- The Finance Gourmet

Budget Killers – Cell Phones

Written by Finance Gourmet Leave a Comment

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.

The result?

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

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 🙂}

Is T-Mobile Free Switch Offer Worth It?

Written by Finance Gourmet 3 Comments

As someone dissatisfied with my current cell phone carrier, I was curious about T-Mobile’s switch for free offer. I’ve heard the radio commercials and seen the signs, but I know there is always more to any deal than the bold text. I wondered, is the T-Mobile switch for free deal really a good deal, or was it some sneaky scam. I figured I could look into it, and then blog about the real deal on T-Mobile’s pay you to switch deal.

Reading the fine print, and understanding what you are getting into beyond the blaring headlines of an advertisement is probably the most important day-to-day money management skill a person can have. Too often, someone’s personal financial planning intentions get dropped out the window thanks to unanticipated expenses or monthly costs. Worse, sometimes these decisions are costly, or even impossible to reverse.

The headlines for this deal scream that T-Mobile will pay your early termination fees and that they’ll even give you a big credit toward a new phone. Is this a great deal, or is this going to turn out to be some switch carriers scam from T-Mobile.

T-Mobile Switch Plan Fine Print

Some day, I’m going to develop a class on fine print, until then, just know that “up to,” or “as much as,” and their ilk are the biggest hiders of expenses and other limitations in America today. Look no further than your average internet provider when you purchase a data plan with speeds up to 40 Mbps, or whatever. (Up to, means that there is no legal obligation to provide you any speed whatsoever. Even .01 Mbps falls under the umbrella of, “up to 40 Mbps.)

The web page for the switch to T-Mobile for free offer is littered with up tos.

get up to $650 per line
up to a $300 trade-in credit
up to $350 per line ETF credit

What is the deal with these up tos? Will need to get beyond the bullet points to find out.

Is The T-Mobile ETF Refund Legit or a Scam?

Let’s start with the Early Termination Fee refund, or ETF pay back.

It turns out that the, up to, here is completely fair and harmless. T-Mobile will pay up to $350 per line for your ETF fee, but only if your ETF charge is actually $350. If your final ETF cost from your original carrier is only $200, then they’re only going to pay $200. In other words, you aren’t going to profit from the deal. This is totally legit and fair.

There is one catch that you want to be aware of though. Retailers of all kinds have gotten in the habit of giving you a refund, or in this case “paying you to switch,” via something other than cash in the form of a check. In this case, T-Mobile requires you to submit your final bill showing your ETF charges, so they know how much to pay you for them. Then, you get a prepaid MasterCard for the amount within eight weeks.

Why does this matter? Well, if your finances are in good enough shape, it all sort of works out in the end. You pay off your final bill. Then, when you get the prepaid MasterCard, you buy groceries with it instead of using your checking account, and boom, you’re even. If you don’t have as much wiggle room in your budget, however, you’ll need to plan ahead.

The mechanics of how the T-Mobile ETF refund part works is that you will have to pay your old carrier for the ETF fees when the final bill is due. In most cases that will be within 30 days of receiving the bill. However, you won’t get your prepaid MasterCard for up to 8 weeks. If you are switching 4 lines with $200 each in termination fees, you need to able to cover that $800 for up to 8 weeks before you get your $800 card. Then, you need to be aware that you are going to get an $800 MasterCard, not an $800 check. Again, if you have enough cash, it really doesn’t matter, but your landlord might not take a credit card for your rent.

To minimize the lag between when you have to pay out your ETF fees and when T-Mobile gets you your MasterCard, be sure to submit your bill right away, then pay your bill on the last possible day. If you’re lucky, that will cover three to four weeks for you and you’ll only have to wait four or five weeks more to get your card.

Assuming you plan correctly, there is no way to lose on the ETF refund part of T-Mobile’s offer unless you have an ETF charge higher than $350 somehow.

So far, this T-Mobile switch for free offer is legit.

T-Mobile Switch Carriers Offer Phone Credit

The next part of the switch for free offer from T-Mobile is a credit toward the purchase of a new phone. Depending upon what kind of phone you have, what kind of phone you want, and when you last purchased the phone, this is the part of the offer where you say, “Oh. I didn’t realize that.” This is the T-Mobile switch offer catch, if you will.

In order for this switch to be truly free, you would have to get your new phone at T-Mobile for free, because the deal requires that you get a new T-Mobile phone, and that you trade in your old phone for credit toward that phone. You cannot participate in this deal without buying a new T-Mobile phone and signing up for a qualifying plan.

The, up to, in this part of the offer is not as friendly as the, up to, in the ETF refund part of the offer. Here, up to, means that you very well may get less than $300 for your trade-in. How much you get depends upon your phone’s market value. Older phones are worth less, so are lower-end phones. This deal is made as a swap, not an upgrade, so you won’t be trading your flip phone for an iPhone for free. Although it isn’t spelled out anywhere, damaged phones may be worth less too. (The offer does say that your phone must be “working.”)

You are supposed to go into a T-Mobile store to do the trade-in part of the deal, so it isn’t really clear resource online about how much your particular device will be worth. There is an online device trade-in area on the website, but you have to login to your T-Mobile account to view it. Suffice to say, you definitely want to find out how much your phone is worth up front.

Let’s say that you recently bought a Sprint Galaxy S4 phone and you want to switch away from Sprint because they still don’t have any 4G coverage in Denver and their 3G coverage is terrible. It’s reasonable to assume that a current model, working, Samsung Galaxy S4 phone is going to be worth the full $300 credit, or at least close to it. So, how does switching to T-Mobile using this special offer impact this customer?

While I can’t find a trade-in value online, I can browse the latest phones, where I find that replacing this phone with a T-Mobile Galaxy S4 will cost $624 plus $10 for a “SIM starter kit.” (I guess the necessary SIM card for your phone to function on the T-Mobile network is not included. I call that a T-Mobile scam, but that’s a different article.) Since I’m only getting a $300 credit, I’ll have to pay $334 to switch, “for free,” (per phone).

If your phone is older, then this is less of a big deal since you might be buying a new one anyway. Of course, if your phone is older, then it probably isn’t worth a full $300 trade-in credit either.

Is T-Mobile Switch Offer a Good Deal?

So, if you were already planning on buying another phone in the near future, this still might be the deal for you. Otherwise, you’ll want to be doing it for other reasons such as better service, improved coverage, or another reason that you might have had even without the offer.

Here’s the really weird thing. Nowhere on T-Mobile’s website does it call this a switch for free deal. It says that they’ll pay your termination fees for you. Now, I’m confused. Is it billed as switch for free on the radio, or what that just what some over-hyperbolic reporter said in the news articles I read when I first heard about the deal.

Is SquareTrade a Good Deal

Written by Finance Gourmet 13 Comments

I first wrote about SquareTrade back in 2009. At the time, I was overjoyed at the concept of warranties from Square Trade. If you don’t remember, 2009 was the era of incredibly overpriced extended warranties from electronics stores. It turns out that companies like Circuit City were selling merchandise at a tiny profit, and making all of their money by having their salespeople push high cost extended warranties on anything. Even worse, when you tried to collect on that coverage, it turned out that your warranty wasn’t actually from the company you bought it from, but some business you never heard of, and that didn’t really care what you thought about them, their service, or their coverage.

Is SquareTrade a Scam?

First off, SquareTrade is a legitimate company. It’s been in business for a long time now, and has plenty of satisfied customers. The time for calling the business a fly-by-night outfit has long since passed. However, there are some complaints about SquareTrade. Many of them stem from not fully understanding exactly what your are paying for, and how the coverage works.

I just bought a new, Samsung Galaxy S4 cell phone. I thought it might be instructive to look at how SquareTrade works by considering my purchase and the coverage option.

SquareTrade Warranty Cellphones

One nice thing about SquareTrade is that it is easy to get a price upfront, before you have to commit to anything, or call, or give out a bunch of your personal information. In this case, there is a special plan just for Samsung Galaxy phones. (There are also specific plans for iPhones and other popular devices.) On the day I looked, 2-years of coverage is either $99 as a single payment, or $5.99 per month.

I can already tell you that the SquareTrade warranty is cheaper than what Sprint was offering. Coverage from them was $11 per month, or nearly double. If you do the math, by making the one-time Square Trade payment, you only pay $4.13 per month which is an even better deal on coverage.

SquareTrade Warranty Review

Now, let’s review SquareTrade warranty coverage itself.

The biggest thing to notice right away on this plan is the $99 deductible. That works just like your car insurance. If anything happens to this Galaxy S4, coverage does not kick in until you’ve paid $99 out of your own pocket. So, for example, if your phone need $135 worth of repairs, you owe $99 and Square Trade covers only $36. The in-house Sprint coverage has a deductible (up to $200) for most repairs as well, so that is comparable.

Another way to evaluate the cost of the SquareTrade protection plan is to see how much you have to pay before you come out ahead. In this case, if you paid the one-time fee, you need to pay $198 before you break-even.

The next step to review the SquareTrade warranty is to see what is covered. This is the one place where the company really does well. Everything from drops to spills to hardware failures are covered. The number one question on most people’s minds is what if I drop it in water, like a pool or toilet, and even that is covered. However, keep in mind that the $99 deductible still applies.

When Can I Buy SquareTrade Warranty

The number one problem with insurance, including property insurance, is what’s called adverse selection. That is, the people who are more likely to collect on the insurance benefits are the most likely to enroll in the insurance coverage. For health insurance, they deal with this by only allowing you to enroll at certain times, or under certain circumstances. For example, your health plan at work probably has an open enrollment period during which you can sign up for your insurance. That way, you can’t wait until you feel sick to enroll.

For property insurance, warranties generally have to be purchased right away to avoid a customer noticing a problem on their phone, for example, and then signing up. Although each warranty is different, in this case, the cellphone warranty must be purchased within 30-days of buying the phone. You’ll need a receipt to prove your purchase date.

Whenever you are buying anything like this, always perform this type of analysis.

How much does it cost if I don’t use it? ($99)
How much does it cost if I do use it? ($198 — cost + deductible)
What is covered? (most things except theft)
How long does coverage last? (2 years)

How To Use SquareTrade Protection

Finally, you want to know HOW to use your coverage. In this case, you’ll call SquareTrade and then ship them your phone. They’ll try to fix it and ship it back. If they can’t fix it, they’ll pay you for a new one, but only the amount you paid in the first place. In other words, if you get a smoking hot deal for your Galaxy S4, you’ll only get that much money out of your SquareTrade warranty.

Here is where a lot of people end up thinking SquareTrade is a scam when they try and file a claim. I paid just $100 for my phone after the buy one, get one deal from Sprint with my 2-year upgrade discount, and the rebate. If I buy a warranty from SquareTrade, I’m basically only getting $100 in coverage, and at $99 + deductible, that makes a SquareTrade warranty worthless in my situation.

Sprint Phone Warranty

This is where the Sprint warranty would actually win out. Unlike SquareTrade, Sprint, has a warehouse full of Galaxy S4 phones and they’ll actually just send me a new one if mine breaks. In other words, this covers the main problem with broken cell phones, you only get the discounted contract price once.

It doesn’t really help me to just cover my purchase price. I need coverage for the REPLACEMENT price. If it hasn’t been two years, I have to pay the inflated, $500-ish price to actually replace my phone. That’s a pretty big hunk of change, but there really isn’t a SquareTrade option that helps with that, unless I paid that full $500 price in the first place.

Is SquareTrade Right For Me?

Remember analyze your situation specifically and be sure to understand all of the details before you buy. For cell phones bought with a contract discount, SquareTrade is not a good deal for you.

Cell Phone Bills Too High for Budget

Written by Finance Gourmet 2 Comments

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 🙂