Ninja Piggy’s Wallet Defense: Tactic #2

In order to be a Ninja Piggy for your finances you need to be the master of your Expenses

Businesses have created very advanced methods to take as much money from you as possible through clever marketing which uses psychology to trick your brain into paying more.  Corporations spend billions of dollars each year at finding new ways to entice you into spending more and their methods continue to get better.

There is a way to defend yourself from the advanced marketing tactics. It requires discipline and a different way of thinking. Below is a common marketing trap that can wipe out your ability to save, along with some helpful tips on how to avoid.

Tactic Two:  Protect against the Recurring Poke

Every purchase you make can be categorized as either a one time purchase or a recurring purchase (subscription).

One time purchase:  When you go to Safeway and buy groceries your payment at checkout is a “one time purchase”  There is nothing further expected between you and Safeway; although you will most likely come in again next week and buy a different mix of groceries.  Don’t get confused on terminology, revisiting a place multiple time still represents a one-time purchase each time.  The key characteristic of a one-time purchase is you have to make a conscious purchase decision each time.

Recurring purchase:    When you watch a movie on Netflix, you are doing this through an account with an active subscription.  This subscription is a “recurring purchase” where Netflix charges you about $9 a month for access to streaming all of their movies.  Netflix will continue to charge you this amount until you cancel your subscription.  The key characteristic of a subscription is the recurring purchase does not require a conscious decision.

Corporations are working very hard to sell you a recurring purchase vs. just a one time purchase because it leads to you spending more.  Automatic recurring every month is great for accumulating savings but not for your purchasing.

As the internet and mobile connectivity continue to advance, more and more companies are attempting to sell you a recurring purchase.  

Let’s use music for example. Less than twenty years ago, if you wanted to listen to the new tracks of summer you’d have to go buy a CD to listen to your music.  You’d pay $10 for the CD and you’d own it for the rest of your life.  As internet speeds and devices advanced music buying moved online, which initially resembled the same one time purchase model as the CD.  However, with further advances in technology the subscription model for music is now becoming the norm, where for $10/month you can listen to anything but you own nothing.  It’s hard to compare unlimited monthly subscription access vs. buying but let’s put it this way over a ten year period:

  1. Single Purchase, Ten Year Cost $500:  purchase 5 new digital albums a year; you will always own unlimited rights to your 50 albums
  2. Subscription, Ten Year Cost $1,200:  unlimited access to all of your favorite music; own nothing at the end.  

There is a huge push to make almost all software purchases into a recurring purchase.  Ten years ago I bought a Microsoft Office one-time license for $89 for my home computer.  For the last ten years I’ve used Microsoft Office for some basic features and I’ve been very happy with it.  I recently got a new computer that required a newer version of Microsoft Office.  Microsoft is now trying to sell me a subscription based version of Microsoft Office where I pay $10/month.  At first glance some might not notice the significant change; however, let’s look at the difference over the same ten year period:

  1. Single License, Ten Year Cost $89
  2. Subscription, Ten Year Cost $1,200

It should be pretty clear to see why companies are so excited to try and get you on a subscription offering.  You should avoid subscriptions when possible. Anytime you evaluate a potential recurring purchase commit to following these three steps:

  1. Calculate the one year cost

  2. Calculate the ten year cost

  3. Determine any “one purchase alternatives” and compare the associated cost