The point of this post is simply … most people are spending way too much money on telecommunications. Waaayyyy too much.
Let’s use me as an example:
Before our quittirement, my wife and I had the following phone/internet plans:
1. AT&T basic home phone plan, with a few standard add-ons (call-waiting, caller ID). During the year preceding our quittirement (8/13 – 8/14), our monthly charges averaged $70.
2. AT&T U-Verse internet at $46/month.
3. Two IPhone 4s’s on a Verizon phone plan we shared with a friend. We had unlimited texts and calls and shared data with a 4 GB maximum (between all three of us). Our portion of the plan’s costs came to about $160/month.
So our grand total was $276/month. We were paying out $3,312 per year just to use our various telephones and the internet. And in order to maintain that level of expense in true early retirement (i.e., for 30 years or more), we would need to set aside at least $82,800* – just for telecom.
How did we change our spending once we decided to start acting as smart as we thought ourselves to be?
Home Telephone Service: This was a totally extraneous expense and I can’t believe we kept paying it as long as we did. We only used it for work and some longer personal calls because of a slight improvement in sound quality and because the old-fashioned handset seemed more “comfy” (i.e., we were too lazy to put on our cell headphones). This was a clear waste of money. Home telephone service – GONE.
Internet Service: Our problem with AT&T U-Verse wasn’t the cost but persistent problems with outages and low download speed. Since we don’t have a TV and use the internet (through Hulu & Netflix) to stream our favorite shows, we find internet problems to be particularly annoying. So in March of 2014 we switched to a local wireless provider called Unwired (the signal comes through a small dish on our roof). Unwired is GREAT. You have a problem, you call them and a person answers the phone. Then they fix the problem. You might think that this shouldn’t be surprising, but after suffering through total nightmares with both Comcast (horrible customer service) and AT&T (not so much evil as inept), we were ready to give up on finding a good internet provider. But man, we love Unwired. Good, reliable service. No bullshit. No teaser rates, “special offers”, hidden costs or termination fees. Our plan with Unwired costs exactly $49.95/month and the speeds are fast.* My wife and I had originally tried Comcast, then AT&T, because we assumed that the biggest, most prominent service providers were more likely to have their act together, to be more reliable, to provide a better service (and, to be honest, because we were too lazy research lower-profile alternatives). Our experience with Unwired has shown that it can really pay to put a little effort into looking beyond the big companies. We now have better internet service through a much easier company to deal with.
Cell Phone Plans: This is where our money saving efforts became more complicated. Basically, my wife and I took a big-picture look at our actual cell phone requirements, and realized that since we are very often both at home, or out together, we could easily use one phone for most of our communications and should therefore pay for unlimited talk/text on only one phone. Additionally, neither of us needs to use 3G data on a frequent basis (checking Instagram or CNN does not count as need!), but we did want to have access to data on at least one phone for urgent matters (mapping services, important emails, etc.). Finally, my wife’s IPhone had recently kicked the bucket, so she needed a new phone of some sort.
To put it more succintly, these were our base requirements:
1. One new phone
2. Unlimited talk and text on one phone
3. Access to 3G data on one phone for emergency purposes
How did we address our requirements? Well, first, my wife bought a new, non-smart, Nokia flip phone for $50 through Amazon and she signed up for unlimited talking and texting service through PTel for $20/month (pre-paid). This is the phone we use for nearly all of our talking and texting needs. You probably had a similar one back in 2009, and yes, the Nokia flip phones still work great.
Then, I requested Verizon to unlock my IPhone 4s so that I could use it with a different carrier (our contract had expired), and I bought a pre-paid/pay-as-you-go plan through Page Plus Cellular. The way my plan works is that every once in a while I buy a package of minutes/data, which is then used up as I make calls, texts and access the internet via 3G. For example, I bought a $50 credit on January 31st which I have been slowly using since then (5 cents per minute of talk and per text, 10 cents per MB of data). I currently still have $16 of the credit. Which means that $50 will pay for my phone service for at least 3.5 months, coming to an average cost of about $15/month. These days we generally only use my IPhone for free activities – accessing the internet through wifi (checking Instagram and bedtime reading), taking photos, and playing MP3s. We try to limit our calls/texts/3G use of the IPhone as much as possible (although we’re not too rigid on this point, since limited usage is still pretty cheap).
Our current cell phone plans cover all of our requirements and cost approximately $35/month combined, or $420/year. That’s $125 savings each month, $1500 savings each year for our cell service. Let me repeat: We have cut $1500 from our annual budget just by changing cell phone plans. That does not include the additional $70/month, $840/year we’re saving by canceling our home phone service.
I know some people would say (because they have said it to me) – “Well, I have a lot of requirements for work and for family and for other things and I just wouldn’t want to have any problems with my service.” Or “that sounds too hard, too inconvenient.” So, here’s the truth. Buying the Nokia through Amazon, getting my IPhone unlocked by Verizon, signing up for our individual pre-paid plans, and, most of all, figuring out the best solution for our particular requirements, did take some work. We had to spend several hours researching phones and plans and talking to all of the various phone companies. Setting this up wasn’t nearly as easy as walking into the Verizon store and handing them my whole wallet. But since we got it set up, life is golden. The service is fantastic on both of our phones.* We don’t drop calls or go out of range any more frequently than we did before. And that’s because our pre-paid carriers (which are also known as MVNOs – mobile virtual network operators) provide their service by leasing space on the networks of the major telecoms. Yep, my cell phone plan through Page Plus is actually going over the Verizon network. My wife’s plan through PTel is through the T-Mobile network. So we currently have major provider coverage for much much less money.
No, we don’t have fancy new smartphones and we limit our data usage when out and about. But my wife intentionally chose to buy a dumbphone, as it helps her restrain cravings for constant screen distractions.* And what kind of hardship is it, really, to limit 3G internet usage to important matters? We have plenty of internet time at home and other places with wifi. It’s nice to look up once in a while when taking a walk or on the bus.
We’re very happy with our new phone plans and they work for our current needs. If our requirements change we may change plans. For example, if my IPhone were to die or if my wife decides that she wants a smartphone, we would consider buying a Moto G smartphone ($150) and signing up for the Republic Wireless $25/mo unlimited talk/text/data plan. On the other hand, if we were anticipating a lot of foreign travel in our near future, I might instead get an unlocked budget smartphone that is configured to run on GSM networks (see paragraph below), and sign up with a carrier like Airvoice Wireless. With a GSM phone we could then just switch out the SIM card and use the phone on most foreign networks.
There are lots of great websites that can tell you all about pre-paid plans and other cellular alternatives, such as here and here. So I won’t go into all of that detail. But I will give these two parting thoughts – (1) Don’t be lured in by offers of a free phone. You will always pay for that phone somehow, whether through a long-term overpriced contract or termination fees. Just buy a phone outright. Buying your own phone makes the cost/benefit analysis transparent — i.e., clarifies that the real question is whether owning that particular phone is worth $600 of your money? Buying your own phone also gives you flexibility. You don’t like your plan? Fine, take your phone somewhere else. (2) Not all phones will work on all networks – understanding this basic fact can help narrow your options and avoid going down the wrong track. For example, my IPhone was built for the Verizon network, which runs on CDMA technology. So I was limited in my choice of pre-paid plans to those – like Page Plus – that use CDMA technology. My wife’s Nokia phone runs on GSM technology, which is used in the AT&T and T-Mobile networks. Her pre-paid provider, PTel, uses the T-Mobile network and so her GSM phone works for that plan.
There are many low-cost cellular plans out there that provide different types and levels of services, and working your way through the puzzle can be a bit daunting. But overpaying by thousands of dollars for years on end is ridiculous. Do your research, figure it out, break the cycle.
After making our various telecommunication changes – cutting the home phone, changing our internet to a local provider, and moving from Verizon to prepaid cellular service – we’ve cut our telecommunication spending from $276/mo ($3312/yr) to $80/mo ($960/yr). That’s a 71% expense reduction. And it hasn’t hit our quality of life at all. We still have great internet and cell phone coverage. We didn’t need the home phone to begin with. I’m kicking myself for not having made these changes years ago.
1. A quick explanation is necessary here. The concept known as the “safe withdrawal rate” (or SWR) is widely embraced by the financial independence community. The SWR is basically the rate at which a person could withdraw funds from a well-constructed portfolio and not run out of money in their lifetime (in other words, the rate at which withdrawals would not exceed the earnings/growth of the portfolio). There is a lot of debate about the appropriate SWR to assume and clearly there are multiple variables to consider (composition of portfolio, length of remaining lifetime, etc.). For purposes of this discussion, I have used a 4% SWR (which is supported by many, but not all, commenters). A 4% SWR implies that you need to have saved about 25 times your annual spending at the time of starting early retirement. In other words, if we assume, just for illustrative/rule-of-thumb purposes, an SWR of 4%, then: In order to fund spending of $100K/year (adjusted for inflation) during retirement, you need a $2.5M initial portfolio ($100K is 4% of $2.5M), but to fund spending of $50K, only a $1.25M portfolio.
So, continuing to spend $3,312/year on telecom would have had a double whammy on our ability to retire as follows: First, and this is the most obvious impact, every dollar we spend reduces the amount we can save and invest for retirement (i.e., if we spend $3,312 on telecom we can’t invest that money and we forego any earnings on it). The second, and more subtle impact, derives from the logic of the 4% SWR discussed above. In short, in order to maintain a $3,312/yr telecom lifestyle in retirement, we would need to save at least $82,800 (25 x $3,312) just for telecom – but by cutting our annual expense to $960 it would only require $24,000 (25 x $960) to maintain our telecom spending through retirement. So this one lifestyle change, by itself, puts my wife and me almost $60K closer to full early retirement!
Here is where I clearly state that I am not a licensed financial advisor, that I make no assurances about the appropriateness of assuming a 4% SWR, and that you should do your own research in this regard. I personally use the 4% SWR only as a helpful starting point for thinking about savings and portfolio size. See here and here for more background information on the SWR.
2. Unwired has a little tool on their website that will tell you what your real-time download/upload speeds are, and right now our service is running at 10 Mbps down/6 Mbps up. They also have a couple of faster plans, but we haven’t needed any more speed. Please note that Unwired does have an installation fee ($150) and a fee for the dish ($162). So there was a start-up cost. But since then every single check has been for $49.95. No add-ons, no additional taxes, nothing.
This is where I should probably disclose that Unwired is paying me an endorsement fee. Right! I should be so lucky! I’ve received not one cent from Unwired or anyone else for anything on this blog, and if I ever do, I’ll be sure to tell you all about it. For now though, please believe me when I saw that my love for Unwired is as sincere as my disdain for Comcast.
3. The only two differences I have noticed in changing my smartphone service from Verizon to Page Plus are (1) a voice tells me before every outgoing call how much money is left on my account, and (2) the “Visual Voicemail” function on my IPhone no longer works – I now have to call in to the mailbox to know who left a message for me (9 times out of 10 it is the most recently missed call).
4. Apparently there is now something of a trend of folks opting to carry dumbphones. SFGate went so far as to even call us hip!