The Wall Street Journal recently published an article about how cellphones are eating the family budget. It seems as though the idea and everything but the words were lifted from an earlier article in the Boston Globe. Whatever the source, this is something that I saw coming years ago as a financial planner, and now, it seems things are maybe worse than ever when it comes to your budget and your cell phone.
Your Cell Phones, Your Budget
When I was a Certified Financial Planner advising clients, one of the first steps (after signing them up as clients) was to review their budget. For the wealthy, a budget isn’t really all that useful or eye-opening, but for everyone else, a budget can reveal some very ugly truths.
First, most people spend way more money each month on things than they think they do. Nothing is a bigger shocker than filling out a budget that includes everything you THINK you spend money on each month, and then sitting down with someone and matching that up to your bank and credit card statements to see what you ACTUALLY spend each month.
Second, for most people, there actually isn’t much they can do that meaningfully affects their budget. Many expenses are not optional, some are locked in for a period of time, and some could be cut, but people aren’t interested in cutting them.
A cell phone bills is a combination of all three. Not having a cell phone is technically an option, but not a very reasonable one for a lot of people. Even if they were willing to do something about it, they may be in a contract period that costs a lot of money to alter, and finally, even if none of those apply, many people are not willing to live without the full-smash when it comes to their cellphones.
Cell Phones are the New Car Payment
When I first started as a financial planner back around 2000, I quickly came to realize that the one thing wrong with most people’s budgets were their car payments. Often, this was even a bigger problem than many people’s credit card payments.
It is all too easy for a husband and wife to each have a $300 or $400 car payment. That’s $600 to $800 each month. It’s so common most people don’t realize how out of line that can be, and how much it can shortchange all of your goals.
Consider that many financial advice books will tell you to quit going out to eat for lunch at work. Doing so will save your $5 per day, or $25 for a five-day workweek. Assume you work all 52 weeks (no vacations) that adds up to a solid $1,300 per year that you can use for retirement. The irony is that many people nod their heads along and make the “bold” decision to cut out dining out for lunch, but cannot fathom doing anything to lower their car payment.
That $800 in car payments works out to $9,600, which is nearly 10 percent of the PRE-TAX income for a person earning $100,000. After taxes, that number gets alarmingly high. Now, add in another $150, $200, or even $300 per month for mobile phone plans and you see how things get even worse.
What makes a monthly cell phone bill so deadly to a budget is that cell phone bills are a scam perpetrated by the cellphone companies that people are willingly blind to. For example, a 4 GB shared data plan on Verizon for two phone lines officially costs $140 ($70 per line). But, by the time you add in all the phony charges and sales taxes, your cost will be much higher. So, if you budget for $140, you are already behind, and with early termination fees of $300 (per line) or more, you are looking a very pricy fix when you do realize that your cellphone is ruining your budget.
It gets even tougher when you realize that you aren’t talking about the difference between $150 per month and $0 per month. Although that would be an easy choice, the truth is that you likely need some kind of mobile phone to thrive in today’s connected world.
Cheaper Cell Phones
All the cell phone carriers charge similar rates once you figure in all their fees, add-ons, and surcharges. That means cutting your cell phone bill means doing something different.
To get a cheaper cell phone bill, you must first eliminate the biggest mistake most people make. In a reverse of the mistake people make when buying a car (focusing on the monthly payment instead of the purchase price), too many people focus on the initial cost of the phone. They barely look at what the monthly cost will be. Cellphone carriers love to exploit this tendency by subsidizing your initial phone purchase and then locking you into a 2-year contract. No matter how bad the service, no matter how high the surcharges get, no matter how bad your budget looks, you won’t do anything about it because of that early termination fee.
To avoid the higher and higher monthly cell phone bill, you have to break the subsidized cellphone habit. That means buying your own phone and using a prepaid cell phone plan. Many prepaid plans offer unlimited (actually unlimited) voice and data for less than you pay to the carriers on a subsidized plan. This will lower your monthly bill, but if you are still buying a new phone every year or two, you won’t really get ahead.
The real answer to lower cellphone costs is the same as the real answer to lower car costs, stop buying new ones. Paying off a car and having no payment is the cheapest way to have a car. Buying your cellphone up-front and waiting four or five years before getting a new one, all while paying less per month, is the cheapest way to have a cell phone.
If that doesn’t sound doable to you, then do like the people in those news stories do, and cut back on other things. Either way, be sure you are living within your means otherwise, that cellphone might just bankrupt you 🙂