Digital Payments Are Convenient. They Also Can Wreak Havoc on Your Finances.

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The good news: There are many ways to get control of your spending

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So while Mr. Eisengren worked on his physical recovery from his home in Spring Lake, NJ, he also worked to make some financial improvements. This included taking stock of all the ways he was allowing money to “leak out” from his accounts. He noticed that most of his additional expenses come from new subscriptions or other digital purchases, including about $50 to $75 a month in food-and-product delivery from Chevy for his dog and a plant-delivery service he’d used for months. was not used in

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“I think I’m good with my money,” says Mr. Eisengren, “but then you ignore an email and you can’t get the money back for the $100 you charged for a GQ subscription.”

Digital transactions make the financial lives of young adults more convenient. Consumers can buy almost anything, or send money to friends and family with just a phone swipe. Meanwhile, subscriptions to things like music- and video-streaming services, fitness apps and cloud storage, as well as ride-hailing and food-delivery platforms and “Buy Now Pay Later” billing options, allow people to spend most of their time. Allows you to put on autopilot. .

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But this convenience has left many young adults with “decentralized” finance – outsourcing spending in a sense in a way that makes it easy to lose sight of what you’re actually spending. And that can make it easy to overspend and budget difficult.

a June 2021 report Digital consulting firm West Monroe Partners found that US consumers are paying an average of $273 per month in subscription services, up from $237 in 2018. Still, the report, which surveyed 2,500 American consumers, also found that most people thought they were spending less than they actually were. subscriptions than they did in 2018.

“When you hear people talk about savings, it’s like ‘pay yourself first,'” says Zarak Khan, senior behavioral researcher at the Common Sentences Lab, which focuses on financial well-being for low- to middle-income Americans. It’s “quite literally the opposite,” he says. “You’re paying everyone else first.”

How can young adults guard against a “cash leak”? Here’s some advice.

holding the wheel

While it’s easy to fall for complacency with the convenience of free tests and autopayment, you’re in control, says Annamaria Lusardi, professor of economics and accountancy at George Washington University.

She recommends getting into the habit of checking your bank or credit-card transactions at the end of each day, so you have a clear picture of where your money is going. Otherwise, she says, “it’s really easy to lose sight.”

Setting up bank alerts — for example, setting withdrawal limits that will trigger a text message or email from your financial institution — can be helpful for the same reason, says Malik Lee, founder and managing director of Felton & Peele Wealth Management in Atlanta. Is. based financial planning firm. “For some people the limit may be $50, for others it may be $100,” he says. “So whenever that transaction comes in, your eyes at least touch it, especially for those automated bills.”

Many consumers struggle to keep track of their transactions because they have too many payment options at their disposal, says Priya Malani, founder and CEO of Stash Wealth, a financial-advisory firm geared to high-earning millennials.

“Between credit and debit, cash and Venmo, PayPal and Zelle, the list goes on and it makes it difficult to understand what we are spending,” says Ms. Malani.

She says the first step in regaining control is to narrow down the payment options you use, preferably to one. This could mean sticking to one mobile app for paying friends and family, or using one credit card for all your subscriptions and digital purchases, so it’s easier to see how much you’re spending and what. Feather.

“People forget to take that step, because it’s like every card you take out of your wallet, you sign up for Netflix and a different one for Spotify,” she says.

Apps and Alerts

When it comes to subscriptions, researchers and financial planners say consumers should be aware that these services are not static. If you sign up for recurring monthly withdrawals, you also sign up for potential—and sometimes unavoidable—price increases and period fluctuations that can affect your finances, he says.

“A lot of things have now moved to the ‘set it and forget it’ model,” says Mr. Lee. He said that while it has its benefits, it also comes with a lifestyle creep.

Experts recommend paying attention to and budgeting for any price increases in your ongoing subscriptions. If you must absorb a price increase for one service, consider canceling or not signing up for another. Mr. Lee suggests switching monthly subscriptions to an annual version if it’s cheaper over time.

“It’s your disposable income,” says Mr. Lee. “You have to play it safe.”

Another big factor that contributes to a cash leak is that canceling a subscription service is often more difficult than starting one.

“It’s basically like, ‘Hey, one click and you’re subscribed,’ but if you want to cancel, come and cross the gap, fight this dragon and deliver a handwritten letter,” Mr Khan says

Mr. Lee suggests setting up a check-in point Every six months to evaluate the number of subscriptions you have and how much you use them. If you set up a calendar notification to review or cancel a subscription, you’re more likely to take the time to jump over whatever obstacles it takes to complete the unsubscribe process, says Mr. Kahn. Huh.

To reduce cash leakage, some consumers are turning to money-management apps like Truebill and Trim, which will deal with your spending activity and identify any recurring charges. Some of these apps will reduce those bills for a fee or cancel the subscription on your behalf. Ms Malani urges caution when using such services, however, adding that you could accidentally lose a promotion or pre-negotiated rate on your phone bill.

Trey Ingram began using a budgeting app called EveryDollar at age 23 when he moved from Virginia to Los Angeles in August and saw his digital transactions begin to creep in on everything from HBO Max to mobile payments for parking. It is done. Because he didn’t have much financial education, Mr. Ingram says, some of the app’s features—like being able to clearly see billing dates on the calendar—are providing important insights along his financial journey.

“It definitely helps me stay on track because I get used to it more,” says Mr. Ingram. “I come from a single parent household, so the concept of budget did not exist. It was about survival. “

Mr. McCorvey is a reporter for Businesshala in New York. Email him at [email protected]

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