I just realized that in the last 10 years I never wrote a basic budgeting article for Finance Gourmet. There are a few reasons for that. One, when you get going as a former financial advisor writing a real-world personal finance advice website, you want to jump into the juicy stuff. Two, once you have been writing that juicy stuff for a while, you just assume that you have covered some of those basics. And three, budgeting is actually a personal thing. What works for one person doesn’t work so well for others.
Anyway, look for my basic budgeting article in the next few days. For today, I want to start my series on Budget Killers. As a financial advisor, and as a regular finance writer today, I have seen common things that blow up a budget. I’ve also seen less common things that blow up a budget (owning a horse, motorcycle racing, and more).
Let’s start with one of the most common things that blows up a budget, cell phones.
Cell Phone Budget Killers
It isn’t uncommon to see monthly cell phone bills in the hundreds of dollars. Unfortunately, many people don’t see the costs adding up until it is too late. Let’s take a look at how cell phones end up busting your budget.
The biggest cell phone company in America is Verizon, with AT&T in second place and the newly mergered* Sprint/T-Mobile. They all operate in a similar fashion. In exchange for a monthly payment, you get access to a nationwide cell phone network. Those plans can bust your budget.
Buying Cell Phones on Monthly Payment Plans Is Bad
Buying a phone on a payment plan isn’t inherently bad, but the way people use payment plans can blow up their budget.
Modern flagship cell phones sell for prices that are out of reach for many Americans. This should push people to buy cheaper, more affordable cell phones. Cell phone manufacturers have taken a page from car manufacturers and worked with mobile phone companies to hide the true cost of a phone inside of a payment plan. In some cases, the cell phone companies use new phone purchases to lock their customers into place, without using the reviled service contracts.
Let’s say you buy a new $1000 phone on a 24 month payment plan. The cell phone companies are happy to give you 0% interest because they want you and that shiny new phone to stay on their network. Unfortunately, even with 0% interest, $1000 over 24 months is $41.67. If you and your wife get new phones that’s $83.33 per month.
Add that to your $45 each per month unlimited cell phone plan, plus $10 or so in taxes and fees and your cell phone bill is $193.33 per month. If you have children old enough for cell phones it gets even worse.
How To Keep Cell Phones From Killing Your Budget
The key to saving your budget from cell phones is getting the right offer and right cell phone plan for your family.
My family currently pays around $60 per month for a family of four for our cell phones.
How do we do it?
Get The Right Cell Phone Plan for Your Family
We matched the best cell phone plan to our circumstances. In this case using the lesser known Xfinity Mobile service.
If you are a Xfinity cable customer, then the $10 per line is waived and you only play for your data which comes as $15 per gig shared with two discount tiers at 3 GB for $30/mo shared, and $10 GB shared for $60/mo. You can also get $45 per line for unlimited.
This setup allows us to have a phone only for emergencies for our 11-year old. That cost is $0 because it uses no data. Text and phone are free since our line fee is waived as Xfinity customers.
As for the rest of us, it turns out, video streaming is the big data usage. If you don’t stream video when you are not on WiFi, web browsing will never get you over one or two gig per line, especially if you connect to hotspots when you spend longer amounts of time in one place. As a cancer warrior, I end up at the hospital for testing and appointments. I automatically connect to their WiFi whenever I’m there.
My wife and I usually stay right around that 2 GB per line area. What about my teen daughter? Well, we told her that she can have data but not a lot. The talk I had was no video streaming. She gets around that by downloading video and all of her music to her phone, so she has it, but doesn’t pay for data. So she also stays around that 2 GB mark.
The result 6 GB between us. On the 10 GB plan, that costs us $60 per month.
What about cell phone payments?
Nope. We have iPhone 7s that we bought new almost four years ago and paid off, and we haven’t upgraded, so no payment plans for us, and no budget busting. The 11-year old got the $99 phone which we paid for at once. The teen got a refurbished iPhone 7 that cost us just $150.
No budget busting for us.
Will that work for your family?
Maybe, or maybe not. That is the whole point. You have to choose the right plan for your family. If you are not Xfinity customers their plan likely isn’t the cheapest offer. The trick, is exactly matching the best plans companies have.
Best Cell Phone Offers
The best cell phone offers come in the form of free, or heavily discounted phones requiring services that you already planned to buy. Let’s check out today’s Verizon offer for two Samsung Galaxy S20 FE 5G UW cell phones. (I’ll let you Google up what all of those letter mean for this type of Galaxy cell phone.)
To see if this is a good deal, we’re gonna need to look as some fine print. The actual deal is you pay a $699.99 device payment for a NEW LINE (Sorry existing customers. Cell phone companies hate you for some reason, just like cable companies.) Minus a $500 Verizon eGift card that you get “within 8 weeks.” The second phone also costs $699.00 on a monthly payment plan for 24 months, but Verizon gives you a $700 credit applied over 24 months to your bill.
Let’s break this out. This deal actually works like this:
- You pay $699.99 IN CASH
- You get $500 back in GIFT CARDS
- If you consider gift cards equal to cash then this means you paid $199.99 for the first phone
- The second phone you pay $699.99 on a 24 month 0% interest payment plan
- Verizon credits you the amount of the phone payment each month ONLY AS LONG AS YOU STAY SUBSCRIBED TO THEIR UNLIMITED PLAN
The payment credit is the new contract. You can leave at any time, you just owe us whatever is left on your phone’s payment plan. The longer you stay, the cheaper that pay off will be. If you were going to buy this plan anyway, then you are out nothing.
But, notice that you put out $700 in cash and then have to wait up to two months to get $500 in GIFT CARDS back. Make sure the $700 in cash works with your budget. You usually can’t pay bills with gift cards. You should be able to use them to wipe other expenses off your budget like groceries, or maybe going out to eat.
Now figure out that $45/line and see if that payment works for your family.
If you don’t get new phone credits be really sure that the plan PLUS the monthly phone payment works for you. Without the phone promotion from Verizon, that phone plan costs an extra $58 per month for the phone payment over 24 months.
Can your budget handle $148? Know what you can afford before you go online or wander into the cell phone store, and don’t let it trickle up based upon a shiny new phone.
Budgeting comes down to looking at your fixed expenses against your income and seeing what you have left. Remember a cell phone plan increases your fixed expenses. Every new fixed expense reduces your flexibility to do other spending.
Keep that in mind when you are buying phones and setting up plans.
*There is no such thing as the word mergered, which I’m using here as the past tense of merger, which itself is not verb, thus the non-existence of a past tense version. The correct grammar would be to say merged, but I stand by my phony word creation 🙂