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Reduce Your Recurring Expenses by Limiting Subscription Services

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One way to quickly lose track of spending and break your budget is subscription services. The recurring expenses are tricky because they can quickly go unnoticed and unused. As a result, you can find yourself paying for a number of services and benefits that you fail to utilize. Alternatively, canceling subscription services is often a challenging or time-intensive process. Even after canceling the service, you may be surprised to see a charge on your credit card billing statement months after the time of your cancelation. While some subscription services are to be expected, make every effort to keep the recurring expenses to a minimum.

Why should I avoid subscriptions?

Subscriptions are great for businesses because they lock the customer into a continuous payment plan. As such, the customer becomes a steady stream of revenue, rather than a one-time purchase. However, the upside for businesses is the downside for consumers. When you sign up for a subscription service, such as Netflix, Apple Fitness+, a gym membership, or Audible, you have to utilize the benefits on a regular basis to make the value worth the price paid. For example, if you are paying $7.95 per month for Audible, but you only listen to one book a month, it is very likely that you could simply purchase the audio book for less than your on-going subscription. However, if you listen to 10 audiobooks a month, then the value may justify the price.

One of the dangers with subscriptions is autorenewal. If you do not use one of your subscription services often, it is easy to forget about it altogether. However, the issue arises in that your subscription will likely renew automatically upon expiration, resulting in an ongoing expense. Additionally, the lifetime cost of the subscription is significant. For example, when downloading an application, such as a budgeting app, from Google Play or the App Store, you may be offered the option to purchase a lifetime license or pay the monthly subscription. To purchase the lifetime license, it may cost $19.99, while the monthly cost is only $1.99. This low monthly cost is enticing compared to $19.99; however, if you use the app for an extended period of time, the monthly subscription will surpass the lifetime license cost. In this example, simply using the app for one year under the subscription model will result in a yearly cost of $23.88, which is more than the lifetime license. Therefore, consider the recurring and ongoing cost whenever subscribing to a product. The lifetime price will often pay for itself after a short duration. Alternatively, it may be worth considering the monthly subscription if you want to test out the product first. If you test the product for a month and decide the app does not have the features you want, you can cancel it and save the $18 had you paid for the lifetime subscription. However, this only works if you track such subscriptions and cancel them in a timely manner, which is often where consumers fail.

Common Subscription Services

Now that you see why limiting subscription services is important, you are likely questioning what recurring expenses you currently have. To identify ongoing subscriptions, take a look at your monthly credit card statements and checking account statements. Carefully review all the charges to identify subscriptions you are paying for and determine whether the value is worth the cost. Here are some subscription services to look for when searching your billing statements and bank statements:

  • Video streaming services (Netflix, Disney+, Hulu, etc.)
  • Memberships (fitness/gym, Amazon Prime, etc.)
  • Protection plans (AppleCare)
  • Cable TV
  • Gaming services
  • Music streaming services
  • Cloud storage (iCloud, OneDrive, Google Drive, etc.)
  • Food/meal delivery services
  • Wholesale clubs (Costco, Sam’s, etc.)

Are subscription services worth it?

Once you identify all the subscriptions you currently have, the next step is to determine which ones you use on a regular basis. If there are any subscriptions that your rarely use or no longer use, cancel those first. After canceling those services, consider the remaining services that you pay for and determine which ones are providing a value that exceeds what you pay. For example, if you pay for a meal subscription service, and you regularly fail to eat several of the meals, causing you to discard the food, then you have to calculate the per meal cost. If you pay $8 per meal and order 7 meals per week, but you only consume 5 meals, then your actual cost per meal is $11.20. At this point, you have to consider the quality of the meal and compare it to alternatives such as cooking or eating out. This is a relatively simple example, but the same logic applies to video streaming services or any other subscription. The less you consume from your subscription service, the more expensive each individual item becomes. Therefore, if you have a flat-rate subscription cost, you obtain the greatest value by utilizing the subscription regularly.

Impact of Eliminating Subscriptions

Consider this example of what you could save by eliminating two subscriptions services that each cost $10 per month. If you place that $20 per month in a Standard and Poor’s (S&P) 500 index fund and continue contributing over a 10 year period, assuming an average annual return of 10%, your investment would be worth around $4,000. At this point, if you cease contributing any more money and simply let that $4,000 sit for another 10 years in your S&P500 index fund, the value will grow to over $10,000. The growth demonstrates the value of compounding and how seemingly insignificant monthly subscriptions can provide considerable future value to you if invested. Therefore, consider turning your expenses into investments.

Conclusion

The value of a subscription is largely dependent on your lifestyle, interests, and how often you utilize the subscription service. If you utilize it daily or multiple times per week, the value is likely worth the cost you pay. However, always be aware of the subscription services for which you are paying. Periodically review your monthly credit card and bank statements to identify your subscription and ensure cancelled subscriptions are not populating. Finally, consider a one-time payment for a lifetime subscription or license for products you know you will utilize for the foreseeable future (e.g. purchase the Microsoft Office lifetime license instead of the Office 365 subscription service). Granted, this is only an option in certain product categories, so it is unlikely you will be able to eliminate all subscriptions but keep them as minimal as possible. Doing so will reduce your monthly expenses and provide additional money to put towards your savings goals or increase your purchasing power. If you turn these subscription fees into regular contributions to in an investment fund, such as the S&P500 index fund, the power of compounding will be a pleasant surprise.