a frequent reader of Smart Invest Canada):

  • The average of the first guess (10-second) was $79.74 per month

  • The average of the second guess (30-second) was $111.61 per month.

  • The average true cost (after a category-by-category check) was $237.33 per month.

How do you compare to these numbers?

We can learn a couple of things from this study. First, while subscription services are more popular in the US, it is likely that you are spending more than $200/month on them – that’s more than $2,000 per year. Second, for most people, they really have no idea how much they are paying for these subscription services.

But there is hope. The solution to managing to the forgotten subscriptions is to force yourself to look through your credit card or bank statements from time to time, look at each recurring charge and see if it still makes sense. I know it is hard to cancel that gym membership that you haven’t used in the last 6 months, but it is time to get honest with yourself about its value. Perhaps that wine club membership sounded good at first but now you have 82 bottles of wine sitting in your basement – maybe it is time to stop it. And you probably paid very little for the first 10 bottles. I bet you are paying a lot more now. You’ll probably also find some subscriptions where you signed up for the free trial and forgot to cancel it - the entertainment subscriptions (Netflix, Spotify) are the most common culprits here. Companies are counting on you forgetting to cancel so don’t let them take advantage of your busy life and the fact that you have too many things on your mind to remember to cancel.

Of course there is also technology you can use to better manage your subscriptions. Apps such as SubscriptMe, Truebill or Trim go through your credit card and bank records, identifying subscriptions and helping you through the process of rationalizing them. Remember that one $19.99 subscription is over $200/year, this intermittent rationalization process makes sense.

There is nothing wrong with subscription services are there are plenty of examples where, for the average consumer, you actually save money on the subscription versus paying the upfront cost. For the Microsoft Office example I started with, a family would actually have done better over the long term with the subscription versus the upfront cost since the subscription came with a number of licenses. That wasn’t true for the individual user. But the message is clear – just take one rainy day and go through all the subscriptions you have and cancel those that don’t make sense – you might save hundreds or even thousands a year.

#personalfinance #wealthmanagement

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©2020 BY SMART INVESTING FOR CANADIANS

All articles herein are presented as an educational resource and should not be considered as professional financial or individualized investment advice. Readers should always exercise their own judgement when making any decisions about their money.

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