Businesses love monthly subscription services, also called recurring charges. Why collect money just once from a customer when you can collect from them again, and again … and again?
Even better than that: Most of the time, the recurring charges just happen, magically, without the customer's intervention … unless they want to quit, of course. It's easy to forget about the charges. Which, of course, is exactly what the businesses want you to do! They don't want to give you a regular opportunity to re-evaluate whether you need their service or not.
Here are a few tips on how to put these charges in the correct perspective:
- Figure out how much the service costs per year. The monthly fee can make a service seem cheaper than it is. f you have an $83/month gym membership, that's $1,000/year. A bit less cheap, no?
- Figure out the cost per use. For that same gym membership, if you average 20 visits per month, that's a little over $4/visit. IIf you pay $10/month for a DVD rental service, and it takes a week on average to get a CD, watch it, return it, and get the next one, then you're paying $2.50 every week to watch a movie, regardless of whether you actually watch the movie or not.
- Regularly review your bills. Prices rise. And way back when, you agreed to a whole bunch of terms and conditions — which you almost certainly didn't read in their entirety — that stated that by continuing to use the service you agreed to accept said cost increase.
- Regularly re-evaluate your charges. Ask whether or not you're getting value for the services you're being charged for. If not, then cancel at the earliest opportunity.
The (recurring) pendulum swings both ways
I'd like to highlight how Done By Forty cast the statement described in the last tip above:
All things being equal, a dollar of recurring-cost savings has more impact than a dollar of earnings. This is because recurring-cost savings can cut money out of your baseline spend forever, while no income can be guaranteed over the long haul.
Baselining is wise to do. It not only works for bargains, but it also works for budgets — particularly on the expense side. How much is going out the door each week / month / year for various recurring expenses? Find out if you don't know. It's a good gut check, and a good opportunity to discover all of those charges you may have forgotten about!
Here are a few benefits to ditching some of those recurring charges that aren't bringing value to you anymore:
- It frees up cash flow for some other purpose, just as if you were paying off a debt. That outflow is gone. That outflow can be directed somewhere else, or into a savings account, where it accumulates with time. Aim a money hose at a bank account and watch it fill up.
- Reduced expense baseline means more time to weather a storm. If you have to go without income for a while, you can go without income for longer if less money is going out the door. It buys you time to replace the income stream.
- Reduced expense baseline means less money needed to retire. If you can live on less, you'll be able to get more years for your money if / when you stop working. A million dollars goes a lot further if your expenses are $20k/year than if they're $100k/year.
Other benefits? Other takes? Let us know in the comments!
