When the American consumer used to think about subscriptions, what probably came to mind were Reader's Digest, Ladies Home Journal and Newsweek magazines. Today, subscriptions are likely to mean everything from exercise classes to dog food to premade meals that show up at your door.. The subscription model is loved by consumers for its convenience and ease. Retailers and other companies love the subscription model because it creates a continuous stream of revenue. In a 2019 USA Today poll, 25% of Americans have subscription services in place already with another 32% planning to participate in some kind of subscription service in the next year.
According to a recent Forbes Magazine article, there are four factors driving the increased popularity of subscriptions:
- Price (the consumer feels like they are paying less for products or services)
- Convenience (the consumer feels like the subscription makes their lives easier)
- Personalization (the consumer feels their preferences are being heard)
- Curation (the consumer feels that an expert is pulling together pieces just for them)
You probably have subscription services that you don’t even realize, probably because they don’t come in a box every month. Netflix, Hulu and Amazon Prime are subscription services. Your Costco membership is a subscription model. ClassPass, a subscription service that allows you to drop in on boutique fitness studios is now valued at over $1 billion dollars. There’s even a subscription laundry service called Rinse that you can get. Even your dating app is a subscription.
How do all these types of subscription services impact your budget? You’re probably thinking that as a Financial Coach, I’m about to bash all subscription services but that’s not the case. There are some ways that subscription services can be great for your budget! One of the ways we help our clients better manage their finances is by helping them see exactly where their money is going each month and a subscription service can assist with that. After all, the cost is the same every month so it helps create consistency when budgeting. There are also some potential cost savings if you are subscribing to a service that you would spend money on anyway, such as Dollar Shave Club. On their ‘4X’ plan, you receive four new blades every month for six dollars, including free shipping. That’s $1.50 a blade, much cheaper than you could buy blades in any store.
But here’s where these subscription services typically wreak havoc with your budget. While the monthly fee typically doesn’t feel like much, they really add up! It’s very easy to underestimate how much you’re actually spending. Let’s look at an example:
- Who doesn’t have Amazon Prime these days? Amazon Prime $12.99 a month
- You need Netflix Premium during this pandemic, right? Netflix Premium $15.99 a month
- You got a Peleton bike to stay in shape: Peloton app $39.00 a month
- You need skincare products anyway…: Birchbox $15 a month
- You deserve a glass of wine with your dinner: Vinebox $24 a month
- You’re single and you are looking to date: Tinder $12.50 a month
- You finally have time to read again: Book of the Month Club $15 a month
Just these subscription services alone will set you back close to $135 a month! Each one seems like such a small amount that we often say to ourselves “It’s only…….”, not realizing how these small spending amounts are adding up. When we say to ourselves “it’s only”, we’re trying to justify some expense in our minds by telling ourselves that the amount is inconsequential. Using this phrase is our way of convincing ourselves that it’s OK to spend this money simply because of the small amount. Being a good steward of your money means accounting for all your money, even the small amounts. I’m not saying any of these subscription services are bad financial choices per se, but it’s important to account for them all in your budget and make sure they are smart choices for YOU.
The second way these subscription services negatively impact our finances is that there’s actually a good chance you don’t need or even want these services every month. And they make it inconvenient and sometimes even impossible to cancel the services once you’re locked in. I noticed that we were not really watching the content on Hulu much ($11.99 a month) and found out that 245 shows overlap between Hulu and Amazon Prime. Close to 150 shows overlap between Hulu and Netflix. As you can guess, we no longer have Hulu.
Here’s some ways to cut back on your subscription spending:
- Make a list of all your subscriptions: this is harder to do than you think because some are sneaky…. Make sure you check all your bank statements and credit cards for these charges.
- Cancel any that you don’t use regularly- you’re probably better off buying when you need it if you aren’t consistently using the product or service.
- Make sure you aren’t overspending- every six months or so, shop around with other services to see if you can get a better deal elsewhere. It’s worth the time.
Even cutting back on a few subscription services can have a positive impact on your finances. So take a close, hard look at all your subscription services and see what you’d be willing to part with. Your budget will thank you.