Does $9.99 really make that much of a difference?
It dawned on me on the Wednesday before Thanskgiving that I had subscription fees that were posting over the holiday weekend. They were on my budget as expense items, but I still needed to reconcile my bank account to see if they had posted correctly. Not a big deal, but it was just one more thing that I had to do before I headed out of town.
So, besides the added time to monitor the expense, I had to ask myself: Does a $9.99 subscription fee really make a make a difference in my budget?
You may be asking yourself the same question. The answer for both of us is yes- let me make the case why $9.99 can have a huge impact on your personal budget.
Cost vs. value
I love music, and I really love Spotify. So, I convince myself that I’m willing to pay the $9.99 to get those additional features, such as the ability to save and organize songs I like. That has value to me, and it’s worth $9.99. There are other subscriptions that I’m not willing to pay for, such as Pandora’s premium service. I’m willing to live with the commercials on Pandora- so I don’t pay the fee. Besides, I’m already paying the fee for Spotify.
My suggestion here is to take a hard look at all of those small expenses you incur each month, particularly subscriptions. I recently came across Trim, which can help you locate and cancel unwanted subscription using a text- pretty cool.
It adds up
If you cancel a $9.99 monthly subscription and invest the money, you can take advantage of the magic of compounding. I’ve written about compounding interest here, and in several other blog posts. And it is magic- that is not overstating the massive financial impact of this concept.
Don’t believe me? Use the Bankrate app to calculate compounding interest. First, understand that compounding means that you reinvest your earnings, which means that you earn interest on both your principal amount (original investment) and all prior interest. In other words, you’re earning “interest on interest”, and you’re total investment can grow much faster.
What $10 can become
To make the math easy, assume that you invest $10 a month at a 6% annual interest rate for 30 years, compounding once a year. Your total investment is $120 a year times 30 years, or $3,600. At the end of 30 years, you accumulate $9,793- more than double your total investment.
In addition to monthly subscriptions, make a look at your meals and entertainment spending each month. Instead of buying Starbucks coffee four times and week, cut down to two. If you go out to dinner three times a month, try going out just once each month.
Now, there needs to be a payoff to this personal sacrifice, so invest the money you save. Decide on a dollar amount and run it through the Bankrate calculator. You’ll be amazed what just a small monthly amount can become over time. Given the potential growth, I bet you won’t miss that extra cup of Pumpkin Spice Latte.
This information is for educational purposes only. As always, consult with a financial service professional and a CPA for advice.
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
(website and blog) http://www.accountingaccidentally.com/
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Image: David Tarwin, Cash register close up
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