Monthly Subscriptions - Beware The Drain On Your Budget

Posted by John Adam on November 1
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It’s not so long ago that the luxury of being able to use the Microsoft Office suite that many of us having been using since high school, college or university cost a one-off £130-ish. And that could often be significantly less as part of deal for a new laptop or computer. Sure, new improved versions would occasionally be released by Microsoft but that upfront payment would see me through a good 3 or 4 years before I’d stump up again – usually the next time I bought a laptop.

Not anymore. Microsoft is again the most valuable company in the world and worth over $1 trillion at the time of writing. The company’s return to the top of the corporate tree is no coincidence. It’s because Microsoft is making a lot more money since they binned the old business model of selling software for a one-off payment and moved to the currently popular model of charging a monthly subscription. Now it costs £60 a year to download the Office software package and have it automatically updated. Around 20% more if you want to pay in monthly instalments. So by the time you are into year 3 of using it, a Microsoft Office package subscription is costing more than the old format of just buying it. For many, the new model will end up being at least twice as expensive as the old one.

But nobody really notices that Microsoft Office is suddenly about twice as expensive in real terms as it probably used to be. Because paying a small fee monthly by direct debit, or a bigger annual fee that is still quite a lot less than buying the software outright was, flies under the radar. It’s a very clever business move on the part of Microsoft and has massively bumped the company’s profits.

The problem is Microsoft Office is far from the only ‘insignificant’ monthly or annual subscription most of us have today. A lot of companies have cottoned onto the fact that consumers are suckers for small headline monthly subscription figures and will snap products or services up with little more than a quick thought of ‘it’s just £6 (or £5 or £10) a month – I can easily afford that’!

There are now so many popular services out there, all charging modest monthly fees that look very affordable, that if you’re anything like me you probably subscribe to several. It’s ridiculously easy to be sold another £5, £10 or £12 monthly subscription. Netflix, Spotify, Amazon Prime, Amazon Music, newspapers, magazines, Buzzbike, Lime, Dropbox, iCloud… the list is endless and it’s almost a guarantee anyone reading this is mentally adding in a few of their own subscriptions. And more are coming.

The new Apple streaming service sounds an absolute bargain at just a fiver a month! Why not tack that onto Netflix? “I’ve watched most of the good stuff anyway”. For anyone with kids, it will be hard to resist on-demand access to the full Disney catalogue plus new exclusives for just £6 a month. And Apple, Google and probably a few more are about to launch new video games streaming services. Any game, any time, from any device with a good internet connection because it’s powered by ‘the Cloud’. For just £5 or £7 a month? “Where do I sign? It used to cost me £40 for just one new game”!

The point of all this is not to question the value of any individual subscription. For anyone who uses a subscription a lot, it could well offer great value. Just like the gym memberships that have been around for two decades now. But also just like those gym memberships, it is very easy to be convinced by an attractive headline price point and then end up not making full use of a subscription. And today, when we are constantly bombarded by marketing for all sorts of services on attractive-looking monthly payments, it’s even easier to lose track of just how much they all add up to.

When I totalled mine up just last month, the figure genuinely surprised me. True, it was bumped up by a couple of pricier ‘on demand’ online courses offered by ‘gurus’ I’d been sucked into paying around £70 each a month for…and then let run for months during which I barely dipped into them. But I’m sure I’m not alone there. Building up a collection of subscriptions we then leave on direct debit for months after we’ve stopped using them regularly has become a stealth budget drain in the modern world. And often a significant one.

A quick audit of direct debits and strict review of whether we are really getting value for money out what we are paying for, or need them all, will for many be one of the easiest budget wins sitting in full view. Do it now. I bet you’ll be surprised at the total too and find some easy fat to trim to free up cash every month.

Written by John Adam

John has almost 10 years of experience as a writer and editor on consumer finance and investment topics. An entrepreneur, he has one successful exit behind him and currently writes and consults freelance while enthusiastically pursuing hobbies he's not very good at such as football, squash and raising a small child.

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