The Subscription Trap or Where Does All My Money Go?

Baby Boomers are used to putting checks into envelopes and paying bills by mail.  Millennials and later generations were quicker to embrace the concept.  According to Statista, 48% of Baby Boomers use online banking while 69% of Gen X and 77% of Millennials take that approach.1  Writing checks at the end of the money gives awareness and control over where your money is going.  Subscription services and automatic debits confirm the saying: “Money talks.  It says goodbye.”

Do you help clients with budgeting and financial planning?  Do some say they cannot save and have have no idea where their money goes?  It is time to take a deep dive into their automatic debits and subscription services.  You have heard of “Good debt and bad debt.”  There are also “Good debits and bad debits.”  Let us look at the different ways money leaves your client’s checking account as soon as it arrives.

Good Debits

There are expenses you pay every month because they need to be paid.  This category also includes “pay yourself first” items.

  1. Mortgage or rent payments.  These folks want to be the first bill you pay.  The bank or property management company often requires it.  This makes sense.
  2. Overhead expenses.  This might include your homeowners insurance and power bills.  These need to be paid. Paying via automatic debit might save you money.  It is easy to forget what you are paying or not pay attention to price increases.  Periodically shop your plans for price comparison.
  3. Car payments.  Like your monthly mortgage payment, your lender might insist on automatic debits as a way of paying off your car or making lease payments.  This makes sense.
  4. Retirement plan contributions.  Your 401(k) contributions come out of your paycheck before it even hits the bank through direct deposit.  If you have IRA contributions as an automatic debit at your bank, that makes sense too.  This comes under the heading of pay yourself first.
  5. Dollar cost averaging.  You might be investing in the stock market with specific dollar amount payments made on a monthly basis.  Good idea.  This is another pay yourself first strategy.
  6. College loans.  Once you start paying them, automatic debiting is a good way to see your payments always arrive on time.  Another good idea.
  7. EZ Pass renewal.  About 86% of Pennsylvania drivers use EZ Pass.2  this probably holds for other states too.  This makes sense, but try to remind yourself from time to time what tolls actually cost.

Other Debits

Some other automatic payments or subscription services might be important to you personally.  This is a convenient way to pay.  Others might be for services you thought looked interesting but now rarely use.

  1. Meal kits.  You decided learning to prepare gourmet food during the pandemic was a good idea.  You signed up to a program.  You cooked at home for a while.  When pandemic restrictions eased you went back to dining out regularly.   Are you making use of the meals you are buying?
  2. Computer extended warranties.  You have lots of technology at home.  When you buy a new desktop, laptop or printer, you are asked if you want the extended warranty. The device you bought may come with a one-year warranty included.  How long do you own devices before you replace them? What is the replacement cost?
  3. Your wireless plan.  These can get expensive, because you have both voice and data.  You have multiple devices.  You may have been buying a new phone over time as part of your plan.  Learn about carrier phones and unlocked phones.  Do you pay high monthly fees just because it is convenient? 
  4. Dating services.  This is another form of subscription service.  Many people subscribe to more than one platform.  How many do you have?  What are they costing you?  Do you use all you are subscribed to recently?
  5. Airline clubs.  This makes sense when you fly or travel a lot.  An airline lounge is a great benefit.  The lounge membership costing you $600/year may also be available at $60 for a day pass.
  6. Car maintenance warranties.  You see these advertised on TV all the time.  Your new car warranty covers you for a set period, then you are on your own for repairs. Are these a good deal?  Do some research.
  7. Appliance warranties.  These are also advertised on TV.  You are likely buying protection by the type of device.  What is this costing on a monthly basis?  What are your alternatives?
  8. Home security system alarm monitoring.  This can make sense, especially if you travel.  The concept someone is watching your alarm system and contacting the police on your behalf makes sense.  It adds the human element.  Are there different services you can choose?  What do they cost?
  9. Charitable contributions.  There are many worthy charities.  When you see ads on TV, they talk about contributions in terms of “X dollars per month” which means you are signing up to make contributions automatically into the future.  It eliminates the need for the charity to ask you to renew.   If this is what you want to do, that is fine. You might prefer to write them checks when on your timetable.
  10. Political contributions.  Sometimes people contribute to political causes on a recurring contribution basis.  This is something you might choose to do.  If you have committed to a political cause, was it a one shot deal or are you unaware you have been making continuing contributions?
  11. Gym memberships.  This category also includes online exercise programs you enroll in and pay for on a recurring basis.  If you joined a gym and workout regularly, this is great.  If you stopped going to the gym months ago, why are you still paying monthly membership fees.
  12. Magazine subscriptions.  Some publications work on an “auto renewal” system.  Once you subscribe, you stay a subscriber until you opt out.  If you aren’t reading the magazine, why are you paying for it?  Unsubscribe.
  13. Cable TV subscription.  You might have a service  you consider basic, but the number of TVs in your home requiring converted boxes adds up.  Know what you are paying and your alternatives.
  14. Streaming service subscriptions.  The average American household has four services.3 How many do you have?  Do you make enough use of all to justify the costs?

Your client might complain they cannot save money.  Multiple subscription services and automatic debits might be the reason.  Help them understand where their money is going.

Related: How Your Superpower Can Lead to More Business