Minimizing Cost vs. Maximizing Value

Sunday, September 22, 2013

This started as a comment in the discussion about the first post in The Sometimes Phone Saga, but I decided it deserves its own post.

I replied to a comment about the pay-as-you-go service I had where I mentioned the idea of whether you should try to minimize costs, or maximize value. Which in the case of cell phones generally relates to per-minute costs — which of course you also want to minimize. But because I changed that sentence in mid-thought, I ended up writing “maximize per-minute costs.” Which would indeed be an interesting strategy.

So, just to highlight this, I’d like to talk for a minute about minimizing cost vs. maximizing value.

This concept applies not just to cell phones, but to everything. Sometimes lowest cost is the best value, but often there are nonmonetary factors (quality, convenience, ease-of-use) that go into making one thing a better value than another.

Often minimizing costs in the short term results in additional costs over the long term. If you buy a cheaper thing that is poorer quality, you will likely have to replace it sooner, so the total amount you spend will be more. But if it’s something you’re only going to use once anyway, then quality doesn’t matter and you should just get the cheapest thing.

So, as with everything, what the best strategy is depends on what you are trying to accomplish. (As I’ve learned asking my CPA father questions about taxes, the answer to everything is, “It depends.”)

When trying to figure out which phone service I should get, I ran into a conflict between figuring out which one would allow me to spend the least amount of money overall and which would give me the most use for the least amount of money.

Most of the time I focus on value; I want to get the most for what I’m spending. In the case of the phone service, however, I went with a different calculation — I looked at what was going to cost me the least amount at the time I was signing up for it, regardless of what I would get for that.

This was partly because I wasn’t getting the phone because I wanted it, or thought it would make my life better, but because I felt compelled to get it by external circumstances (people expecting me to have a phone, people telling me I should have a phone for safety, etc.). But also because the calculations to determine most value for a product you don’t have and don’t know how you are going to use are difficult, to say the least.

There are all kinds of factors to consider when deciding which phone service is going to work best.

  • If you like bleeding-edge technology and want to always have a high-end phone (or if you don’t care about this but are in a line of work where that actually matters), then you should get a contract plan where the cost of the phone is subsidized by the monthly cost of the plan.
  • If you talk or text a lot, or don’t want to have to think about whether you’re talking or texting too much, you should get an unlimited plan.
  • If you don’t really care what kind of phone you use and you don’t talk very much, you should look at a pay-as-you-go service or a no-contract monthly plan and get the cheapest refurbished phone you can get. (And in this case, “cheap” might be “free” — many companies have basic phones available at no extra cost when you sign up for their service.)

And if you don’t really know what you want or need, try to get something that will let you figure it out without locking you in to anything for too long.

Everyone’s situation is going to be different, and there’s not one answer that is going to work for everyone. Though it does seem like there are many wrong answers.

I think a lot of people have a contract phone because that’s what the system is set up for, and so that’s the easiest thing to get. They don’t know how many minutes they use, but they know their phone is important to them. They might worry about going with some company they’ve never heard of, that no one they know uses, or they might think that they need a standard plan because they use their phone all the time, without actually looking to see how many minutes they use or need.

Some alternatives to the standard contract phone from one of the big carriers are no-contract monthly plans and pay-as-you-go options from all the major carriers as well as Virgin Mobile, Net10, Tracfone, Cricket, Boost Mobile.

There is Ting , which adjusts your plan based on what you use.

There is Republic Wireless, which combines wifi and cellular networks to offer low-cost smartphone options using their phones, and services like PureTalkUSA, Straight Talk and Air Voice that offer SIM cards and low-cost, no-contract options for people who want to use their own phone.

So basically there is a lot going on in this marketplace.

If you have a phone that you like, and are happy with the service, and the amount you pay seems reasonable for how much you use it, then just go with that.

But if you feel like you’re paying too much for what you need or use, then look at some of the alternatives, and see if anything out there might work better for you.

(And writing all of this makes me think about how I’ve been joking with friends about working as a “frugality consultant.” It seems like there would definitely be an opportunity for people specializing in phone services — you go to them with six months worth of phone bills and they look at it and talk with you and then give you a choice of options with pros/cons/estimated costs and you pick the one you want.

All you personal finance entrepreneurs out there, have at it!)

2 Responses to “Minimizing Cost vs. Maximizing Value”

  1. chuck Says:

    Certainly you’re a frugality consultant,
    And you could make a living at it if you wanted to.
    Clark Howard (who started out as a travel writer for the Atlanta Journal Constitution-or at least that’s where I first heard of him) has been doing it for travel for decades.

  2. lessisenough Says:

    I have to say that I totally love Clark Howard. He is one of the few “personal finance” experts who seems like a real person, whose primary goal is to help people, and the reason he does what he does is because he is totally into it.

    I got hooked on his show a few years ago when I would listen to the radio on headphones in the gym, to drown out the annoying tvs, and I really enjoyed listening to him. Except there were way too many commercials.

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