Remember the time before we had them?
When people used to occasionally speak to each other?
Well, those days are long gone!And we’ve grown incredibly reliant on these super-computers in the palm of our hand.
Due to their sophistication, it’s easy to see why. Emails. GPS. News. Books. Camera. Internet. Videos. Games… and apparently they can even be used for phone calls!
As a result, having a smartphone is somewhat non-negotiable for most people.
Tech savvy, I am not!
First of all, I better disclose my huge lack of knowledge in the area of technology.
I mean, I know how to use it. Well, some of it. But I’m very much a slow adopter and easily get left behind by all the new stuff.
So while I don’t know all the tech lingo and how things work, I felt compelled to write this article on smartphones.
Reason being, we’re all in the same boat and spend at least some of our cash on this stuff. And I know some people are spending insane amounts on the latest tech and their phone bill in general.
Since I consider it my job here to share how we approached our personal finances, and all our expenses, I thought it best to share our smartphone strategy too.
Because it’s one of the areas we were able to easily reduce costs, allowing that all-important saving for Financial Independence.
Smartphones smash our wallets!
Although we love having these awesome smartphones, they aren’t exactly cheap are they?
I mean, the best iPhone to date – the X, or 10, is hitting Aussie shores soon at a mind-blowing cost of $1529. $1829 if you want the version with higher storage.
And make no mistake, there will be people lining up for this all day and night!
Obviously, we don’t have to buy one that expensive. But still, they aren’t free. So what do we do about it?
Keep calm, everything will be fine
Ok, first things first, just relax. Breathe!
Don’t get yourself into a frenzied state dribbling over the new smartphone that’s only weeks away.
Yes, it’s new. Yes, it’s exciting. But if we’re honest, our lives were perfectly fine before smartphones were even invented. So is it totally necessary?
Rather than succumbing to instant gratification, we’re better off not getting sucked in to the hype. And besides, there’s always a big ‘newness’ premium to pay, if we want that shiny new product right now!
Most of all, showing restraint is a critical part of financial and personal strength.
As a result, we’ll be ignoring these child-like urges. Instead, we’ll be making sensible decisions based on keeping our costs low and investing for the future.
There’s a few ways to tackle this area of spending.
One way is to be a slow adopter like me. I don’t really do this on purpose, or to save money. Truthfully, I just don’t see the point in having the latest tech, when the older stuff is still pretty awesome.
For example, I’m still rocking a hand-me-down iPhone 4, which is doing just fine. So I feel absolutely no reason to get a new phone, no matter how much better it may be.
Maybe I’m a boring guy. But in general, I don’t see any sense in buying new stuff when the old stuff still works!
In my opinion, new stuff just for the sake of it, is ridiculous.
Think about it. In just a couple of years, the iPhone X (10), will be seen as old and boring.
But in reality, it will still be pretty incredible and a fraction of the price. And since half your friends will probably be dumping theirs in a cupboard somewhere because they’re onto the latest version, it may cost you almost nothing!
So another way to make some smartphone savings is by going second-hand. Maybe a hand-me-down from a friend or family member.
It’s amazing how many people are effectively giving their old phones away, because they’ve upgraded. Otherwise, just finding a good used smartphone online is a smart strategy.
As a result, you’ll have some great tech to use at a fraction of the cost. Importantly, it’s much better for the environment since it’s one less smartphone being made and one less old smartphone going to landfill.
Whatever you choose, pay cash for your phone. The outright purchase is almost definitely cheaper than the monthly payment option every time. It reduces your ongoing cost, and gives you the most flexibility over which phone carrier and deal you choose.
What’s that? You don’t pay for the phone? It comes free with the plan, because your telco loves you?
While it feels great to get a ‘free’ phone with your monthly plan, it’s anything but free. It’s always priced in and you lose in one way or another. In flexibility, in the offering, in the break costs.
The telco’s aren’t stupid, they always have the odds stacked in their favour. Much like a casino, they make more than enough to compensate for their costs, even when their customer feels like they have a ‘win’.
Most importantly, think in terms of the total overall cost, not just the monthly payment.
I made this silly mistake when I was 18. While the phone was technically free, I paid massively for the privilege. The monthly cost was ok but it included bugger all.
So I ended up going over the call/data limit that was nicely hidden in fine print, and they charged me in excess of $500 for one month use.
Consequently, I called to find out the break cost, which came in at something like $900. Safe to say I was paranoid after that, barely used the phone, waited out my contract and then vowed never to go on a plan again.
Effectively, I was traumatised. Only cash, and only prepaid from now on!
What about Post Paid?
While I’ve never tried a post-paid phone plan, it could work for some. But what I don’t like about it is the risk of going over your monthly limit.
Call me cynical, but I think they’re designed to have you nice and relaxed about not getting ‘locked-in’, then the telco’s sit in a circle holding hands praying that you go over your agreed usage.
So be careful here to avoid the nasty bill-shock like I experienced.
Frugal phone use
While our monthly phone costs don’t seem like much, they add up rapidly over time. Especially considering it’s a recurring expense, that we see as non-negotiable.
So how can a frugal couple optimise their spending on smartphones?
By opting to purchase used smartphones every 4 years ($100 each), instead of brand new ($1,000 each) every 2 years, the average couple could pocket $9,500 over 10 years.
Combine that, with a sensible call/data plan of $30 per month each, instead of a jumbo $60 per month, and we’re looking at $720 extra per year. Which over 10 years blows out to $7,200.
Putting the two together, we get a massive saving of almost $15,000!
Simply just for being a tiny bit more rational about our phone use. Also, this ignores the effect of investing those savings, which would compound, making the difference even larger.
You can make these newfound savings part of your automated investment plan, so the money doesn’t disappear somewhere else!
And remember, the lower your ongoing expenses are, the less you need to retire. Effectively, this means you’ll be able to save and invest more, reaching financial independence sooner.
Our prepaid paradise
Currently, we have 2 smartphones on pre-paid plans.
Update: In 2021, our phone costs are now even lower as prices continue to come down! We now have 60gb one year pre-paid plans we bought for around $100 each. That’s less than $10 per month!
Hmm, not much data you say. It’s true, we don’t have unlimited data on any of our devices. But it seems to work out more than enough for us.
Especially when you consider there is free WiFi everywhere you go these days, plus we tap into our broadband data while at home.
I find this to be unbelievably cheap. Combined with paying cash for good quality second-hand phones, this is saving us a fortune vs the standard option of a $80 per month new phone plan.
Snoopin’ for savings
Competition is starting to heat up in the telco space.
TPG are even building their own network and plan to be the lowest cost provider in the country. Other networks will have to compete, or lose market share.
Ultimately, it will be great for you and me, the end consumer.
Recently, I did a bit of scanning around to see what kind of deals are around at the moment.
Because there are so many providers to choose from nowadays, you’ll often find great value phone plans for under $20 per month (the 365 day expiry options are my favourite).
Personally, paying anything over $30 per month I would consider excessive.
And it’s definitely a good idea to review your plan regularly, because the deals are constantly changing.
You might spend a couple of hours, but doing it yearly, you’ll save thousands of dollars.
So after looking around, it seems like we’re still on one of the best deals out there for us. How does your deal stack up?
The less well known brands tend to offer better value. Because they’re more hungry for market share, they’re willing to offer lower prices. And it’s often exactly the same network as you were on before, just cheaper.
Smartphones have now become part of our lives. And that is unlikely to change anytime soon. But if we have plans for financial independence, we’ve still gotta look at optimising this cost as best we can.
Let’s sum up. Practice the art of restraint. Pay cash. Buy used. Go prepaid. Regularly shop around. Invest the savings.
One last thing. Here’s how I plan on saving an absolute fortune on the new iPhone X…
Continue using my hand-me-down iPhone 4, because it works just fine!
I would love to hear from from you guys. Have you found some crazy good deals that other readers may benefit from? What’s the best offer you’ve been able to find? And what’s your smartphone spending strategy?
*Since writing this post, my phone has been upgraded to a second-hand iPhone 6! We’re using Catch Connect pre-paid, on a deal costing $120 per year for a good amount of data and unlimited calls/text. Gold!