Cost Management and Free Tier

One of the biggest concerns when starting with AWS is cost. Without proper management, cloud bills can spiral unexpectedly. In this final lesson, we'll explore AWS pricing models, the Free Tier, and strategies for managing and optimizing your cloud costs.

What You'll Learn

By the end of this lesson, you'll understand AWS pricing fundamentals, how to maximize the Free Tier, use cost management tools, set up billing alerts, and implement cost optimization strategies.

AWS Pricing Fundamentals

AWS pricing is based on three fundamental principles:

1. Pay As You Go

No upfront costs or long-term commitments for most services:

• Start and stop resources anytime
• Scale up or down based on demand
• Pay only for what you actually use

2. Pay Less When You Reserve

Commit to usage for significant discounts:

• Reserved Instances (EC2, RDS): Up to 72% savings
• Savings Plans: Flexible discounts across services
• 1-year or 3-year terms

3. Pay Less as AWS Grows

AWS regularly reduces prices:

• Over 130 price reductions since 2006
• New instance types often cheaper and faster
• Competition benefits customers

Common Pricing Dimensions

Dimension	Services Using It
Compute time	EC2, Lambda, ECS
Storage	S3, EBS, RDS
Data transfer	Most services (egress)
Requests	S3, API Gateway, Lambda
Provisioned capacity	DynamoDB, RDS

The AWS Free Tier

AWS offers generous free tier benefits for learning and experimentation.

Three Types of Free Offers

1. Always Free

Available to all accounts indefinitely:

• Lambda: 1M requests/month
• DynamoDB: 25 GB storage
• CloudWatch: 10 custom metrics
• SNS: 1M publishes

2. 12 Months Free

Available for 12 months after account creation:

• EC2: 750 hours/month (t2.micro or t3.micro)
• S3: 5 GB storage
• RDS: 750 hours/month (db.t2.micro)
• CloudFront: 1 TB transfer

3. Trials

Short-term trials of specific services:

• Amazon Redshift: 2 months
• Amazon Inspector: 15-day trial
• Amazon GuardDuty: 30-day trial

Free Tier Limits (Key Services)

Service	Free Tier Limit	Period
EC2	750 hours t2/t3.micro	Monthly, 12 months
S3	5 GB, 20K GET, 2K PUT	Monthly, 12 months
RDS	750 hours db.t2.micro, 20 GB	Monthly, 12 months
Lambda	1M requests, 400K GB-seconds	Monthly, always
DynamoDB	25 GB, 25 WCU, 25 RCU	Monthly, always
API Gateway	1M API calls	Monthly, 12 months
CloudFront	1 TB transfer	Monthly, 12 months

Free Tier Best Practices

1. Track usage - Use AWS Free Tier usage alerts
2. Stop what you're not using - Especially EC2 and RDS
3. Stick to free tier eligible resources - t2.micro, db.t2.micro
4. Check region - Free tier applies across all regions combined
5. Set billing alerts - Get notified before charges accrue

AWS Billing Dashboard

The Billing Dashboard is your command center for cost management.

Accessing Billing

1. Click account name (top right)
2. Select "Billing Dashboard"

Or search for "Billing" in the console.

Key Sections

AWS Bills

• Detailed breakdown of current charges
• View by service, region, or usage type
• Download invoices

Cost Explorer

• Visualize spending over time
• Filter by service, tag, region
• Forecast future costs

Budgets

• Set spending limits
• Get alerts before exceeding

Free Tier

• Track free tier usage
• See what's remaining

Setting Up Billing Alerts

This is essential for everyone, especially beginners.

AWS Budgets

Create budget alerts:

1. Go to Billing → Budgets
2. Click "Create budget"
3. Choose budget type:
   • Cost budget - Track total spending
   • Usage budget - Track specific usage
   • Savings Plans budget - Track commitment utilization
4. Set budget amount (e.g., $10/month)
5. Configure alerts:
   • At 50% of budget
   • At 80% of budget
   • At 100% of budget
6. Add email recipients
7. Create budget

CloudWatch Billing Alarms

For more granular alerts:

1. Go to CloudWatch (in us-east-1 region)
2. Alarms → Create alarm
3. Select metric: Billing → Total Estimated Charge
4. Set threshold (e.g., $5)
5. Configure notification (SNS topic with email)
6. Create alarm

Pro tip: Create multiple alarms at different thresholds ($5, $10, $25, $50).

Free Tier Usage Alerts

Enable free tier usage alerts:

1. Go to Billing → Billing preferences
2. Enable "Free Tier usage alerts"
3. Enter email address
4. Save preferences

AWS Cost Explorer

Cost Explorer helps you visualize and analyze spending.

Features

Reports

• Monthly costs by service
• Daily costs with trends
• Cost by linked account (Organizations)

Filtering

• By service (EC2, S3, Lambda)
• By region
• By tag
• By usage type

Forecasting

• Predict next month's costs
• Based on historical patterns

Common Analysis Views

Monthly cost by service: See which services cost the most.

Daily spend: Identify spending spikes.

Cost by tag: Group costs by project, team, or environment.

Environment: production  → $500/month
Environment: staging     → $100/month
Environment: development → $50/month

Cost Optimization Strategies

1. Right-Sizing

Use the smallest resources that meet your needs:

EC2 Right-Sizing:

• Use AWS Compute Optimizer recommendations
• Start small, scale up if needed
• Consider burstable instances (t3) for variable workloads

RDS Right-Sizing:

• Match instance class to workload
• Review Performance Insights for utilization
• Consider Aurora Serverless for variable workloads

2. Reserved Capacity

For predictable workloads, commit for savings:

Reserved Instances:

• 1-year: ~40% savings
• 3-year: ~60% savings
• All Upfront: Maximum savings

Savings Plans:

• Compute Savings Plan: Flexible across EC2, Lambda, Fargate
• EC2 Savings Plan: Specific to EC2, higher discount
• 1-year or 3-year terms

3. Spot Instances

For fault-tolerant workloads, use Spot for up to 90% savings:

Good for:

• Batch processing
• Data analysis
• CI/CD pipelines
• Containerized workloads

Not good for:

• Production web servers
• Databases
• Anything requiring consistent availability

4. Storage Optimization

S3:

• Use appropriate storage classes
• Enable Intelligent-Tiering for unknown access patterns
• Set lifecycle policies to archive or delete old data
• Delete incomplete multipart uploads

EBS:

• Delete unattached volumes
• Use gp3 instead of gp2 (cheaper and better)
• Snapshot old volumes and delete if not needed

5. Turn Off What You're Not Using

Development/Test Resources:

• Stop EC2 instances outside work hours
• Use Lambda or Fargate for intermittent workloads
• Automate with AWS Instance Scheduler

Unused Resources:

• Unattached EBS volumes
• Unused Elastic IPs (charged when not attached)
• Idle load balancers
• Old snapshots

6. Data Transfer Optimization

Data transfer can be surprisingly expensive:

Minimize egress:

• Use CloudFront to cache content at the edge
• Keep data in the same region as compute
• Use VPC endpoints for AWS service access

Same-region transfers:

• Traffic between AZs has small cost
• Same-AZ traffic is often free

Cost Allocation Tags

Tags help you understand where money is going.

Recommended Tags

Tag	Purpose	Example
Environment	Separate prod/dev costs	prod, staging, dev
Project	Group by project	website, api, mobile
Team	Attribute to teams	engineering, marketing
Owner	Identify responsible person	john@company.com
CostCenter	Financial allocation	cc-12345

Enabling Cost Allocation Tags

1. Go to Billing → Cost allocation tags
2. Activate tags you want to use for cost tracking
3. Tags will appear in Cost Explorer (after ~24 hours)

Tagging Best Practices

• Establish naming conventions
• Tag resources at creation (use IaC)
• Audit for untagged resources
• Use tag policies in Organizations

AWS Trusted Advisor

Free and premium recommendations for:

Cost Optimization:

• Idle EC2 instances
• Underutilized EBS volumes
• Unused Elastic IPs
• Idle load balancers

Performance:

• Overutilized EC2 instances
• CloudFront optimization

Security:

• Open security groups
• IAM configuration

Fault Tolerance:

• EBS snapshot age
• Multi-AZ configurations

Access via AWS Console → Trusted Advisor.

Common Cost Mistakes

Mistake 1: Forgetting Running Resources

Problem: Leave EC2/RDS instances running after testing.

Solution: Set up billing alerts, use tags, regularly audit.

Mistake 2: Oversized Resources

Problem: Using m5.xlarge when t3.micro would work.

Solution: Start small, monitor, and scale up only if needed.

Mistake 3: Ignoring Data Transfer

Problem: Large data transfer costs across regions or to internet.

Solution: Use CloudFront, keep data regional, use VPC endpoints.

Mistake 4: Unused Elastic IPs

Problem: Allocated Elastic IPs not attached to instances.

Solution: Release unused Elastic IPs immediately.

Mistake 5: No Cost Visibility

Problem: No tags, no budgets, no alerts.

Solution: Tag everything, set budgets, enable alerts from day one.

Cost Management Checklist

Before starting on AWS:

• Set up billing alerts (Budget and/or CloudWatch)
• Enable Free Tier usage alerts
• Understand which services you'll use and their pricing
• Plan your tagging strategy

Ongoing:

• Review bills monthly
• Use Cost Explorer to analyze trends
• Run Trusted Advisor checks
• Audit for unused resources
• Right-size resources quarterly

Key Takeaways

• Pay as you go - No upfront costs, pay for what you use
• Free Tier provides generous free usage for 12 months plus always-free services
• Billing alerts are essential - set them up immediately
• Cost Explorer helps visualize and understand spending
• Right-size resources - start small and scale up
• Reserved capacity saves up to 72% for predictable workloads
• Tags enable cost visibility and allocation
• Turn off unused resources - biggest source of waste

Course Summary

Congratulations on completing AWS Cloud Fundamentals! You've learned:

1. Cloud Computing Basics - What it is and why it matters
2. AWS Account Setup - Secure account configuration with IAM
3. AWS Console - Navigating and using AWS services
4. EC2 - Running virtual servers
5. Lambda - Serverless computing
6. S3 - Object storage
7. RDS - Managed databases
8. API Gateway - Building APIs
9. CloudFront - Content delivery
10. Route 53 - DNS management
11. Security - Best practices for protecting your cloud
12. Cost Management - Keeping your AWS bill under control

Next Steps

To continue your AWS journey:

1. Practice - Build projects using Free Tier
2. Get certified - Consider AWS Cloud Practitioner certification
3. Go deeper - Learn specific services in detail (networking, containers, etc.)
4. Build real applications - Apply what you've learned

Thank you for learning with us. Happy cloud computing!