A two and a half minute read

 

The day of the one-time purchase and ownership is dying.  Today, to get a service, software, or other solution you must pay a regular subscription fee and subscribe to the loanership model, where you do not own the service or solution but rather “rent” it from the provider. (i.e. Netflix, Spotify, Adobe, etc.) 

Sometimes, these services are hard to exit.  Their free trial periods and convenient billing options make it simple for them to fall under the radar as you monitor your monthly spending. They make it easy to hook you and to keep up the steady bleed of your dollars, acting like a ball and chain as those small “loanership” fees add up, making it more difficult for you to work toward your larger or long-term financial goals. 

However, what if you harnessed this same powerful concept to create commitment devices to enable you to reach your goals?  A commitment device is a choice you make in the present which helps to control future impulsive behavior, and limits choices in the future to those choices that help you reach long-term objectives.  In the financial world, this would be establishing rules or parameters that make good investment decisions easy, automatic, and consistent.  With investments, this could be an automatic investment option where a set dollar amount leaves your bank account and is invested monthly, or for personal finance, an automatic transfer from a checking to a savings account.

 

Why is this important to me?

 

You can be your own worst enemy when it comes to your finances and investing.  This is especially true during down markets—if possible, you should continue to invest consistently, NOT let emotions guide you to self-destructive investment decisions such as timing the market/exiting the market and deviating from your financial plan altogether.  In down markets, most investments are, essentially, available for a discounted price.  Take a page from the loanership book and set up an automatic investment plan, set it and forget it, so that you can take advantage of those prices.  We wanted to write this article on this topic because at Financial Solutions Group, we want to enable you to reach your goals--to help you avoid the behavioral traps of investing and personal finance, and act as a coach or sounding board during the life or economic events that can and will occur. 

This article was released at the beginning of the New Year.  The New Year is a season of resolutions—perhaps financial resolutions—which means reviewing your expenses.  So, we would like to leave you with this idea:  In the day to day battle toward financial independence, beware of the trap of loanership subscriptions.  In this battle, Financial Solutions Group is in your corner, available to help advise you on creating commitment devices so that you can attempt to maximize your dollars and efforts.