Trimming the Phone Bill, Part 1

Keeping a budget is almost a necessity for living a responsible financial lifestyle, but looking for ways to cut some expenditures is a great way to live more frugally.

I like to look at recurring monthly expenses because while they often seem small, over time they add up to a large amount.  A great example of a monthly expense is the cell phone bill.  Not only are there many options available for consumers in this day and age, but there is also the multiplication effect from households often having more than one phone.  Shae and I each have our own cell phones so each dollar we can shave off the monthly plan actually saves us two dollars.

In this two parter series, I will share how we have saved hundreds of dollars by not accepting the status quo.

In The Beginning…

A couple of years ago we made a financial mistake.  We bought brand new phones on a two year postpaid contract.  Telecoms such as AT&T, Verizon, and T-Mobile incentivize contract plans because they are proven money makers.  Customers buy a new heavily subsidized phone (some are even subsidized down to $0) and then over the next 24 months they pay a higher monthly bill to pay off the original phone cost.  In our case we had purchased the cheapest iPhone 4S models and went with AT&T’s cheapest contract plan.

This set us back $200/per phone upfront and $56.62(with taxes and fees)/mo per phone.  Yep… not very frugal. Surely, we must have been getting exceptional services for a combined monthly phone bill of $113 per month.  Each plan came with 450 talk minutes, unlimited SMS (text messages), unlimited nights/weekends/mobile-to-mobile, and a paltry 200 mb of data (used for connecting to the internet).  Suffice it to say, there were better options out there.

Spending Money to Save Money…

Yes, it is true.  Sometimes you have to spend money to make/save money.  Part of every postpaid cell phone contract is an early termination fee, etf.  Should you decide to prematurely end your two year bondage with the telecom you will face a penalty.  AT&T calculates this penalty based on how many months are left on your contract.  If I recall correctly, it started in the $300 range and decreased by $10 for every month you had fulfilled.  Details can be found on your own telecoms website.

After finding a compatible prepaid plan, more on that in a second, we set up a spreadsheet and calculated if we would save enough on the new plans to offset the cost of the etf.  It just so happened that it would.

 GoPhone is AT&T’s prepaid option.  It works a lot like their postpaid with several key differences.  Here are a list of similarities:

1. They both use the same cell network, if you have coverage on one, you’ll have coverage with the other type of plan.
2. They both can use your existing SIM card (SIM cards are small chips that identify your phone to the cell network.  Your number is associated with your SIM).
3. You can keep your same phone number.
4. You can access the internet with the same speed.

The differences mainly come down to billing.

1. GoPhone you pay for the month that is about to start, PostPaid you pay for the month that just ended.
2. GoPhone has some cheaper options for infrequent talkers/texters.
3. You use a different website to manage your prepaid or postpaid accounts even though the money ultimately goes to the same company.

Out of all of the prepaid GoPhone plans, we felt that the $25/mo per phone plan best met our needs.  It offered 250 minutes of voice and unlimited texting.  Any data usage would cost us an additional $5 for 50mb (about enough to check your email for a month).  Since there is an abundance of free WiFi in the places we frequent during our daily schedules we skipped the added data package and cost.  The total monthly cost per phone was now $27.32 with taxes and fees.  When you add up both phones in the household our new monthly phone bill was $54.64, a whopping 51% savings.

You can start to see my obsession with cutting recurring monthly costs.  In just one year, the savings of switching from a contract plan to a pay as you go plan has saved us over $700 a year. Those 200mb of data and 200 minutes of voice data aren’t missed either because we were never using them in the first place.  We made a mistake early on by buying new phones on contract.  If I was to do it over again, I would buy used phones that were off contract.  The upfront cost might have been more, but we wouldn’t have had to pay the hefty early termination fee.

I will conclude Part 1 here.  Stick around for Part 2 where we will go deeper into the rabbit hole of frugality and you’ll be amazed at how much more we have trimmed off our phone bill.  Until then, leave a comment about how much you are paying for your phone, with whom, and if you are using everything that you are paying for.