The digital age has brought us countless conveniences, but it also means that we are all more vulnerable to the whims of our smartphones. Digital payments make it easy to shop online and pay for things with a few taps on your phone, but they can wreak havoc on your finances if you’re not careful.
Digital payments are convenient. They also can wreak havoc on your finances. The digital payment companies make it easy to pay for things online, but they also take a big chunk of change from your wallet.
A financial wake-up call may come in the shape of a credit-report ding or the need to eat ramen for a few weeks for some individuals. It was what occurred to Jeremy Eisengrein when he fell and tore a knee tendon on a vacation to the beach.
Mr. Eisengrein, a 28-year-old communications worker, became acutely aware of how his spending had risen during the epidemic when he was told he would have to pay $3,000 ahead for surgery and an MRI before receiving any reimbursement from insurance. He found that he had less money than he believed when he looked at his checking and savings accounts. More concerning, he claims, was the fact that he had no idea where the money was going.
Mr. Eisengrein set out to accomplish some financial recovery while working on his physical recovery from his home in Spring Lake, N.J. This entailed assessing all of the ways in which he had allowed money to “leak out” of his accounts. He found that the most of his extra expenditures were due to new subscriptions or other digital purchases, such as $50 to $75 per month in Chewy food and product supplies for his dog and a plant-delivery service he hadn’t used in months.
Mr. Eisengrein adds, “I believe I’m okay with my money, but then you disregard one email and you can’t get a refund for the $100 I was charged for the GQ membership.”
Young people’ financial life are made easier by digital transactions. With only a swipe of their phone, consumers may buy virtually anything or transfer money to friends and family. Subscriptions for music and video streaming services, fitness applications, and cloud storage, as well as ride-hailing and food-delivery platforms and “buy now, pay later” payment options, enable consumers to put most of their spending on autopilot.
After recovering from knee surgery, Jeremy Eisengrein claims he was able to assess all of the ways he had been letting money to ‘leak out’ of his accounts.
Jeremy Eisengrein is the photographer for this image.
However, this convenience has resulted in many young people having “decentralized” finances—in other words, outsourcing costs in such a manner that it’s simple to lose track of what you’re spending. And this may make it simple to go overboard and difficult to stick to a budget.
According to a June 2021 study from digital consultancy company West Monroe Partners, American consumers spend $273 per month on average for subscription services, up from $237 in 2018. However, the poll of 2,500 U.S. customers showed that most individuals believed they were paying less on subscriptions in 2019 than they were in 2018.
“It’s like ‘pay yourself first,’” says Zarak Khan, senior behavioral researcher at Common Cents Lab, which focuses on financial health for low- to middle-income Americans. He claims that this is “very exactly the polar opposite of it.” “You’re going to pay everyone else first.”
How can young people protect themselves from “cash leakage”? Here’s some guidance.
Taking hold of the steering wheel
While the ease of free trials and autopayments may lull you into complacency, you are in charge, according to Annamaria Lusardi, a professor of economics and accounting at George Washington University.
She recommends making it a habit to check your bank or credit-card transactions at the end of each day so you can see where your money is going. “It’s very simple to lose sight,” she adds if she doesn’t do so.
According to Malik Lee, founder and managing principal of Felton and Peel Wealth Management, an Atlanta-based financial-planning firm, setting up bank alerts—for example, setting a withdrawal threshold that will trigger a text message or email from your financial institution—can be helpful for the same reason. “That barrier might be $50 for some individuals, $100 for others,” he adds. “So anytime that transaction comes through, at the very least your eyes contact it, particularly for those automatic invoices,” says the author.
Many customers struggle to keep track of their transactions because they have so many payment choices, according to Priya Malani, founder and CEO of Stash Wealth, a financial-advisory company targeted toward high-earning millennials.
LET US KNOW WHAT YOU’RE CONCERNED ABOUT.
What advise do you have for staying on top of digital payments and subscriptions? Participate in the discussion below.
“With credit and debit cards, cash and Venmo, PayPal and Zelle, the list goes on and on, and it’s very difficult to keep track of what we’re spending,” Ms. Malani adds.
She advises that the first step to recovering control is to reduce the number of payment methods you use, ideally to just one. That might mean sticking to a single mobile app for payments to friends and family or using a single credit card for all of your subscriptions and digital purchases so you can keep track of how much you’re spending and where you’re spending it.
“It’s like whichever card you pick out of your wallet, you sign up for Netflix and a separate one for Spotify,” she adds.
Apps and notifications
Consumers should be aware that subscription services aren’t static, according to academics and financial advisors. According to them, if you sign up for regular monthly withdrawals, you are agreeing to potential—and often unavoidable—price hikes and term changes that may have an impact on your finances.
Mr. Lee adds, “A lot of things have gone to the’set it and forget it’ approach today.” While there are advantages to this, he also warns that it may lead to lifestyle creep.
Experts suggest keeping track of any price hikes in your continuing subscriptions and planning for them. Consider canceling or not signing up for another service if you have to endure a price rise for one. If moving from a monthly to a yearly membership saves money over time, Mr. Lee recommends doing so.
Mr. Lee adds, “This is your discretionary income.” “You have to keep it safe.”
Another major source of revenue leakage is the fact that canceling a subscription service is frequently more difficult than starting one.
Tre Ingram keeps track of his digital transactions with the assistance of a budgeting software.
Tre Ingram/Getty Images
Mr. Khan explains, “It’s essentially like, ‘Hey, one click and you’re subscribed,’ but if you want to cancel, come cross this moat, battle this monster, and send a handwritten letter.”
Mr. Lee recommends setting up checkpoints every six months to assess your subscriptions and how often you use them. Mr. Kahn claims that if you create a calendar reminder to evaluate or cancel a subscription, you’ll be more likely to make the time to go through whatever roadblocks stand in your way.
Some customers are using money-management applications like Truebill and Trim to minimize cash leakage. These programs sift through your purchasing behavior and detect any recurrent costs. For a charge, several of these applications will even negotiate lower rates or cancel subscriptions on your behalf. However, Ms. Malani advises care while utilizing such services, claiming that you might lose a promotion or pre-negotiated discount on your phone bill, for example.
Tre Ingram, 23, began using the EveryDollar budgeting software after he relocated to Los Angeles from Virginia last August and realized his digital transactions, which included anything from HBO Max to mobile payments for parking, were creeping up. Mr. Ingram adds that several of the app’s capabilities, such as the ability to easily see billing dates on a calendar, are giving important insights along his financial path since he didn’t have a lot of financial education growing up.
“As I’ve used it more, it certainly helps me remain on track,” Mr. Ingram adds. “I grew up in a single-parent home where budgeting was non-existent. It was just about staying alive.”
Mr. McCorvey is a New York-based correspondent for The Wall Street Journal. [email protected] is his email address.
Dow Jones & Company, Inc. All Rights Reserved. Copyright 2021 Dow Jones & Company, Inc. 87990cbe856818d5eddac44c7b1cdeb8