It seems subscription fees are now an accepted part of modern life and budgeting. Low but fixed fees for using a variety of services like Spotify, Netflix, Adobe Creative Cloud and Apple Music are now built into the average budget, just as much as rent/mortgage payments and power and water bills.
But these subscription fees – low as they may seem – might be placing an unnoticed burden on your budget.
There's a reason why Netflix charges you $14 a month for a standard plan, rather than $168 a year – you don't notice it!
Same with Xero Limited (ASX: XRO) and its $50 per month standard package – it feels a lot less painful than an annual bill of $600.
There's a reason why some of the biggest companies in the world have moved or are moving towards subscription-based services. Microsoft is transitioning to a subscription model for its popular Microsoft Office suit. Apple is launching a bevy of new services like Apple News, Apple TV and Apple Arcade that all require monthly fees. And Amazon's Prime is one of the most popular subscription services in the US.
You only have to look at Netflix's current market capitalisation of US$122 billion to see how lucrative these services are.
Or how Adobe's stock price has gone from US$43 in May 2013 (when it moved to a cloud-based subscription service) to today's price of US$266.84 (with a US$129 billion market cap).
Or even Xero or Altium Limited (ASX: ALU) – two Australian companies built on a subscription model. Xero's shares are up 63% in 2019 alone, while ALU shares have risen by 52%.
These companies are making a fortune from our regular 'small' monthly payments.
Just think, if you're paying for a Netflix subscription ($168), on top of Spotify ($144) and maybe YouTube Premium ($180) – you're forking out $492 a year for the privilege. Throw in a new Disney Plus subscription (launching in Australia on 19 November for $9 a month) and you're looking at $600 a year.
Foolish takeaway
If you're struggling with a tight budget, it might be time to consider which subscription services you really need, and how many you should be paying for. As illustrated above, these can quickly add up and (in my view) should not be put under the 'essentials' tab of your budget.
