In the 21st century, in the developed world, online subscriptions are ubiquitous. The average person might have ten or more online subscriptions of various types. Here are just a few examples:
The shift to paying by annual subscription for services like these, in most cases, actually makes sense. It provides the developers with a steady stream of income that they can rely on, making investments in improvements and in new product offerings less risky. This in turn can result in a better product and higher customer satisfaction.
Often, there will be both a monthly payment option and an annual fee option, the latter at a lower price. It's common to see, for example, one or two months free when you pay annually as opposed to monthly. If you have the cash flow, the annual option is the best way to pay for these services.
But, the trap that's easy to fall into, is forgetting that this is an annual expense. Once the bill is paid, that doesn't mean you are off the hook until next year. If you forgot that you paid $250 for that Zoom membership in March when the pandemic first started, you're in for a nasty surprise next month when the automatic billing taps your credit card for the renewal.
So, how do you avoid this trap?
My little trick is to maintain a separate category in my budgeting software for each subscription service that I use. I include the month of the renewal in the title of the category, as well as the amount I need to set aside each pay period in order to have the fee saved and ready when the bill comes due. Here's an example:
My annual membership with CAA (Canadian Automobile Association - Canada's equivalent to AAA) is approximately $85, and comes due in April. Since the last bill was paid, I've been setting aside $3.30 every bi-weekly pay period (assuming 26 pay periods in the year), so that I end up with $3.30 x 26 = $85.80 by the renewal date.
Finding $3.30 each pay period is painless, but finding an extra $85 that I'd forgotten about, all at once in April, might not be so easy, depending on what else is going on that month.
I recommend you do this not only with online subscriptions, but will ALL irregular bill payments. It works whether the bill comes due quarterly, annually, or anything in between. Here's how to do it for different billing frequencies:
This budgeting hack is a variation of one you might already be familiar with. Most of us, at one time or another, have set aside money out of each pay to save for a vacation, or for holiday shopping, for example. The difference here, is that these are ongoing, renewing expenses that are not "once and done" items. They will remain in your budget for as long as you maintain the subscription/membership, and the amount you set aside will need to be revisited periodically as the fee increases with inflation.
To get started, pull out your banking and credit card records for the past 12 months, and highlight or list any charges and withdrawals that are connected with a subscription or membership service. It can be eye-opening to list out every single one of these, and you might even decide to take this opportunity to eliminate a few if you realize you're not making good use of them.
For those subscriptions you decide to keep, now work out the amount you need to set aside each time, using the above guidelines, and modify your budget accordingly. If this is a new practice for you, you will end up with a bit less discretionary spending money each pay period than you're used to. But be thankful, because this tiny sacrifice now means you won't have to make a BIG sacrifice when the bill comes due.
And that is how you avoid the Online Subscription Trap.
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