A recent survey revealed that 83% of respondents underestimated their subscription spending by a wide margin.¹ On average, they thought subscriptions only cost them $80 per month. In reality, it was over $230.
That was back in 2018. Since the COVID-19 Pandemic started in 2020, that number has dramatically increased. A 2020 survey discovered that, on average, consumers added $192 in new subscriptions after lock downs started.²
The takeaway? Subscriptions might be consuming more of your cash flow than you realize.
Scroll through the apps on your phone. Are there streaming, dating, or wellness subscriptions that you pay for but never use? Unsubscribe and uninstall them!
If you and your family regularly use a streaming service, consider cancelling your cable subscription. They’re expensive, and your streaming services probably carry your favorite shows as it is.
It’s also worth investigating the value of any subscription boxes you receive. Is a monthly shipment of makeup or comic books significantly improving your life? Or do most of the items go unused? If the latter is true, consider cancelling your subscription.
Once you’ve cleared out unnecessary subscriptions, you might be surprised by how much cash flow you’ve freed up for reducing debt or building wealth.
¹ “You probably spend more on subscriptions than you realize,” Angela Moscaritolo, Mashable, Feb 20, 2019, https://mashable.com/article/you-probably-spend-more-on-subscriptions-that-you-realize/
² “Americans More Than Tripled Subscription Service Spending Amid Social Distancing,” David Dykes, Greenville Business Magazine, May 14, 2020, http://www.greenvillebusinessmag.com/2020/05/14/308970/americans-more-than-tripled-subscription-service-spending-amid-social-distancing
Every dollar bill is at the mercy of the elements. Think of an unforeseen medical emergency as a pop-up windstorm that whips a few thousand dollars out of the truck bed. And that time your refrigerator gave out on you? That’s swerving to avoid a landslide as it tumbles down the mountain. There goes another $1,000.
Emergencies like a case of appendicitis or suddenly needing a place to store your groceries usually arrive unannounced and can’t always be avoided. But there are a few scenarios you can bypass, especially when you know they’re coming.
These scenarios are the potholes on the road to financial independence. When you’re driving along and see a particularly nasty pothole through your windshield, it just makes sense to avoid it.
Here are some common potholes to avoid on your financial journey.
Excessive or Frivolous Spending
A job loss or a sudden, large expense can change your cash flow quickly, making you wish you still had some of the money you spent on… well, what did you spend it on, anyway? That’s exactly the trouble. We often spend on small indulgences without calculating how much those indulgences cost when they’re added up. Unless it’s an emergency, big expenses can be easier to control. It’s the small expenses that can cost the most.
Somewhere along the line, businesses started charging monthly subscriptions or membership fees for their products or service. These can be useful. You might not want to shell out $2,000 all at once for home gym equipment, but spending $40/month at your local gym fits in your budget. However, unused subscriptions and memberships create their own credit potholes. If money is tight or you’re prioritizing your spending, take a look at your subscriptions and memberships. Cancel the ones that you’re not using or enjoying.
Most people love the smell of a new car, particularly if it’s a car they own. Ownership is strange in regard to cars, however. In most cases, the bank holds the title until the car is paid off. In the interim, the car has depreciated by 20% in the first year and by nearly 60% after 5 years.¹
What often happens is that we trade the car after a few years in exchange for something that has that new car smell – and we’ve never seen the title for the first car. We never owned it outright. In this chain of transactions, each car has taxes and registration fees, interest is paid on a depreciating asset, and car dealers are making money on both sides of the trade when we bring in our old car to exchange for a new one.
Unless you have a business reason to have the latest model, it’s less expensive to stop trading cars. Think of your no-longer-new car as a great deal on a used car – and once it’s paid off, there’s more money to put each month towards your retirement.
To sum up, you may already have the best shocks on your financial vehicle (i.e., a well-tailored financial strategy), but slamming into unnecessary potholes could damage what you’ve already built. Don’t damage your potential to go further for longer – avoid those common financial potholes.
¹ “How car depreciation affects your vehicle’s value,” Dana Dratch, Credit Karama, https://www.creditkarma.com/auto/i/how-car-depreciation-affects-value
But that doesn’t stop “budget” from being an intimidating word to many people. Some folks may think it means scrimping on everything and never going out for a night on the town. It doesn’t! Budgeting simply means that you know where your money is going and you have a way to track it.
The aim with budgeting is to be aware of your spending, plan for your expenses1, and make sure you have enough saved to pursue your goals.
Without a budget, it can be easy for expenses to climb beyond your ability to pay for them. You break out the plastic and before you know it you’ve spent fifty bucks on drinks and appetizers with the gang after work. These habits might leave you with a lot of accumulated debt. Plus, without a budget, you may not be saving for a rainy day, vacation, or your retirement. A budget allows you to enact a strategy to help pursue your goals. But what if you’ve never had a budget? Where should you start? Here’s a quick step-by-step guide on how to get your budgeting habit off the ground!
Track your expenses every day
Start by tracking your expenses. Write down everything you buy, including memberships, online streaming services, and subscriptions. It’s not complicated to do with popular mobile and web applications. You can also buy a small notebook to keep track of each purchase. Even if it’s a small pack of gum from the gas station or a quick coffee at the corner shop, jot it down. Keep track of the big stuff too, like your rent and bill payments.
Add up expenses every week and develop categories
Once you’ve collected enough data, it’s time to figure out where exactly your paycheck is going. Start with adding up your expenses every week. How much are you spending? What are you spending money on? As you add your spending up, start developing categories. The goal is to organize all your expenses so you can see what you’re spending money on. For example, if you eat out a few times per week, group those expenses under a category called “Eating Out”. Get as general or as specific as you wish. Maybe throwing all your food purchases into one bucket is all you need, or you may want to break it down by location - grocery store, big box store, restaurants, etc.
Create a monthly list of expenses
Once you’ve recorded your expenses for a full month, it’s time to create a monthly list. Now you might also have more clarity on how you want to set up your categories. Next, total each category for the month.
Adjust your spending as necessary
Compare your total expenses with your income. There are two possible outcomes. You may be spending within your income or spending outside your income. If you’re spending within your income, create a category for savings if you don’t have one. It’s a good idea to create a separate savings category for large future purchases too, like a home or a vacation. If you find you’re spending too much, you may need to cut back spending in some categories. The beauty of a budget is that once you see how much you’re spending, and on what, you’ll be able to strategize where you need to cut back.
Once you develop the habit of budgeting, it should become part of your routine. You can look forward to working on your savings and developing a retirement strategy, but don’t forget to budget in a little fun too!
¹Jeremy Vohwinkle, “Make a Personal Budget in 6 Steps: A Step-by-Step Guide to Make a Budget,” The Balance (March 6, 2020).
Sometimes you’ll notice right away (getting halfway through the month and realizing it’s going to be peanut butter sandwiches for lunch every day). Other times it can take a while for imperfections to show (you thought you were going to have more in the vacation fund by now).
When you first start building your budget, a good place to begin is to list all the big expenses – the ones that are impossible to miss. Then it’s time to turn to the little ones that can escape notice – these are the ones that might keep your budget math from working out the way you planned.
Dig out your bank statements. Try to go back at least 6 months, if not a year. Some regular expenses may not occur monthly and can be a surprise if you only used a month or two of bank statements to track spending and build your initial budget. Many times, automatic payments or fees may be charged quarterly or even annually.
Read on for some common expenses that might sneak up on you:
Subscriptions and online services – Many of us have subscriptions for software packages or online services. Remember that deal they offered if you paid for a whole year at once? At renewal time, they may charge you for another year unless you cancel.
Memberships – Gym memberships or dues for clubs may be quarterly or annual charges as well, so they might be missed when building your budget.
Protection plans – From credit monitoring to termite protection plans, there are lots of chances to miss an annual or quarterly expense in this category.
Automatic contributions – Many charities now offer automatic contributions. These can be easy to miss when budgeting.
Things you forgot to cancel – Free trials (that require your payment info) won’t be free forever. It’s easy to miss these as well.
Bank fees – Budgeting mishaps can lead to bank fees if your balance dips. Yet another potential surprise.
Automatic deposits – Saving for your future is a great move. Just be sure to know how much is going to be withdrawn and when, so your budget doesn’t feel the pinch.
Oftentimes, when people first make the commitment to create a budget and stick to it, it can be discouraging if it doesn’t seem to be working as expected right away. Try to keep in mind that your budget is a work in progress that will evolve over time. It probably won’t be perfect from the get-go.
If you hit a speedbump, take a little time to evaluate where the numbers aren’t quite adding up, and then make adjustments as necessary. You can do this!
You’ve set up your plan. Now you’ve got a budget complete with average historical spending by category. You’ve discussed it with family members, roommates, and anyone else to whom the budget applies. You’ve checked off all the boxes. Yet somehow – at the end of the month, the math isn’t working out. The budget is busted.
What went wrong? Life is full of mysteries, like who left an empty box of cereal in the cupboard? Where are my glasses? Why won’t the baby go to sleep? And, where did all my money disappear to?
For a budget to work well, you’ll need to track it regularly and often. Many times, the reason you made a budget in the first place is that there’s very little room for error with saving and spending your money. A budget’s got to be loved and nurtured, kind of like a garden. Sometimes you have to get out there and pull some weeds or dig up a few rocks to keep it thriving.
Making Your Budget
To make your budget (if you haven’t already), there are several methods you can use. Good old pencil and paper never goes out of style. And it might help you see where you stand a little faster than potentially losing your initial momentum by learning a new “app”. Specialized software or online budgeting tools can be great – but they can also be fiddly if you’re not used to them. Rather than trying to figure out complicated menus and search for hidden buttons from the get-go, you might want to try it on paper first to work through your budget and establish a limit for each category of spending. Writing out your expenditures by hand has the added benefit of helping you face reality. It hurts a little more than automated solutions if you have to write the numbers down in black and white. If you’re good with spreadsheets, Microsoft Excel or Google Sheets can also be used to quickly build a budget without a frustrating learning curve.
Tracking Your Budget
Technology can be friend or foe in the home budget process. Even though you may have started out on paper, when it comes to tracking your spending for the long haul and in real time, technology is definitely a friend.
Mobile apps come in two forms: free and not free. We’ll focus on free apps for now because it’s consistent with the goal of keeping your spending under control.
Mint.com is owned by Intuit, famous for Quicken and Quickbooks software, and makes budget tracking very simple. Mint links to your bank account and other accounts you’d like to track, so you can see a complete view of your finances at a glance either on your mobile device or on your computer. Budgets are set automatically for each category but can be changed easily. Spending and income are also automatically tracked and categorized so you can view your progress – including budget amounts remaining for the month. Cash purchases can be added from the home screen.
Another good option is Clarity Money, which tracks spending by category but also provides an easy way to cancel subscriptions and access your free VantageScore Credit Score (by Experian). Clarity Money was featured by Google Play as a “Best of 2017” and is also available for iOS.¹
Paper or spreadsheet methods help to make the budgeting process more tangible. Automated tracking makes it easy to monitor your progress against your budget – and to maybe think twice about spending on impulse.
The important thing is to think of your budget like a garden – once you have it planned and laid out, it’s going to take regular maintenance to ensure it stays beautiful.
¹ “Best Daily Helper.” Google Play, https://play.google.com/store/apps/topic?id=campaign_editorial_apps_productivity_bestof2017&hl=en.
Here are some ideas for financial changes you can put in place today that can help get you closer to your saving and retirement goals.
1) Start a budget
There are few things that can paint your future financial picture as clearly as starting a household budget. In the process, you’ll track your spending – both in the past and in the future – and you’ll identify wasteful expenses as well as establish your priorities.
2) Start couponing
Once upon a time, clipping coupons could be quite a chore. Now, mobile apps make finding coupons for popular stores effortless, and there are online websites that provide promotional codes for all sorts of brands. If someone gave you money for buying something you were going to buy anyway, you’d take it, right?
3) Target home energy costs
Is your thermostat programmable? You can adjust your home temperature while you’re at work. Do you need to fix the insulation in the attic or that gap under the front door? Get to it as soon as you can! The longer you let those things go equates to money you might be saving on your energy costs.
4) Buy “pre-owned” items
When we think “pre-owned” we tend to think of cars. But the truth is that almost all consumer items depreciate. How much might you save by buying a refurbished phone instead of a new phone? Used laptops may cost a fraction of what you’d pay for a brand new computer. When it’s time to replace household items, consider buying used.
5) Use the 30 Day Rule to keep impulse spending in check
If you’ve got money burning a hole in your pocket, just wait. It won’t really burn you. By waiting 30 days before making a purchase, you’ll have time to decide if you really need the item or if it was just an impulse buy.
6) Use a shopping list
Want a way to stay focused when shopping and avoid wasteful spending? It might seem obvious, but get in the habit of using a shopping list. Before you head to the store, take a few minutes and write out a list (on paper or your phone), and include only the items you need. Stick to the list!
7) Quit smoking
Smoking seems to be less common these days, but for many households it’s still a costly expense that literally goes up in smoke. Think about how much you could put towards your retirement instead if you kicked the habit. (As a bonus, your health will probably improve.)
8) Stop using credit cards
Credit cards are the most expensive type of debt in many households. If you make a plan to pay off credit card debt and to save credit for (real) emergencies, you’ll probably wish you had given up your credit card habit sooner.
9) Cancel unused memberships and subscriptions
Memberships and subscriptions have a way of becoming forgotten – that is, until they automatically renew. Ouch. Keep the ones you want or need, cancel the others.
10) Cut the cord
Cable TV has become a norm but is your family really using it? Try to find less expensive ways to watch shows or movies online. Major broadcast networks can be picked up for free with an HD antenna.
Bonus ideas: Get a strategy in place to start building an emergency fund. Check your insurance policies to make sure you have the coverage you need. Research some ways in your community to have free (or nearly free) fun with your family.
It might take a little extra effort, but putting any of these ideas in place this year will help you and your family save more of your hard earned money and help get you closer to your retirement goals.