I am never one to place financial blame on the government, or corporations, or anyone else for your financial problems. Those problems are yours, and you have MUCH more control over them than society thinks.
But the majority of people I help through my financial coaching just don’t see the impact of all the small expenses in their budget. I always try to show them the long term impact of these things, and many people are shocked at how a few simple items could delay their retirement a few years! Yes, the latte factor is in full effect, but this time it’s not lattes killing the budget.
Boiling Frog Syndrome
Now, I’m going to preface this with the fact that I am not a psychology major. I haven’t read any psychology books, and I’m mostly making all of this up.
With that being said, I do have a lot of experience examining people’s personal financial lives, both through my time as a tax professional and through my financial coaching service. What I have found worries me. And it worries me because I know that companies that are after your money have found this out as well.
It is MUCH easier to let go of $10 per month than it is to let go of $100 up front.
This may come as no surprise, but it doesn’t change the fact that this is how we operate. This is sometimes referred to a “boiling frog syndrome.” The anecdote goes:
Gradual change can lead to significant impact. If you don’t stay aware of the gradual changes in life, you may end up being overcome by hardship due to something you could have easily prevented. You may end up being boiled alive.
Get Out Of the Water
Part of any good budget is the principal of constant optimization. What this means is that you are always keeping your ear to the ground, searching for great deals and finding ways to lower your monthly outgo and increase your monthly savings. Tag team that with kicking butt at your income producing activities, and you will be financially independent in no time (like our buddy Tommy here).
First, I would start by looking over your regular monthly bills. Utilities and technology companies are NOTORIOUS for “accidently” billing your too much, or adding some sort of service you didn’t ask for. I even wrote a 3-part series on how to tackle billing mistakes. Comb that over and make sure you’re not getting screwed.
Next, I would start to question every recurring bill you have.
Your cable. Your cell phone. Your Nextflix/Hulu Plus combo. Your Amazon Prime membership. Lawn care. Car loans. X-box live. Magazine subscriptions. 0% payment plans. Mortgage.
Why? Because math.
Stop Turning Up The Heat On Yourself
Every time you add a monthly fee, you are turning up the water temperature, getting closer and closer to the boiling point. You hardly notice, because “what’s a $8 a month fee?” Well, luckily I like calculators and can show you the impact of that $8 monthly video service.
$8 x 12 = $96.00 per year
$96 per year invested at 7% for 10 years = $1,419
Not a big deal, right? But what if you have like 6 or 7 of these “small” monthly subscriptions. That’s when it gets a bit hotter.
$8 x 12 x 7 = $672.00 per year
$672 per year invested at 7% for 10 years = $14,902
Ok, that’s worse. But really, still not all that bad, right?
Well, since we want our money to grow a bit longer, what’s the 30 year impact of those “harmless” expenses?
To put it another way, if you want to retire, and your normal expenses are $3,000 per month, you will need to work almost another 2 years to enjoy your little subscriptions. Worth it?
But let’s be real, we probably have WAY MORE than $56 per month we can cut out of our budget, making the impact EXPONENTIALLY WORSE than the numbers shown above. Which means you could reduce your need to work but MANY MORE YEARS by cutting out all those unnecessary monthly fees.
Don’t Be A Frog
More and more companies are moving to “subscription” services. They know that a small monthly fee hurts much less than a large up-front cost. I guarantee you will see this everywhere in the coming years. My caution to you is to recognize that gradual change, and don’t let yet another business sign you up for another monthly fee service.
Don’t be a frog. Get your butt out of that water and enjoy freedom from the chains of recurring
Note: There are a very few monthly services I recommend, and the one that actually saves MUCH more money than it takes away is eMeals. I recommend them all over this site because I’ve used it and it works. If it didn’t, I would recommend you drop them as well.