For some people, a financial wake-up call comes in the form of a credit report or the need to eat ramen for a few weeks. For Jeremy Eisengrein, this is what happened after he fell and tore a tendon in his knee on a trip to the beach.
When the 28-year-old communications professional was told he would have to pay $ 3,000 upfront for surgery and an MRI before getting reimbursement from the insurance, Mr. Eisengrein became hyper aware of the how his spending had increased during the pandemic. When he examined his checking and savings accounts, he found he had less money than he thought. More worrying, he said, was that he didn’t have a clear idea of where the money was going.
So while Mr. Eisengrein worked on his physical recovery from his home in Spring Lake, New Jersey, he also set out to recover financially. This included taking stock of all the ways he had allowed money to “slip” from his accounts. He noticed that most of his extra spending came from new subscriptions or other digital purchases, including around $ 50 to $ 75 a month in deliveries of food and products from Chewy for his dog and a plant delivery service that he did. ‘he hadn’t used in months.
“I think I’m good with my money,” Mr. Eisengrein says, “but then you ignore an email and can’t get the money back for the $ 100 I was charged for the GQ subscription. . “
Digital transactions make the financial life of young adults easier. Consumers can buy almost anything or send money to friends and family with just a phone call. Meanwhile, subscriptions to services such as music and video streaming services, fitness apps and cloud storage, as well as ridesharing and food delivery platforms and “buy now,” billing options. pay later, ”allow people to put a large chunk of their spending on autopilot.
But that convenience has left many young adults with “decentralized” finances – in a sense, outsourcing spending in a way that makes it easy to lose track of what you’re actually spending. And that can make overspending easy and hard to budget.
A June 2021 report from digital consulting firm West Monroe Partners found that U.S. consumers pay an average of $ 273 per month for subscription services, up from $ 237 in 2018. Yet the report, which surveyed 2,500 consumers Americans, also revealed that most people thought they actually spent less on subscriptions than in 2018.
“When you hear people talk about savings, it’s like ‘pay yourself first’,” says Zarak Khan, senior behavior researcher at the Common Cents Lab, which focuses on the financial well-being of Americans at low to middle income. It is “literally the opposite of that,” he says. “You pay everyone first. “
How Can Young Adults Protect Against “Leakage of Money?” ” Here are a few tips.
Grab the steering wheel
While it’s easy to get lulled into the complacency of free trials and automatic payments, you’re in control, says Annamaria Lusardi, professor of economics and accounting at George Washington University.
She advises making a habit of checking your bank or credit card transactions at the end of each day, so that you have a clearer idea of where your money is going. Otherwise, she says, “it’s really easy to lose sight of”.
Setting up bank alerts, such as setting a withdrawal threshold that will trigger an SMS or email from your financial institution, can be useful for the same reason, says Malik Lee, founder and CEO of Felton and Peel Wealth Management, an Atlanta company. financial planning firm. “For some people it may be $ 50, for others it may be $ 100,” he says. “So every time this transaction is done your eyes are at least touching it, especially for those automated invoices. “
Priya Malani, Founder and CEO of Stash Wealth, a financial advisory firm geared towards high-income millennials, says many consumers struggle to keep track of their transactions because they have so many payment options available to them.
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“Between credit and debit, cash and Venmo, PayPal and Zelle, the list goes on and on, so it’s very difficult to understand what we’re spending on,” says Malani.
She says the first step to regaining control is to narrow down the payment options you use, preferably just one. This could mean keeping a single mobile app for payments to your friends and family or using a single credit card for all of your digital subscriptions and purchases, so it’s easier to see how much you’re spending and on what.
“People forget to take this step because it’s like whatever card you take out of your wallet you sign up for Netflix and another for Spotify,” she says.
Applications and alerts
When it comes to subscriptions, researchers and financial planners say consumers need to know that these services are not static. If you sign up for recurring monthly withdrawals, you’re also signing up for potential – and sometimes unavoidable – price increases and duration fluctuations that could affect your finances, they say.
“A lot of things have now moved to the ‘set it and forget it’ model,” says Lee. While there are benefits to this, there is also a lifestyle that goes with it, he adds.
Experts advise to take note and budget for any price increases in your current subscriptions. If you need to absorb a price increase for one service, consider canceling or not signing up for another. Mr. Lee suggests moving from monthly subscriptions to an annual version if that becomes cheaper over time.
“This is your disposable income,” says Lee. “You have to protect him. “
Another big factor contributing to money leakage is that it is often more difficult to cancel a subscription service than it is to start one.
“It’s basically like, ‘Hey, one click and you’re subscribed,’ but if you want to cancel, come cross that ditch, fight that dragon, and deliver a handwritten letter, ‘says Khan.
Mr. Lee suggests creating check-in points every six months to assess what subscriptions you have and how much you are using them. If you set a calendar notification to revise or cancel a subscription, you’re more likely to take the time to jump through the hurdles you face to complete the unsubscribe process, says Kahn.
To reduce money leakage, some consumers are turning to money management apps like Truebill and Trim, which will review your spending and identify any recurring charges. Some of these apps will even negotiate these bills or cancel subscriptions on your behalf, for a fee. Ms Malani, however, calls for caution when using such services, saying you could accidentally lose a promotion or pre-negotiated rate on, say, your phone bill.
Tre Ingram, 23, started using a budgeting app called EveryDollar when he moved from Virginia to Los Angeles in August and noticed his digital transactions were starting to increase for everything from HBO Max to mobile payments for parking. . Because he didn’t have much financial education growing up, Mr. Ingram says, some of the app’s features, like the ability to clearly display billing dates on a calendar, provide crucial information throughout. along its financial journey.
“It definitely helps me stay on track because I’ve used it more,” says Ingram. “I come from a single parent family, so the concept of budgeting didn’t exist. It was about survival.
Mr. McCorvey is a reporter for the Wall Street Journal in New York. Email him at [email protected]
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