Delayed gratification sucks. Particularly when it comes to finances, constantly pinching pennies and saving all your extra cash is pretty darn boring when you get right down to it. Which is why so few people do it well, including yours truly. There are too many fun things to spend money on.
Yet, as any regular Fool reader knows, unrestrained spending (especially the kind that lands us in debt) is the antithesis to a good personal finance plan. Too many leaks in our cash pool leaves less to save and can ultimately put the kibosh on plans for our kids' college funds, vacations in Antigua, or dreams of unemployed leisure. A common solution -- strict budgeting -- scares away many people who see it as a stale existence devoid of any fun whatsoever.
Unfortunately, many of us go overboard on the fun stuff during at least one portion of our lives and land in a financial pickle. But you don't necessarily have to turn to ramen noodles, bicycle transportation, and hand-cranked radio to meet reasonable retirement goals -- a little creativity can give a good balance of gratification now as well as a comfortable retirement later.
The case of the monthlies
What gets many people in trouble these days is in catching what I call a case of the monthlies. This is the compulsion to sign up for services that are billed monthly at what seems to be a very low rate for all the fun the subscriber gets from the deal.
Thirty years ago, your average American subscribed to only a handful of basic services -- the bare necessities of water, power, and telephone. The story is much different today. In addition to the basics, today the average American is hooked on extended services such as cellular phones and broadband Internet access, as well as a handful of the many entertainment subscription options -- cable TV, digital radio, video on demand, online music stores, etc. -- that are all vying for your dollars. And while most people hate paying for utilities, paid entertainment at least buys some fun in life.
The monthlies can cost you dearly. One way to see just how much of your cash is sapped is to annualize what you pay for services. Viewing it this way, your fairly reasonable $16.95 a month to TiVo
It stands to reason that if monthlies are costly for consumers, then they are a boon for businesses offering them. Smart companies like TiVo know that it's easier for consumers to swallow a small monthly cost than a large one-time payment. Indeed, 70% of new TiVo subscribers in the most recent quarter opted for monthly payments rather than the lump-sum option. Apple and XM have also scored big by offering consumers alternative ways to pay for audio content -- Apple's 34% earnings growth in its most recent quarter and XM's 72% increase in subscriber base over the past four quarters confirm that the price is right for their services.
Netflix scored huge subscriber additions in 2005 after it lowered its monthly fee to $17.99. While the average monthly revenue per subscriber dropped, the flood of new subscribers helped the company boost overall revenues by more than 36% to $682 million in 2005 -- surging past traditional pay-as-you-go Blockbuster
Simplify and justify
For most consumers, the problem is not necessarily in signing up for a lot of monthly services. It's more a matter of blowing money on services they hardly use in the first place. To make sure you're getting the most fun now while saving some gratification for retirement, consider a few fresh approaches to the monthlies:
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Avoid contracted services unless you're certain that you will realize the entire value of the contract. Paying that Bally Total Fitness
(NYSE:BFT) membership contract for years will have you kicking yourself if you stop going after three trips. Know your options, too. In its last 10-K, Bally reported that it now offers a multiyear contract or a "Build Your Own Membership" pay-as-you-go option for customers. That can save you some serious cash, and it's a smart move for Bally, too -- the BYOM model "constitutes a distinct competitive advantage that will help to increase membership sales, decrease membership cancellations, and improve retention rates."
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Make the most of trial periods for new services. Test out new entertainment or utility services such as cell phones and cable/satellite television immediately to make sure they're worth the money before you get locked into payments. If you're not thrilled, cancel during the trial period.
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Periodically question why you are paying for services. You may realize, for instance, that you no longer need to pay for access to download Yahoo! music if you've already gathered a large enough collection of songs on your MP3 player.
- Consolidate redundant services. Many entertainment options now overlap, so you may be paying several different companies when you could actually pay less to fewer companies for the same services.
Another important step is to scrutinize your monthly entertainment and utility expenses. For some, unlimited movie rentals with Netflix might be a wasteful indulgence. In other cases, however, a subscription may actually save you money -- particularly if you rent two movies a weekend at $4 a pop from the local Blockbuster -- making it a smarter choice in the long run. You may also justify paying for OnStar service for the safety and assistance aspect alone.
Bringing it home
Everybody has different thresholds for justifying their spending -- just make sure you're honest with yourself and that you've considered all the options. If you do, you'll likely find opportunities to cancel a few services and free up some cash. Also, you may find it easier to resist the temptation to sign up for a gaggle of new monthlies.
Of course, all of this effort doesn't do squat for you unless you complete the very last step -- direct extra money into your savings. Cutting out recurring monthly expenses only to squander the cash in other ways defeats all your efforts. A good practice is to automatically increase savings into your savings or retirement funds as you lop off any monthly expenses -- so you don't even realize you've freed up extra cash.
Make the most of your savings and investments with an exclusive teleseminar with Motley Fool co-founders David and Tom Gardner. They'll tell you when to buy and sell stocks in this uncertain market.
Fool contributor Dave Mock does actually have fun saving but he can only delay true gratification so long. A longtime Fool, he is also author of The Qualcomm Equation . Dave does not own shares of any company mentioned in this article. XM Satellite Radio is a Rule Breakers recommendation. Netflix and TiVo are Stock Advisor recommendations. The Fool has a strict disclosure policy.
