Quick: How much do you deposit in your 401(k) each month? You probably don’t know, and that’s a good thing. In fact, the single best thing about your retirement account may be that it’s automatic: After you set it up, you forget about it, and you don’t miss the money that you’re putting away. Over time, that inertia really works in your favor. Whatever your financial goals, research shows that you have a far better chance of hitting them if you automate the savings process.
But now, as surely as a celebrity breakup is followed by naked pictures hitting the Internet, corporate America has figured out how to turn this dynamic from a savings enhancer to a wealth destroyer. If people tend to forget about automatic payments and never miss the money—cue maniacal villain laugh—then automatically deduct the money from their bank accounts every month forever! They’ll never even notice it’s missing.
Call it contract creep, the insidious growth of cash-sucking services you sign up for and never escape. It probably started with cable, or maybe a gym membership. Now it’s Netflix, and your cell phone provider, and Pandora, and mini-storage, and cloud storage, your car lease, and credit monitoring, and that trial thing you don’t use anymore but can’t cancel because you don’t know who to call. Every month, they transfer money out of your checking account and into their shareholders’ pockets.
“The fastest way to cut someone’s annual expenses by $5,000 is to cut back on these contracts,” says David Bach, the best-selling author of the FinishRich series of financial books. Bach, who has led people through “money makeovers” on Oprah and the Today show, urges people to look past the small monthly amounts.
“It’s what you’re paying over 12 months, 24 months, 36 months, a decade that counts.”
Consumer expert Clark Howard says that the younger the consumer, the more “monthlies” he’s likely to have. “You can rent books, music, video—it’s all you can eat for a flat monthly rate, and you don’t have to lug all this stuff,” he says. “It’s a more portable life.” The problem, he says, comes when you start piling up services you barely use. Not long ago, Howard and his wife realized they were paying a monthly fee for an online fax service, but they hadn’t received a single fax in years.
Bach says he’s starting to see a backlash against these fees as cell phone carriers such as T-mobile offer no-contract deals. But don’t hold your breath for your cable company to call and suggest you pay less. Take back control of your budget by staunching the cash bleed.
The great thing about getting rid of monthly payments is that the benefits keep on coming. Sure, you can save money by brown-bagging it, but that requires the discipline to make a sandwich every morning. Trim your cable bill, on the other hand, and you’re that much richer every month.
The first step in cutting back on contract creep is to set a financial goal. Just as it’s easier to drag yourself to the gym in the predawn hours if you picture your future shoulders, you’re more likely to make tough budget choices if you know that the savings add up to a down payment on a new car in two years.
Second, you have to be ruthless. Here’s how:
Obviously you can’t give up your phone, but there are many ways to reduce the cost. First, does your company issue you a device? If so, get rid of your personal phone. It’s fairly easy to “port” your number to your work phone. For e-mail, I use the iPhone’s mail app for business, and I added the Gmail app for personal e-mail. Yes, you have that one douchebag friend who sends attachments that don’t quite mesh with your corporate culture. You know who he is. Don’t open those e-mails on your phone. Life is a lot simpler when you carry only one device, and you could save more than $1,000 a year.
If you are the douchebag sending the NSFW attachments, this won’t work. So keep your second phone, but ask your service provider for your company’s corporate discount. How about that: I just saved you 20% and you don’t even deserve it.
If you’re a freelancer (or you work for the Secret Service), you still have lots of options. “We have never had prices drop in cell phones like we’ve had in the past year,” says Howard. FreedomPop actually offers phone/text/browsing for the absurd price of $0. Of course, there are catches: You get hit with charges if you exceed strict limits and you won’t get the latest-and-greatest iPhone at a subsidized price, and you’ll get barraged with up-sell offers. “It’s a very good price for very mediocre service,” says Howard, who recommends Republic Wireless. Plans start at $5 a month. Virgin Mobile offers a no-contract plan for $35 a month with 300 minutes and no limit on data. Consider prepaid plans, which allow you to buy minutes and not pay again until you use them up. Tracphone sells 800 minutes for $120. They’re good for a year.
If you’re stuck in a contract, get rid of text messaging. Facebook is beefing up messaging with its $19 billion (!) purchase of WhatsApp, and plenty of other apps offer free messaging, too.
There’s a fun detail tucked away in AOL’s quarterly earnings reports. According to the company’s most recent filing, more than a million people are actually shelling out about $20 a month for the privilege of having an @aol.com address. If you’re one of these people, please call the company immediately and explain that you would like the price they give everyone else: nothing. And don’t tell anyone that you were one of those million-plus dupes.
City dwellers who aren’t minimalists or heirs to a real estate fortune face a big problem: too much stuff to fit in an apartment. So we dump the crap we’re not using into a climate-controlled purgatory where it slowly becomes less and less relevant to our lives while draining more and more from our bank accounts. Ask yourself: How many items in that storage bin have you ever missed? One word: eBay.
Leasing is a great way to guarantee that money will be leaving your bank account every month for the next half century or so, until your kids finally take away the keys. Sure, the monthly payments are higher if you buy a car outright, but if you take care of it you’ll have years of paying nothing at all after the car is paid off. What’s more, as the car ages and loses value, your insurance payments should drop. If they don’t, shop around for a cheaper policy.
If you haven’t solicited a number of quotes in the past year, you’re probably leaving money on the table. There’s no single “cheapest” insurer. Each one has a profile of the customer it prefers—say, a certain demographic in a certain neighborhood—and they use different criteria. Liberty Mutual, for instance, courts college alumni groups. So check to see if your company, college affiliation, or even an AAA membership will help.
Among households that have a subscription to Netflix or Hulu, 18% have dumped cable television, according to an Experian Marketing Services report. You, too, can cut the cord. However, the one thing that’s tough to get in a post-cable world is sports. But it’s possible. You can buy a digital antenna, which will cover you on games broadcast over the air. No Monday Night Football, since ESPN now has that franchise, but SNF airs on NBC; it’s available over the air. Remember: When you call the cable company to terminate service, there’s a good chance you’ll be offered a reduced price in return for remaining connected. You can decide whether it’s worth it; either way, you save.
The list is endless: Netflix, Hulu Plus, Amazon Prime, Pandora, Spotify, iCloud, Picasa…they all serve their purpose. The question is, do you get your money’s worth? Would you be better off backing up your photos on an external drive than in iCloud? Do you really save money with Amazon Prime? Do you actually need more than one movie provider?
If so, you may be spending too much time on the couch.