A recurring monthly charge of $10 takes a shocking amount of time off of your retirement.
A while back I wrote about bank fees and how you shouldn’t pay for bank accounts.
Imagine my confusion, then, when I recently saw that I had paid a monthly fee for my account! Apparently my bank changed thet rules at some point and for my banking account to be free, my credit card has to be active and not just in my possession. Easy enough to fix: I transferred a recurring charge to the card I otherwise never use and set up a recurring transfer to pay it off every month.
But it got me thinking about something I hear from time to time. Not from others, but from my own thoughts: “It’s only 10 (or 20) dollars extra per month, what’s the big deal?”
For example, it could be in reference to upgrading my internet connection speed or phone plan. Or it could be continuing to pay for Netflix when I don't watch it. Or it could be adding a few extra options when financing a new car.
Whatever it is, it’s easy to say 10 or 20 dollars extra per month is no big deal.
But is it?
It doesn't happen to every guy and it is a big deal
My bank fee is $10 per month if I pay for it. And unlike some other charges, I will probably need a bank account for the rest of my life. I mean, it's possible that we'll be attacked by aliens and our money will become worthless thanks to the interplanetary war but if we go into a state of global total war then I fully expect to be one of the first ones killed in battle. Even that scenario is unlikely though because an interplanetary war would be great for the world economy.
Anyway, if I do pay $10 per month for my bank for, say, 30 working years before retirement, what does that look like? Time to break out the maths.
Ten dollars monthly for 30 years adds up to $3,600. Add a reasonable 5% interest and that's over $8,300!
If you want to pull an average Canadian salary from your retirement fund when you retire, that $8,300 translates into over two months lost because of bank fees. Imagine having to work two extra months at the end of your life because you paid for a bank account. A fee that, had you put a tiny amount of effort in, could have been avoided.
Now hopefully you’ll retire with plenty of money to spare and this won’t be an issue. But it leads me to an interesting exercise: can you save $10 per month without changing anything?
The $10 Challenge
It’s easy to save money if you change your lifestyle. But can you save it without changing anything?
Services are a good one. Can you shave $10 off of your cell phone, TV or internet bill? Sometimes it’s enough to call them and ask.
What about car or home insurance? Did you shop around? Few calls, easy to shave a 10er there.
Up your rates for your side
prostitution dance instruction business. (Kidding — that’s a revenue increase, not a savings!)
Anyway. It’s a fun game I like to play every few months. Because I am a twisted individual and that’s what I consider fun.
Recurring charges are dangerous. They’re so easy to forget about and a small monthly fee becomes a lot more than expected in the long-term.
Many companies bet on you forgetting about them.
Hold on, you may say. It's totally worth forgetting about these small charges. My limited energy is best spent elsewhere where I can make big impacts. And you'd have a point. We do have a choice. We can either cut and scrape and spend the bare minimum to minimize the amount of money needed over our lifetimes, or (if we’re lucky) we can over-earn and save far over every estimate so we never really have to worry about the little things.
It's hard to argue that point. Life is all about where we choose to spend our time and money, and you can choose to use your money to buy a giant bottle of metaphorical F*** It.
Me, I like to stay true to free market and only pay for things I actually use.
Now if you'll excuse me, it's time for my, uh, dance lesson.
The 5% interest figure I tend to use is an approximate 7% earnings per year minus an approximate 2% inflation. So purchasing power stays roughly the same. Five is also a nicer number to think about. On an unrelated note, it feels good to have my own financial terms small print.