I have a friend who has never had internet service to her home. She has cable TV, just no internet. This drives most of her friends crazy (including me). Who doesn't have internet service? I can understand if the price is too steep but this friend is financially doing well and she could easily afford internet service. It got me thinking of how much money she has saved over the past 15 years when having separate internet service became as common as electricity.
If I just think about basic/minimum internet service, probably the monthly cost would be about $30/month with taxes and renting the modem from the provider. On an annual basis this easy $30/month cost is $360/year. This is what I mean by the Power of 12. $360 is a lot more than $30. Our money economy tends to run on a monthly basis (monthly telephone, monthly mortgage or rent, etc.). So many of us think in terms of what we know we have leftover at the end of each month, or, how much those credit cards can absorb each month.
Back to my friend, over 15 years, my friend has savied $5,400 ($360 x 15 years). Not bad. Worth it for 15 years? I don't know. She certainly doesn't seem to be unhappy or uninformed.
What about those $50/month subscriptions? That's $600/year. What about that small $2.95 charge that you barely notice, that's about $35/year.
These monthly subscription charges add up to quite a bit over time. What I've found when I do the initial import of numbers for my new clients, all have at least two or three of the monthly subscriptions going that they never use. They usually haven't cancelled because it seems like too much of a hassle compared to the monthly cost.
Sometimes this reasoning goes on for literally years and years. One client had an old email account that she created and then never used. That $2.95 though kept coming out every single month for almost four years, only stopping when she lost her credit card and she didn't provide her new credit card number. That was $130 that she can't get back nor did she use the service she purchased.
Maybe you are thinking, "so what?" Would you feel the same if you had $130 in your wallet and had to pay $130 to walk into a store that, once you were in, decided you didn't want anything and had no way of getting your $130 back?
Before you opt-in for one of those subscription programs, use the power of 12. Take the monthly subscription amount, multiply it by 12 and get your annualized cost. Then, think about how long you expect to use this service -- two years, five years? Take your annualized number and multiply it again. How does that feel? Too high? If you had to pay for the service upfront, would you still do it? If the answer is a "no way, that's not worth it." Then don't opt-in. If you are neutral or ambivalent, then I recommend making sure you find out the cancellation terms first -- how do you cancel and is there an early cancellation fee. I have only found two subscription services that made it incredibly easy to cancel. They literally had huge buttons on the My Account page that said "End Subscription Now." Most though don't want you to leave so they'll make you work hard to find out how to cancel and usually make you speak to someone directly whose job it is to get you to stay. If you are neutral, think about how you would feel if when you went to cancel you had to jump through hoops. If that makes you angry, don't subscribe.
Finally, if the subscription seems like a good match and you know you will use the service, think about the long-term tie-in to the company that will be receiving your money. If it is a cloud-based program and your data will be stored, what happens if you need to move to a different company? How easy is it to get your data? If it's a monthly club (something like a wine of the month club), then how easy is it to cancel and is there an automatic annual renewal into the club with a termination fee?
This may seem basic but it is one of the biggest money leaks I see. The best way to stop them is to not even allow them to start.
And what if you are watching almost $100/month drift out your wallet in monthly subscriptions for which you don't use and don't have the time or energy to cancel? You can make an honest effort to cancel by calling the number given on the charge. If you get a runaround or nowhere, as a last resort report your debit or credit card as lost and that will end all the subscriptions. It may be more of a headache as you'll need to reinput information for those subscriptions and services you do want to keep, but it will stop the money leaks and allow you to get clear and grounded when it comes to the subscription programs.
To summarize, before you opt-in:
Power of 12: Would I pay for 12 months of this service upfront right now with no way of getting my money back if I don't use it or it's not what I expected?
Is it easy to cancel? Am I charged a fee to terminate the service at anytime?
Do I like this company/person? Will it be easy to leave or get my data if I need to move to a different service?