In Ask Sherry, Budgeting, Money

Ask Sherry: New cellphone & plan or stick with the old one?

You asked, and I am answering every Friday once I have enough questions!

https://docs.google.com/forms/d/1DKFg6SD0Kmb_0U5yb4OTNfkvfmsf5dWxJJbZTzUtH7M/edit

You can ask any question using the form here.

Hello, love your blog!

Thank you! 🙂

I would love your advice with some calculations I’ve been doing, but can’t make up my mind on it.

Okay….

Would you prefer to buy a new cellphone paying for it full or getting a new plan more expensive than your current one to get the phone for “free”, considering that you would be saving around 6$ per month for the first 24 months with the new, more expensive, plan?

I am sort of a terrible person to ask about this because I don’t have a cellphone of my own, and don’t really get or receive calls, but I can see what you mean in terms of needing it.

I would ask the following…

How much is this phone?

Let’s pretend it is a fancy pants Super Blaster X phone that costs $1500.

How much more expensive is the plan per month?

Let’s say you are paying $10 extra a month after the first 2 years is done.

So, if we look at both options with the assumptions above and on a 5-year plan…


OPTION ONE: New Phone paid out of pocket, Old Plan

Get new phone: $1500

Keep old plan: $144 – extra cost, because you wouldn’t get that $6 savings for the first 2 years on the old plan, right?

$1500 + $144 = $1644 out of pocket

$1644/5 years = $328.80 a year or $27.40 a month

OPTION TWO: New phone for free, New plan

Get a new phone: $0

Get a new plan: $10 extra but only AFTER the first 2 years of saving, so you would only pay for 3 years at an extra $10 / month after the $6 savings for the first 2 years

$10 x 12 months x 3 years = $360

$0 + $360 = $360 extra out of pocket

$360 / 5 years = $72 a year or $6 a month.

http://www.fisher-price.com/en_US/brands/babytoys/products/38803

The answer is if you are planning on keeping the phone for at least 5 years, then go with the new plan to get the phone for free.

Of course, I am making up numbers.

I don’t know if after 24 months you will be paying $10 more than your old plan, if you went on the new plan, and I also don’t know if your phone is as fancy as I am imagining.

The main point is to take a realistic time frame (5 years), and do the math of the cost of the phone (paid in full or “free” with a new plan), and compare the numbers at the end to see which one seems more cost-efficient.

Hope that helped!

Update

Thank you so much for answering the question about the phone plan.

Unfortunately no cellphone lasts 5 years on my hand, so I guess I should just keep with my cheap plan and save for the new phone paying full price. (It’s not that expensive… Less than $1000…).

Still have a burning question?

You can ask any question using the form here and all of my previous Ask Sherry posts are here.

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Sherry of Save. Spend. Splurge.

Millionaire at 36 after getting out of $60K of student debt in 18 months, a little over a decade earlier, using TheBudgetingTool.com. Since then, I have paid my $600K home in cash (my half was $300K), my $180K casr in cash, worked 50% of my career (taking 1-2 year breaks), and quadrupled my income within 2 years of graduating, going from $65K to $260K with an average lifetime savings rate of 50%. I could retire today if I wanted, but love my work-life balance as a freelancing consultant in STEM (Science, Technology, Engineering, Math). I am all about balance - between time and money, and also enjoying my money. I also post daily on Instagram @saverspender.

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2 Comments

  1. Sense

    One problem is that people don’t keep their phone for years and years. *I* do–my current one is 4 years old now–but most everyone else seems to swap them out every 1-2 years when their contracts are up.

    Reply
    1. Sherry of Save. Spend. Splurge.

      If it works, it works, I say.

      Reply

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