When it comes to budgeting, handling subscriptions can be tricky. In some cases subscriptions are paid monthly, which is often best for cash flow - they're managed in smaller increments each month and more importantly, not forgotten, which can be the case with less than regular (annual) subscriptions.
Monthly subscriptions are great when there is no choice to manage them annually instead. Netflix, for example, doesn't give the option of paying annually. However, when left to choose between monthly and annually - annual subscriptions are usually best.
In general, an annual option includes a discounted rate. When possible, the annual choice is best for the total overall cost, while the monthly option is best to spread the pain of the cost over an entire year.
For example, when I used to use 'Autoplan' (a monthly car insurance subscription) through ICBC, I thought the monthly cost to me was just the annual price, divided by 12 months. I didn't realize there was an extra $50 cost associated with their financing.
Once I started to scrimp and save to get myself back on track financially - I didn't want ICBC to have an additional $50 from me. At that point though, I struggled to understand how other people could come up with $1,200 (and sometimes more) to pay annually. Again, I wondered what they were doing differently in managing these less-than-regular-expenses.
In order to move myself away from Autoplan to the annual, discounted rate, I decided to double up my payment for a year. While I paid Autoplan each month (approximately $100), I also set aside another $95 in a savings account, so 12 months later, I was done with Autoplan and had $1,150 (of my own money) ready to hand to ICBC to pay for the year ahead.
The beauty was that I saved $50 on the total bill - (yes, a pile of effort for $50) but more importantly took back control of the savings process throughout the year.
Rather than having the lender, ICBC, dictate when I needed to hand the monthly payment over, I now was able to decide when and how much to save each month. This was especially crucial as a self-employed person, with less-than reliable income.
During months that were tight, I could save a little less and months that I had additional funds, I could save more. In addition, the tiny bits of interest on the money saved was in my favor. Each month, I kept my eyes on the ultimate goal of $1,150 - ensuring that when the renewal date approached, I'd saved adequate money to cover the annual bill.
I apply this same principle to property taxes.
Moving forward, this is how I began treating all subscriptions where possible.
Recently, I realized, smaller subscriptions were being overlooked in my budget planning. For example, when starting this blog, I signed up for an annual domain name, an annual website package, and an annual gmail account. In addition, I pay for both Dropbox and Microsoft 365 subscriptions. The expenses on their own are nominal, but when they start compounding the expenses can be significant and put an unwanted dent in my financial plans.
For whatever reason, I'd been dodging tracking and planning for these expenses.
Today, I spent part of the afternoon digging in to find a system for smaller subscriptions - which I thought I'd share with you too.
To Get Started, I was able to look forward to upcoming months to see what is coming due, as I have all recurring bills in my budgeting software. Here is a screenshot of what it looks like:
Essentially, after reviewing the subscriptions I've been neglecting, I was able to divide them into two categories; those for business and those for my personal life.
Next, I needed to consider the cost of the expense and the date the bill is due (the amount I time I have left to save for the bill).
Below is a chart of all my annual subscriptions - excluding property taxes and car insurance, divided into the two categories as previously mentioned. For each expense I counted the number of months (starting from and including July 2017) until the bill is due, then divided the total bill by the number of months left until I have to pay it. This gave me a savings goal for each item. An example is my SquareSpace Website which renews in March. From now until March, there are nine months, so I divided the amount due ($295) by nine months, resulting in $32.78 per month.
Once I did this for every expense, I totalled the business subscriptions and personal subscriptions which resulted in my monthly savings goal for each broad category.
Turns out I need to save $117.70 per month for Business Subscriptions, and $193.98 per month for personal expenses.
Subscriptions to Budget
Monthly Amounts Configured From June 17, 2017,
using 1.37 exchange for US Currency
For Business Subscriptions: $117.70 per month
- PO Box, Canada Post - June 1, 2018, $170.10 - $14.18 per month
- SquareSpace - Website Renewal, March 15, 2018, $216 US $295 CAN APPROX - $32.78 per month
- SquareSpace - Email (Gmail) Renewal, March 15, 2018, $50 US $68.50 CAN APPROX = $7.61 per month
- SquareSpace - Domain Renewal, February 26, 2018, $20 US, $27.40 CAN APPROX = $3.43 per month
- YNAB, February 21, 2018, $70 CAN ($50 US) = $8.75 per month
- Costco, May 29, 2018, $57.75 = $5.78 per month
- Dropbox, January 8, 2018, $122.18 = $17.45 per month
- Microsoft 365, October 16, 2017, $110.88 = $27.72 per month
For Personal Subscriptions: $193.98 per month
- Strava, May 28, 2018, $84.99 = $7.73 per month
- RBC Insurance, Critical Accident, August 14, 2017 $237.50 = $118.75 per month
- Megson Fitzpatrick, Annual Travel Insurance, August 4, 2017, $135 = $67.50 per month
Now, you might wonder where I put these monthly contributions once I carve out the amounts. Because I use budgeting software (YNAB), I don't actually need to physically move the money. I just allocate it to it's related category, and when I need it, it's already been partitioned in a sense.
If you want to see how this work, take a look at the video here:
If you don't have budgeting software, you can certainly open another account and physically move the funds each month.
Since I'd been dodging a plan to save for these subscriptions, my monthly contributions are higher than they will be in the future. For example, the fastest approaching bill is my Annual Travel Insurance for $135, due Aug 4th of this year. Because I have only two months to save - July & August - the monthly contribution ($67.50) is high. Once I pay the bill, I will re-evaluate the savings contribution and it will become $135 / 12 months (for the following year) resulting in $11.25 to be saved each month, thereby reducing the entire 'Personal Subscription Category' by $56.25.
One by one, I will be saving for these renewals with 12 months notice, rather than my current cram session.
Here's the deal - handling expense this way completely gives YOU the control to save when you have the funds. In addition, any savings account interest is in your favour. AND, when choosing annual over monthly, you usually get a discounted rate - saving even more money. These small choices will start to place more and more money in your pocket.
Most people get these types of bills, say "Oh Crap", make the unplanned payment and feel their finances tighten for a while.
By dividing annual expenses by 12 (or by the number of months until you pay them again), putting the money aside, the peaks and valley in cash flow start to become calm, smooth, and peaceful.
When learned, this tip was a huge shift in streamlining, my then, financial chaos - I hope it does the same for you.