NEW YORK (MainStreet) — Benjamin Franklin once wrote, "Beware of little expenses. A small leak will sink a great ship." Much has changed about the economy in the centuries since Franklin wrote those words, but his warning rings just as true today as it once did.
Small spending is an easy way to hemorrhage money, not in great chunks but in small drips. It blends into the background noise of a household's finances, hidden in cups of coffee and cable bills and never appears more sinister than $5 here and $10 there. Those add up though, and quickly.
This is how people wind up bleeding money so easily to monthly bills. They show up in a thick stack crammed with line items, sent to customers who quite rightfully hesitate over whether a few bucks is really worth negotiating with Lilith, the Comcast service rep. Yet cumulatively, recurring bills are one of a household's biggest expenses. MainStreet caught up with Craig Brimhall, the vice president of wealth strategies for Ameriprise, to talk about how consumers can get smarter about managing these bills and where to start looking first.
After all, if you don't take the time to check you might miss problems like...
Most people run their personal finances on a monthly budget. The problem, however, is that not all bills keep to that same accommodating schedule.
"One of the ones that creeps up on you, that you don't think about, is [a bill] that doesn't happen monthly," Brimhall said. "You can budget that monthly but the auto insurance bill is due semi-annually, and real estate taxes are due semi-annually. Those are the things that can sneak up on you."
For example, let's say a bill accumulates at $175 per month but gets collected every June and January. Without forethought, it's possible to come to that month and find yourself short by nearly $1,000, not to mention the added penalties and interest virtually always assessed for making late payments.
Better to simply budget ahead of time.
Electricity Delivery Charges
"Is it normal for someone to end this conversation feeling like they just got screwed with their pants on?" I asked a Com-Ed customer service representative recently. The subject was the recent doubling of my power bill, from $30 - $35 per month for our one-bedroom apartment in Chicago to a shocking $75 in the winter.
"There's just no way I'm using this much power," I futilely tried explaining, and that's how I learned about electricity aggregation and delivery charges. It turned out I wasn't using more power; I was just paying a heck of a lot more to receive it.
Where I live, a company called Constellation Energy Services had gotten the local government to opt-in automatically every resident to use the company as the local power supplier. Although our bills still came on power company letterhead, we all actually became customers of Constellation. The carrot was a small reduction in price per kilowatt hour. The stick was a $35 "delivery fee" and no mention of Constellation (then called Integrys) at all on the paperwork.
What precisely constitutes delivery for a product where "delivery" means beaming electrons down a wire at 18,600 miles per hour, I don't know. What it entailed for my bill, though, was shocking.
Fortunately I had a bit of leverage, since I hadn't yet paid the bill and could negotiate before sending the money in. As Brimhall recommends, this is why consumers should be careful about over-reliance on autopay for their bills. It's a terrific resource for convenience, as well as for keeping down late fees for the absent-minded among us.
On the other hand, when you're fighting over a bill it's almost always better to be arguing over how much money you'll pay versus trying to get them to give something back.
"I have a pattern that when my bills arrive," said Brimhall. "I just literally have to take the time to sit in my office and go through them. I still pay a lot of my bill by check, I'm old fashioned that way."
We've written on the subject of cramming before, but it keeps on going and is one of the sneakiest ways that cell phone providers have of driving up the bill. Even behemoths like Verizon and Sprint occasionally get caught with their hands in the cookie jar and were recently fined $120 million by the Consumer Financial Protection Bureau for it.
Cramming is when your mobile phone provider allows third parties to add, or "cram," unauthorized charges onto users' accounts. Common charges include low cost, high volume products like ring tones and emojis associated with premium texting packages. Merchants will apply charges to a customer's account without his knowledge or approval, often getting the consumer's information through online ads offering "free digital content" for which the customer was then charged.
When mobile companies exercise little or no oversight, it generally doesn't take much more than a phone number to bill a customer. When those same companies collect 30 to 40% of every transaction, they don't have much incentive to provide that oversight.
In a statement released after the Sprint and Verizon fine was announced, CFPB Director Richard Cordray called cramming the result of "flawed billing systems," saying that "consumers bore the brunt of those charges and ended up paying millions of dollars while the companies reaped the profits."
Customers don't need to have signed up for anything to fall victim to cramming, so make sure to keep an eye on your cell phone bill every month. If a $4.99 charge for Hello Kitty emoticons shows up, don't hesitate to refuse payment. The law is on your side.
Supplier Switch Scam
Companies that charge high utility delivery fees are bad enough, but sometimes they won't even ask permission before taking over your account. Often all it takes is a name, account number and customer address to process the paperwork.
This is how the supplier switch scam works.
Reported by Consumer Affairs and the AARP, this starts with a gas or electric supplier calling customers to offer big discounts on their utility bills. All they need is an account number so they can confirm your eligibility, and once they have that, the con is on.
Some suppliers make the switch through "slamming," the illegal practice of switching a customer's account over without getting consent. They make the switch and hope that no one notices.
More often however companies simply take advantage of the widespread confusion over what a utility supplier actually is. Most consumers only know about their local electric or gas company. When some third party calls offering great discounts on basic utilities the result is confusion and, often enough, an assumption that this must have something to do with the only players anyone knows.
Not seeing any difference between electric companies and electric suppliers, consumers agree to take the discount. Then, one or two billing cycles later, those delivery charges start showing up or the discount turned out to be just an introductory period.
Don't get suckered by the scam. Keep an eye on your bill and make sure you're actually doing business with the people you think you are.
Discount Drop and Rate Creep
How many of us have had that feeling, opening the bills each month, that these things just seem to keep getting bigger? I know it's happened often enough to me. Recently I had that moment with my Comcast bill. Sitting at my kitchen table I began to write the monthly check and hesitated over the number, thinking to myself, "I know this cost less when I first signed up…"
Rate creep sets in for any number of reasons. One common problem is with cable companies that run promotional prices for the first year of service, and celebrate your 12 month loyalty mark by adding $30 to $40 to your cable bill. In other cases, elements of noise simply creep into the bill, ticking prices slightly higher with things like "Regional Sports Fees" ($1.00), "Franchise Fees" ($4.57) or "Late Fees" ($9.50).
Don't be afraid to follow up when it comes to rate creep. The bill is actually getting bigger, and that's not O.K. Sometimes it's legitimate, but it's always worth following up on. Take this opportunity to take stock of the optional features you're actually using and get rid of all the rest. I mean, sure "Game of Thrones" introduced us all to sexposition and thus forever married the evil monologue with softcore porn, but do you really need to pay for it every month? When was the last time you actually watched all 80 channels that comes with that sports package, or is ESPN perhaps actually good enough?
Push back. You won't always win but it's a heck of a lot better than just shrugging and cutting the check.
As Brimhall explained, keeping track of these small expenses is essential to a healthy financial plan.
"It's just taking the time whenever in the month those bills come in," he said. "Most of us are going to get wealthy over the years by what we accumulate. It's cash flow, and one thing I try to impress upon people is that most of us will go through several million dollars in our lifetime."
It's important to stanch the unnecessary outflow.
"If you're going to to go through that money over your career it's important to pay attention, because the way most of us are going to get to retirement or financial independence is through cash flow," Brimhall said.
Ben Franklin couldn't have said it better himself.
-- Written for MainStreet by Eric Reed, a freelance journalist who writes frequently on the subjects of career and travel. You can read more of his work at his website A Wandering Lawyer.