The Real Cost of Automatic Monthly Fees

Living within your means is the first step in getting your financial house in order. If you’re having a hard time doing so, you have two basic options: make more money, or spend less. Sounds simple, but where to start? Let’s look at spending less with one big budget killer – the automatic monthly fee.

Silver piggy bank

Any idea how much that cable bill is really costing you? How about the magazine subscriptions, gym membership or cell phone plans? Recurring fees are used by businesses for a reason – once you’ve made the initial decision to join or buy their service, they get your money every single month. As a customer, we easily forget these costs are optional as we are so used to paying them.

Let’s look at an example and play with the numbers. One recurring expense I cut was my satellite bill. I was only subscribed to the basic package, and every year the cost would go up. My last bill was about $45 per month. Now, let’s say the price never went up. Per year, my satellite was costing me $540. That’s pretty high. For 10 years, it would come to $5,400, and for 25 year $13,500. Now, if I invest that $450 dollars every year instead, I have compound interest working for me. Investing it for 25 years at a conservative 4% interest would give me about $19,490. If I put it in an RRSP, my money would go even further since I would receive a tax refund every year. Don’t forget, that $45 per month was after tax dollars, meaning I had to earn about $60 to pay that bill. That means it was actually costing me about $720 per year of gross income just for my basic TV package.

One reason we get caught up with these large expenses is it doesn’t seem like that much on a monthly basis. Another problem is the number of automatic monthly fees we accumulate. Many households will have cable TV, internet, home phone, cell phone plans, gym memberships, and the list goes on. Add in car payments, debt repayments and a mortgage, it’s no wonder many live paycheck to paycheck. Our money is spent before we receive it!

So what can be done? Start by making a list of every bill and payment you make. You won’t be able to reduce or eliminate them all, but it’s important to understand where your money is going. Don’t leave any out, thinking they are out of your control.

Now go through each item on your list. Is it necessary? Does it add value to your life? Do you use it? If you’ve answered no, get rid of it. The gym membership you only use two times per month? Gone. The magazines that pile up because you don’t have time to read them? Get rid of them. If you don’t use it, need it or love it, stop paying for it.

Next, go over each recurring expense that didn’t get cut. Can it be lowered? Look for maintenance fees you may not need, bigger than needed plans, or extra features you could learn to live without. Take the time to go over each bill to see if some expenses can be lowered or eliminated.

Finally, for all the monthly items you wish to keep, look for ways to further reduce those expenses. Internet, phone and cable costs can be negotiated. Call your service providers to see if you can get a better rate. Sometimes, lower cost alternatives are available.

  • Instead of an expensive cell phone plan, could you make do with a $10 monthly pre-paid account?
  • Could you use the free gym at work even though it’s not as nice as the luxury gym you go to?
  • Could you catch up on the news by reading free online sites instead of paying for a subscription?

By taking the time to go over the little, and sometimes not so little monthly fees you’ve accumulated, you could significantly reduce your expenses. Add up what you could be saving and plug your numbers into a compounding interest calculator to see how much you would accumulate by investing that money instead. You may be pleasantly surprised with what you find out!