Saving Psychology

One of my friends makes $50,000/year and, after working through some of my suggestions, realized she’s paying 30 percent of her after-tax income for subscriptions. That’s a truly shocking figure, so I want to share a method to dramatically cut down on unneeded subscriptions that you currently pay for. Subscriptions can be anything from Netflix to cell phone plans to your cable bill. They are a business’s best friend: They let companies make a reliable, predictable income off of you —with no action on your part. There’s a convenience to this, of course—but there’s a significant cost: When was the last time you scrutinized your monthly subscriptions and canceled one? Probably never. Yet compare this with any recent time you went shopping. When was the last time you saw something you liked but decided not to buy it?

THE À LA CARTE METHOD. The À La Carte Method takes advantage of psychology to cut our spending. Here’s how it works: Cancel all the discretionary subscriptions you can: your magazines, TiVo, cable—even your gym. (It would be totally ridiculous to cancel your Internet, though. I’d cry like a little girl if I couldn’t get online from my house.) Then, buy what you need à la carte.

The À La Carte Method works for three reasons:

1. You’re probably overpaying already. Most of us dramatically overestimate how much value we get from subscriptions. For example, if I asked you how many times a week you go to the gym, chances are you’d say, “Oh . . . two or three times a week.” That’s B.S. In fact, one 2006 study showed that gym members overestimate how much they’ll use their membership by more than 70 percent. Members who chose a monthly fee of about $70 attended an average of 4.3 times per month. That comes out to more than $17/gym visit—when in reality they’d have been better off buying pay-as-you-go passes for $10 each.
2. You’re forced to be conscious about your spending. It’s one thing to passively look at your credit card bill and say, “Ah, yes, I remember that cable bill. Looks like a valid charge. Tallyho!” It’s quite another to spend $1.99 each time you want to buy a TV show—and when you actively think about each charge, you will cut consumption.
3. You value what you pay for. You place a higher premium on the things you pay for out of your pocket than those that come via subscripton.

HOW TO IMPLEMENT THE À LA CARTE METHOD:

1. Calculate how much you’ve spent over the last month on any discretionary subscriptions you have (for example, music subscriptions, Netflix, and the gym).
2. Cancel those subscriptions and begin buying these things à la carte. (But don’t let losing the gym membership be your excuse to become a fat ass.)
3. In exactly one month, check and calculate how much you spent on these items over the last month. That’s the descriptive part.
4. Now, get prescriptive. If you spent $100, try to cut it down to $90. Then $75. Not too low—you want your spending to be sustainable, and you don’t want to totally lose touch with what’s going on in the world. But you can control exactly how many movies you rent or how many magazines you buy, because each one comes out of your pocket.

Remember, this isn’t about depriving yourself. The ideal situation is that you realize you were spending $50/month in subscriptions for stuff you didn’t really want—now you can consciously reallocate that money into something you love.