Much like my recent post about switching banks, many (most?) folks don’t think very much about their cell phone carrier. Much like with their bank, many people originally picked a carrier and have just stuck with them. They haven’t looked closely at whether the carrier they are with is the best one for their needs, or even whether they are in the best plan for their needs with their current carrier. As a result, many folks are paying way too much for their cell phones.
I’m old enough to remember a time before cell phones (“Get off my lawn!”), so my perspective might be a bit different than some folks. I view cell phones, and especially smart phones, as amazing technology and a luxury item. Okay, “luxury item” might be overstating it a bit, as they are very useful and affordable for many people these days. But “useful and affordable” shouldn’t translate into “spend whatever I want and never think about it.” For many people, if they took just a little bit of time and were more intentional with their cell phone decisions, they could save a significant amount of money with no real impact on their usage.
There are two ways that people are overpaying for their cell phone coverage: getting new phones too frequently and paying too much for their usage plan. (Well, some folks are also spending too much on apps and other subscriptions on their phones, but that’s a separate issue.) I’m always a bit hesitant to use my own experiences as an example, as it can come off as preachy, but I’m going to risk it this time just because I think it shows the possibilities.
Getting New Phones Too Frequently
My (immediate) family has only owned two models of smart phones. Our first smart phone was an iPhone 6 and then, when the iPhone 6 was no longer being supported by Apple at all (and the batteries were starting to fail) we upgraded to iPhone SE’s. We also happened to take advantage of specials when we got both of these phones, so we paid much less than the going rate for the phones at the time. And they weren’t the absolutely latest phone released, they were – gasp – originally released 6-12 months before we purchased them. Yet I know many people who upgrade their phones every two years (and a few who upgrade every year), and many of them are on their 6th (at least) smart phone. Yet their actual user experience is almost indistinguishable from ours. Yes, the cameras on their phones were better than the cameras on our phones for much of the time, and their phones were slightly faster at opening and running apps. But in terms of actual meaningful functionality, there was very little difference. Yet some of those folks have spent well over $3,000 on their phones in the same time that I’ve spent $300 (and then multiply that by the number of phones in your family). It isn’t a stretch to say that some families I know have spent more than $15,000 just on new phones in the same time that we’ve spent $1,500 (which, come on, $1,500 is still a chunk of change). Much like the primary purpose of a car is to get you from point A to point B, which means you don’t have to own the newest $60,000 truck, a cell phone’s primary purpose is to make phone calls when you’re out and about (and occasionally use a little bit of data), and then use more data when connected to WiFi, which means you don’t always have to have the latest model.
Paying for the Wrong Plan
The second way that folks spend too much on their cell phones, and the main impetus for this post, is being in the wrong cell phone plan. Again, this is often just due to inertia (and sometimes cell phone carriers purposefully making their plans hard to understand). I imagine that many folks are like us, in the sense that the vast majority of the time when we are using are smart phones actually as smart phones (using data), we are on WiFi.
- WiFi at home? Check.
- WiFi at school and work? Check.
- WiFi at the library? Check.
- WiFi at many businesses, including the grocery store and restaurants? Check.
Yet the majority of the folks I know are paying for unlimited data on all of the phones on their plan. Unless you are out and about all the time for your work and have to use data as part of that work, very few people need unlimited data (and those folks should be getting their cell phone bills paid by their employer). I don’t feel like it’s a huge deprivation to not stream audio or video or download large files (like podcasts) when I’m not on WiFi. So instead of an unlimited plan, we have a plan with 5-shared phones with a shared 3 GB of data each month. We pay $40 a month. Total. That’s $8 per phone per month. On the very rare occasions when we go over that (usually when someone is traveling or accidentally turns off WiFi), we pay an additional $15, or roughly an additional $2 per phone. Yet many folks I know are paying over $100 a month for each of their phones. If they really need that, then that’s fine, but if they’re doing that because they just haven’t taken an hour to sit down and think about it, that’s not so fine.
Now, some people might say, “Well, yeah, but you get crappy cell service.” That might have been true when cell phones and cell phone networks were relatively new, but it’s not the case anymore. We use Xfinity Mobile* (you have to have Xfinity Internet in order to use their mobile service), and they use Verizon’s cell phone towers. The only difference between being on Verizon and Xfinity is that Verizon phones get a slightly higher download speed for data when not on WiFi. But, as already discussed, that has little or no impact on most people. And Xfinity, like most cell phone carriers, will pretty much give you a new phone when you switch (you do have to commit to 24 months of service). If you don’t have Xfinity Internet and therefore can’t use Xfinity Mobile, then check out this post for ideas on how to find the best plan for you.
So, let’s try to put some context to how much you (or at least many of you) might be able to save. Obviously, these numbers can vary greatly, but let me make some conservative assumptions. Let’s assume the “average” person is spending $250 a year on the phone itself. And let’s take a family of four, so that’s $1,000 a year for the family. Let’s assume that the average cost per line is $50 per month, so $200 per month for a family of four, or $2,400 a year. So that’s a total of $3,400 per year for a family of four.
The equivalent cost for my family is about $30 per year for the phone, and $96 per year for the plan. So, $126 a year for an individual or $504 a year for a family of four (we’ll use four for the comparison even though we have 5 phones on our plan, so it’s actually even better). This means we are paying about $2,900 less per year, every year. I hear fairly regularly from people who say they struggle to save anything, so $2,900 a year would presumably make a huge difference in their lives. (And, of course, if you invest that for 30 years, that would give you over $270,000 assuming a 7% annualized return.)
So, please, take a few minutes and actually analyze the phone plan you are on now and the amount of data you actually need. You may not even need to switch carriers, but just downgrade to a less expensive plan with your current carrier (although I would recommend taking the time to shop around). And next time you get that offer from your cell phone company that says, “Time to get a new phone!”, take a minute and really think about if you need a new phone right now, or if you just want one. We had no issues keeping our iPhone 6’s for about 6 years and anticipate that our iPhone SEs will likely last us that long as well, although there’s always a chance that there is a big step change in technology at some point that would convince to upgrade sooner.
Be intentional with your spending, align it with your values and goals, and invest the savings in low-cost, diversified index funds.
*This is a referral code, although I’ve honestly never received anything from it. Feel free to just go to Xfinity Mobile’s main page if you’d rather.
Fisch Financial 