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The A La Carte Method: Use Psychology Against Yourself to Save Money

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I was thinking about my friend who spent 30% of her income on subscriptions, and I wanted to share a method to dramatically cut down on unneeded subscriptions that you currently pay for.

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These subscriptions might include:

  • Netflix
  • Tivo
  • Gym
  • Cellphone
  • Internet
  • Cable
  • Amazon Prime
  • Magazines

Subscriptions are a business’s best friend: They let companies make a reliable, predictable income off of you — with no action on your part. Without doing anything, you invisibly pay money each month.

There’s a convenience to this, of course — I set up as many automatic subscriptions as possible — but there’s a significant cost: When was the last time you scrutinized your monthly subscription and canceled one?

Probably never. Yet compare this to any recent time you went shopping. When was the last time you saw something you liked, but decided not to buy it?

In the above paragraph — read it again! — is the key to cutting your spending on subscription items. I’ll show you how.

The A La Carte Method

The A La Carte Method takes advantage of psychology to cut our own spending. As Richard Thaler, a professor at the University of Chicago, illustrates in his excellent book, Nudge, we are much more likely to do things when no involvement is necessary.

Do you contribute to your 401(k)? In one study, 49% of employees contributed when they had to complete forms (i.e., actively take action) ….but that number skyrocketed to 86% when they were automatically enrolled in the 401(k) plan, not requiring them to take any action. (Of course, they could always opt out.)

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Participation in 401(k)s before and after automatic enrollment.

Here’s how you can use the A La Carte Method for yourself. Cancel all the discretionary subscriptions you can: your magazines, annual Rhapsody plan, cable — even your gym. (It would be totally ridiculous to cancel your Internet, though. I’d cry like a little girl if I couldn’t get online from my house.)

Next, buy what you need a la carte:

  • Instead of paying for a ton of channels you never watch on cable, buy only the episodes you watch for $1.99 each off iTunes
  • Buy a day pass for the gym each time you go (around $5-$10)
  • Buy songs as you want them for $0.99 each from Amazon or iTunes

Why does this work?

The A La Carte Method works for three reasons.

1. You’re probably overpaying already. Most of us dramatically overestimate how much value we get from subscriptions. For example, if I asked you how many times a week you go to the gym, chances are you’d say, “Oh…2 or 3 times a week.” That’s BS. In fact, in one remarkable study of three health clubs, two researchers from Stanford and Berkeley showed that gym members overestimate how much they’ll use their gym membership by over 70%. In fact, members who chose a monthly fee of ~$70 attended an average of 4.3 times per month. That comes out to over $17/visit — when in reality they could have bought a pay-as-you-go pass for $10. Because these people are overly optimistic about how often they’ll use the gym, they lose over $700 over the lifetime of their membership. BAD MOVE.

2. The Method forces you to be conscious about your spending. The second reason that the A La Carte Method works is that it forces you to be conscious about your spending (like my friend who spends $21,000/year going out). It’s one thing to passively look at your credit-card bill and say, “Ah, yes, I remember that cable bill. Looks like a valid charge. Tallyho!” It’s quite another to spend $1.99 each time you want to buy a TV show — and when you actively think about each charge, you will cut consumption. As one of my mentors, Stanford professor BJ Fogg, wrote in his book Persuasive Technology, tracking is one of the most effective persuasive methods.

3. You value what you pay for. The third reason it works: You will value whatever you’re buying if you’re actively spending out of your pocket, rather than an invisible subscription.

The downside of the A La Carte Method

The big downside is that this method requires you to un-automate your life, which is the price you pay for saving money. I encourage you to use this if you find yourself short of cash and wondering why you can’t save more money each month.

Or give it a shot for 2 months and see how it feels. If you don’t like it, go back to your old subscription method. It can’t hurt.

How to implement the A La Carte Method

1. Target 1-3 discretionary subscriptions you have. I recommend any music subscriptions, Netflix, and the gym. (But don’t let the gym membership be your excuse to become a fat ass.)
2. Calculate how much you spent over the last month on these subscriptions.2
3. Cancel the subscriptions and begin the A La Carte Method.
4. In exactly 1 month, check and calculate how much you spent over the last month. That’s the descriptive method.
5. Now, get prescriptive. If you spent $100, try to cut it down to $90. Then $75. Not too low — you want your spending to be sustainable — but in this step, you can control exactly how many movies you rent or how many magazines you buy, since each one comes out of your pocket.

Remember, this isn’t about depriving yourself. The minute your personal-finance infrastructure becomes oppressive is the minute you stop using it. The ideal situation is that you realize you were spending $50/month in subscriptions on stuff you didn’t really want — and you’ll consciously reallocate that money into something you love, whether it’s the gym, travel, or investing.

Good luck.

[Update]: Here’s a detailed writeup on implementing the A La Carte Method.

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The point of this article is to challenge the assumption that “subscriptions always save you money.” If you liked this, you may want to check out my takes on why we’re all hypocrites about our $28,000 weddings and why I bought a new (not used) car.

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77 Comments

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  1. Thoughtful advice as always, Ramit.

    A couple of comments:
    – I consciously stuck with Netflix because it saves me on late fees (which were not always under my control) and theater movies.

    – I love magazines, but I got my subscription costs down to zero by getting free trade magazines and using a few of my frequent flyer miles (Delta) to get other magazines.

  2. Ramit-Interesting concept. I think the key is to think deeply on each expense. Do you actually use it? What parts do you use? How often?

    I don’t think I’ll abandon the time savings of automating my expenses as time is too valuable. The key is to eliminate or reduce unnecessary or excessive expenses where you can.

    Take a gym membership for example. My family had a membership to Lifetime Fitness. We liked the amenities like the pool and the rock wall. My son and I used the racquetball courts at least 3 times a week, but we used the other amenities very little. The one other thing we used was the pool, but we have one in our neighborhood.

    We analyzed our usage and made a change. The main use we had for the gym was racquetball. We shifted to LA Fitness, and my son and I got individual memberships. By doing so we saved $100 per month and improved our experience (LA Fitness has 6 courts while Lifetime Fitness has 2).

    We’ll be making the same evaluation with our cable/internet/phone service. What is the best deal (overall) that delivers the services we use?

  3. “But don’t let the gym membership be your excuse to become a fat ass.”

    I never type “LOL” because I doubt people really “LOL”ed every time they use that acronym, but I seriously almost spit out my green tea latte when I read that.

    We don’t have many subscription services, but I think we might be able to cut back on NetFlix (go with a smaller plan). We don’t have TIVO or cable, and I’m BAD at returning movies on time, so I can’t let go of my NetFlix all together. I also might try a pay-as-you-go phone. I have tons of unused minutes every month, and I’m on the lowest plan they offer.

    We are going to get a subscription to Bon Appetit magazine for $1 an issue because we keep buying it at the stand for $4 an issue, which is just dumb. We use the heck out of that magazine, though. Not an issue goes by that we don’t cook from.

  4. I unconsciously did a similar thing when I moved across the country last year. When we were leaving the DC area, we killed every subscription we had – Netflix, magazines, newspapers and gym memberships.

    Without realizing it, we ended up paying “a la carte” for nearly everything here in SF while we were getting settled and made the realization that we got more value out of 4 high-definition Apple TV movies (@$2.99-$3.99/each) than we did out of our previous $18/month Netflix subscription. (Besides, I can watch regular TV shows on my Apple TV and never have *any* commercials to skip through – that’s a huge time saver right there.)

  5. @April: I doubt most people drink “green tea latte’s” … LOL. LOL.

  6. […] The A La Carte Method: Use Psychology Against Yourself to Save Money […]

  7. good advise, but, as long as you’re honest with yourself, I think subscriptions are largely still the way to go.

    Magazines are cheap enough under subscription that even if you wouldn’t buy half of them you still come out on top! And t.v. shows from itunes can be more expensive than cable! For instance, if I have 5 shows that I watch regularly my itunes bill could be 40-50$ whereas basic cable will cost me 30.

    I think the lesson here isn’t canceling subscriptions but checking every couple months to ensure those subscriptions are really saving both time and money!

  8. Netflix definitely saves me money. Between late fees, the fact it would take so few “a la carte” movies to make it worth it a month, and the fact I no longer feel the need to buy movies because – I have at my disposal an infinite selection of movies that are really only 24 hours away (and I have dvd ripping software….)

    I go to the gym 5 days a week at the minimum – whether it’s for pick up basketball or the sauna or a full fledged work out. I think the a la carte method would detract from that and ultimately lead me to become the fat ass…

    My magazine subscriptions – even though they are relatively inexpensive – may need to go. Most of the time I just end up with a stack of magazines that I rarely read cover to cover. I could probably would buy 1/4 of the magazines I buy if i went a la carte!

    Other than that – i’m subscription free. No cable. Work pays for the blackberry. Life is grand 🙂

  9. Buying magazines? Who buys magazines? That’s what the library is for. Why buy it when you can get it free?

    We’ve been analyzing our memberships lately, and man, the cell phone has got to go. Trouble is, it ain’t mine. 😉 Cable could go altogether too… but the gym membership stays. I’m there at least four days a week. More sometimes. And always for classes, which I can’t do on my own. But it’s good to be aware of what can go and what is essential.

  10. I’m constantly trying to trim down and this article just reminded me to do it again. I always end up agonizing though. The only subscriptions we have that are excessive are cell phones and cable (internet is not excessive but we do have low-bandwidth option with TWC).

    We are about to move so its again perfect to recheck everything. The cell phones will become pay by the minute (really trying to research who has the best deals) and we’ll probably try MagicJack since its so cheap for our house line.

    But what to do with cable?? My husband loves sports but IMO its not worth the money we pay. Most of the shows we like, I would love to purchase online. I wish there was a cable service that let us get a sports package and thats it, nothing else. A number of digital channels we can pick up for free anyway. At least we get TWC to give us their promotional rates every cycle.

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