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Our personal finances are now stuffed full of monthly payments and bills, committing you to paying a regular sum from each and every pay cheque.
Gyms, cars, streaming services, next day delivery services, food boxes, even clothing rentals.
Everything can be paid for now for smaller, regular sums that draw people in with incentives and seemingly lower payments, and then committing you to guaranteeing [£X] amount of your monthly income until you make a concerted effort to cancel that commitment.
This is made even more difficult when some companies make you jump through massive hoops to keep you contracted to them, or if they have tied you into a long-term contract, like with a car lease.
I try to avoid these commitments as much as possible.
I even hate committing to a 12-month gym membership, as well as any other unnecessary financing options, for fear of not being able to cancel it immediately if finances suddenly start getting tight.
That’s why I signed up to The Gym Group – this is how ALL gym memberships should be; I know too many examples of friends signing up to longer contracts and never using it.
Of course, there are a number of monthly direct debits that are unavoidable: council tax, household bills and mortgage/ rent payments. These are a given and not really what this post is about.
It’s the avoidable ones that I’m primarily focusing on here.
I also don’t have it out for people that really make the most of monthly subscription services. If you genuinely get the most out of your £5.99 a month Netflix subscription, all the power to you…it’s one of the few I have and I love it and watch it almost every evening (I’m actually surprised they haven’t raised the price sooner because I’d definitely pay, and get use out of, twice that monthly amount).
It’s the serial subscribers who lose track of everything they pay monthly for that I’m trying to ‘get woke’ (-_-).
Those that own so many subscriptions they’re forgotten about, hidden amongst each other in their bank statements, where the individual is so used to certain amounts leaving their account each month, that they don’t think twice about it.
Not only will people be paying for services they never use, they’re less inclined to check that the right amount has been taken each month.
Being swamped by so many smaller, monthly payments, people will be less alerted to a random increase in one of these subscriptions. Suddenly paying £20 for something you previously paid (and didn’t use) £10 for? How will you know if you never log in and check your statements amongst the sea of others?
I know every direct debit that leaves my account each month, and the exact date I expect it to leave, give or take depending on if that date falls on a weekend or bank holiday.
That’s the level everyone should be aware of their monthly bills. Don’t become a slave to these non-essential, monthly commitments.
I think of it in terms of how I think about my non-U.K investments.
When I’m investing in foreign equities, either through funds, trackers or individual stocks, my money is working for me around the clock: when I’m sleeping, eating dinner and before the U.K market opens at breakfast.
While the U.K sleeps, parts of the world and their corresponding businesses are still awake, creating and producing products and services while I count sheep or eat my Cornflakes.
That’s the great thing about investing. Your money isn’t just sat there, stagnating and depreciating, it’s growing and moving with the ebb and flow of the world’s largest and most prosperous companies.
However, as great at this is, I always see direct debits as working in exactly the opposite direction to my investments.
With some of these things (car insurance, for example) you have the option to pay the full amount up front, usually at a slightly cheaper rate over the 12 months. I understand this isn’t an option for everyone, but car insurance doesn’t really fall under the ‘non-essential’ category I’m talking about, and most of these non-essentials don’t offer the cheaper, full up-front payment option.
With options where you can pay for it up front, you pay and it’s done – nothing more to say until next year or when the contract needs to be renewed.
But with direct debits, I always see them as me paying for something even while I sleep. Even if it’s only a tiny amount.
For the sake of argument, let’s say you pay £30 a month for something…that’s £1 a day; 4p an hour. You might use the services of that thing for a few hours of that day, but there are many, many hours you’re not but are still paying for it.
The example of 4p an hour is ridiculous when taken in isolation, but imagine that accumulating alongside all those other direct debits going towards all those other services you never use…it all adds up. And it’s doing so while you sleep and eat your Cornflakes too.
If you’re getting use out of it, like I said above, that’s fair enough. But a direct debit is a continuous payment that never ends, and will only stop taking a portion of your income until you actively decide to cancel it.
The solution? Audit your finances.
Jump into your account that your direct debits come out of each month, and scan each and every line to see if you really do get the most out of each payment.
£5.99 for Netflix is dirt cheap for me because I use it almost every day, but if you’re only using it once a week, you’re forking out £1.50 every time you log in.
Even then that’s probably quite the bargain when you’re spending £30 a month extra for the sports channels during the off-season when there isn’t any sport on (that you enjoy watching at least).
These changes aren’t going to immediately make you a millionaire. They may not even see you putting much more into your savings each month. But what this IS going to do, is begin to change how you see value in the things you’re paying for.
It’s going to begin to instil a behaviour that will hopefully start to seep into every facet of your finances.
I’m not calling on you to cancel all the fun from your life, just to be aware of the things you’re paying money for on a regular basis.
Small changes in your finances can breed long-term, positive behaviours which will see your future self benefit.
Unsure of every direct debit that comes out of your account each month? Give your account an audit, and see if you can’t drive positive financial change.