I received quite a few questions about finances over the last few years as my wife and I traveled all around the world. How could you afford to do this? The short answer is that we’d been able to save while spending five years on a remote island with very few expenses - no cars, cell phones, or restaurants. Admittedly, it’s was a fortunate and unique circumstance. As we settled back in the states this year, our focus on saving for travel encountered a new unexpected financial challenge: monthly subscriptions.
Right before we left for the island, I remember researching Photoshop software to edit all the pictures we planned to take. Surprisingly, it was no longer available to purchase for your computer. They had switched to a monthly, fee based subscription. So instead of paying roughly $150 for a program that would last the life of my computer, I would have to pay $10/month indefinitely. Not knowing how long we would live there or exactly how much we might use the program, we passed. The math necessary to make our decision was not difficult. At $10/month, the monthly subscription would cost me more than the take home program after 15 months of use. Over time, it would be the equivalent of me repurchasing the program every 15 months.
As we began our post island reintegration, we were amazed at the number of products and services that now came as monthly fees. Turns out, Photoshop was on the leading edge of a massive digital age shift, across several industries, towards app and streaming service subscriptions. The ingenuity of many of these services is truly extraordinary. Real time home security video on your phone, delivery from any restaurant to your door, movies available in an instant to your TV, thousands of memories accessible at any time stored electronically outside of your home, commercial free satellite radio, and much more.
My favorite is ‘Calm’, the $13/mo app which allows you to fall asleep while Matthew McConaughey reads books to you. Alright, alright, alright. Many others are likely very familiar to you. Most everyone loves Netflix….and Hulu, and Prime, and NFL game pass. Add these services together and they come to about $33/mo. Continue these payments and that’s nearly $400/yr and $4000 by the end of the decade. At least I use them. On the flip side, we often throw $30/mo ($3600/decade) at gym memberships based on the mere HOPE that we will use them. Exercise is extremely important, but have you added up your cost per gym trip from the last six months? If you went once per week, it cost you about $7 per visit. Is that the kind of return you were hoping for from the treadmill? Maybe it’s time for a stroll around the neighborhood, or better yet, in nature! Regardless the service, nearly all of these now involve a monthly subscription. My question was; is anyone really doing the math and considering the true cost?
While the technology has shifted drastically from decades past, none of these new tech-savvy services have replaced the standard bills that our parents grew up with (mortgage, car, electric, gas & water). With phone bills going from $15/month a generation ago to often over $100/month today, you can start to see why millennials don’t feel like they can afford much.
For me, the key point is that few consumers seem to consider the long term expense they create when agreeing to seemingly small monthly transactions. Nobody instinctively thinks that a $9/mo satellite radio charge will inhibit a family vacation down the line. But the commercial free tunes will cost $108 by the end of the year and $1080 over ten years. And that’s one of the cheaper fees. The $75/mo home internet that compliments your already expensive phone data plan will end up costing you $9000 over the next 10 years. And don’t look now, but that $25/mo home phone that you still haven’t bothered to disconnect has already cost you $1200 over the last four years.
The expense that startled me most during our reintegration was cloud based information storage. First, we’re talking about precious memories that are incredibly valuable. What happens if I can no longer pay $10/mo for 1TB of storage? The current terms seem to indicate that previously stored data is safe, but who wants to bet their digital memories that a change in terms of service won’t suddenly show up? Second, am I signing up to pay $10/mo until….forever? At what point won’t I need this? Heck, who’s to say that Google - as huge as they are - will even be around in another few decades. Talk to my friends, Kodak, Blockbuster Video, and Sears if you think I’m off base.
It isn’t always new technology services that cause this hole in our budget. Regular fees can sneak into your life in a variety of ways as well. A close inspection of your bank statement, wireless bill, or streaming service account will likely show monthly service charges that were not obvious on the original sticker price. These sneaky extras are often found in the fine print or are offered in the moments before you swipe your credit card, “Would you like the extra customer protection for just $2 more a month?” A membership fee here, a special offer that expired there, and suddenly you’re paying much more than you intended.
To help wrap my mind around the true costs of these subscriptions over time, I made a simple table of expenses and their costs after 1 year and 10 years.
As you can see, a conservative estimate for the most basic of monthly subscriptions accumulates to over $21,000 over the next ten years. On the high end, expenses can grow in excess of $82,000 over the decade. What would you do with that kind of extra cash? Great convenience comes from these monthly services, not cherished memories. That kind of money can check a lot of bucket list items.
The point here is to assess the trade off that you are making with these services. We must prioritize what we want our lives to look like. If financial issues are keeping you from living your desired life, maybe this is a place for you to make adjustments. And yes, I love streaming movies. But when I take an honest look at my life, TV time is a major factor keeping me less active than I want to be.
I want to end by saying that home security, entertainment, and convenience all have value, but the goal is that we consciously choose where our money goes instead of finding ourselves with empty pockets at the end of each month. The key is to make that choice willingly, on the front end, while you still have a chance to decide what your financial future will look like.