Avoiding Monthly Payments & Subscriptions
Last post I discussed looking at cutting down on the big expenses vs the small expenses in your monthly budget. Once you’ve analyzed your “Big 3” expenses categories closely (rent, transportation, and food) it becomes tricky to make changes to those areas. However, small expenses are more subtle and are easier to cut back on.
We have turned our focus towards those areas. One way that we do this in our monthly budget is to avoid monthly payments whenever possible.
Everywhere you look you’ll see marketing that promotes “just 5 easy payments of $19.95” or purchasing with “$0 down for the first 6 months.”
Our culture turns everything into “low monthly payments” making it appear like you can afford it. Just because you can afford the monthly payment right now doesn’t mean you should be buying the item. This is a dangerous way of thinking.
You need to think in terms of the full item cost and the opportunity cost of spending that money. You’re allocating future dollars for present spending. With each new debt payment you add, you’re increasing your baseline expenses and limiting your future options.
Many people think they can afford a $30,000 car because they can afford the monthly payments at the moment, yet they fail to consider how much they’ll be paying in interest over the life of the loan and the potential investment gains they could be earning instead. This happens with mortgages as well, people buy larger homes than they need and get locked into high mortgage payments for decades.
Also, many companies are migrating towards a subscription model. It seems to be all the rage lately, but we avoid subscriptions if at all possible. It’s too easy to sign up for a subscription service and then forget you’re paying for it. Many people do this with their gym membership, signing up for a year-long membership or monthly fees and then not utilizing it enough to make it worthwhile.
Companies know this and take advantage of it. Ever wonder why so many companies offer free trials? They want you to get hooked to the service to where you either can’t live without it or forget to cancel and then end up paying for it. These small leaks in your budget start to add up without you even realizing it.
Keep it Simple
I’m a big fan of simplicity, which is easy to see if you check out our money map.
Our monthly bills:
- Renter’s Insurance
- Car Payment
- Cell Phone
- Student Loan
- Auto Insurance (every 6 months), Dollar Shave Club (every 2 months)
That’s it. By design, we try to have as few bills as possible. There are many advantages to this method. Not only is it simpler, it also allows for the majority of our budget to be discretionary instead of fixed. This means we could cut back in certain areas in case of unexpected circumstances.
Of course it’s easy to say “have less bills,” but harder to put into practice. I realize it’s sometimes not possible. My point is not to guilt you, but that it’s always worth going back through your bills and challenging whether they’re worth keeping. Are you still getting value from what you’re paying for? We recently axed our cable bill since we determined we were no longer getting value from it. On the other hand, both our rent and cell phone bills are high, but we get a lot of value from them.
Putting this into action
- Examine your credit card statements and make a list of your monthly bills. Don’t forget to include your bills that happen less frequently such as car insurance or yearly subscriptions (gym, Amazon Prime, etc).
- Analyze each expense closely. Can the expense be cut? Another helpful trick is to write down the credit card or bank account associated with each bill to be sure you don’t miss any.
I’d encourage you to go through this exercise to create a fresh start. I’d then challenge you to be adverse to monthly payments and subscriptions whenever possible to help simplify your budget going forward.
What monthly subscriptions do you think are worth having, and which are you going to cut out of your budget?