Sometimes you read a story and you say to yourself, “What the heck?” I had this happen to me the other day, and it made me wonder why someone would even share something so dumb – especially to a national news outlet. Let me back up a step.
Earlier this week I was reading the story about How Basic Costs Are Squeezing Families. The premise of the article started off okay – health care costs and other basic necessity costs have been rising, putting pressure on middle class families. It also goes on to talk about how income growth is slowing, which is adding to the problem. All that makes sense. Then we get to the interview…
Dawn Miller, the guest being interviewed, shares that her cell phone bill has risen from $35 to $350 – sometimes even $500 per month. WHAT? First, how is that a basic necessity, and second, why the hell would you pay $350 for cell phone service? Then, she talks about how it prevented them from going on a nice anniversary dinner date – again, necessity? Beyond the poor editorial choices by the Wall Street Journal team who published this article, I wanted to reach through the computer and yell at this lady:
YOU'RE SPENDING TOO MUCH! STOP IT AND INVEST!
My thoughts go a little deeper than the stupidity of the article. It's a real problem that people are facing. Too many people are spending too much money on crap, and not investing. Plain and simple.
Breaking Down The Spending Problem
Let's look at Dawn Miller's story and see how this spending problem could easily be tamed. Here are the key points she made:
- The family cellphone bill has grown from $35 a month years ago to more than $350 some months today, depending on whether someone in the family blows past their plan’s monthly data limit.
- The Verizon bill is so expensive, and because it changes month to month, you have to cut back.
- Two months ago, she and her husband postponed an anniversary dinner after their Verizon bill eclipsed $500.
First, the family needs to switch cell phone plans. We recently compared the best cell phone plans, and Verizon ranked as one of the worst. The best were Republic Wireless and Sprint. You can get a good plan on Republic Wireless for just $35 per month. That includes unlimited talk, text, and data, so the family wouldn't have to worry about going over anymore. Even if they have a family of 4, the total bill would only be $140, versus the $350 they are paying now. Sprint has similar pricing for larger family plans.
Second, if the kids are old enough to be using the internet that much, then they are old enough to get a job to pay for their cell phone. I would use this as a teaching moment. Even though it might be slightly more expensive, I would get the kids their own individual plan and have them manage their bill and usage. It will be a great teaching moment for how to manage their money.
Looking At The Investing Gap
It goes beyond the spending problem. Every spending problem creates an investing gap. By this, I mean that people spend too much in one bucket (i.e. the stuff bucket), and not enough investing.
In Dawn Miller's case, that $500 cell phone bill would be equivalent to a mortgage of $100,000 at 30 year fixed at 4.06%. Payment would be $480.88 per month. She said that she lives in Kansas City.
Here is a townhouse for sale in Kansas City, MO for $85,000. It's 3 bedrooms, 3 bathrooms, and 1,600 square feet. Should work well for her family or as a rental:
Does anyone else find it insane that they could buy this for the same price as a cell phone bill? They could rent it out and make money????
Or, another example. If she wanted to max our her Roth IRA for 2014, she would need to contribute $458 per month. That's less than the $500 she spend on her phone bill as well. If her Roth IRA earned her just a 6% return over 25 years, she would have $309,744 – in tax free money she could use for retirement.
I think that $309,744 is much better than blowing $350-$500 per month on a cell phone plan, do you?