Lower fees through prevarication

August 15, 2010

And just like that, this post looks like new

If you missed it, this post originally ran on The Writer’s Coin. We contemporized it for August.

When is it OK not to pay a bill? (If you’re the Hawai’i state government, “Whenever it suits you.”)

Your humble poster automates whatever finances he can, setting and then forgetting the cable bill, the phone bill, the car payment etc. This frees up time our ancestors would have spent reconciling statements and hoping that the payments would post once the checks had cleared.

A few weeks ago I received an email from…well, a company whose parent is based out of Cleveland and grosses $2 billion annually*. I patronize this company only sporadically, but they make you buy an annual membership. Like a moron, I ignored the email’s unambiguous message that said my account would auto-renew within a week.

A week later, another email. From PayPal, saying my account had been debited.

(Aside: What’s more nerve-wracking than an email from PayPal? For me it usually means I spent money for some legitimate purpose sometime in the previous month, couldn’t recall what I bought and am only remembering it now.)

I’d automatically re-upped with the Cleveland company and was now on the hook for another 363 days. The price of the membership is nominal, but I shouldn’t spend money on something I can’t justify.

I called and spoke with an Interactive Voice Responder. “So you wish to cancel your membership? Please say ‘cancel.’ Thank you.” She confirmed my cancellation, but I still had to plead my case to a human to get the charges reversed.

Once I got a real person on the line, I got creatively dishonest and explained that I was out of the country and had left the job of cancelling my membership to my girlfriend. (Because when you have to get something done, it’s always smart to wait until the last minute and put someone else in charge of it while you’re thousands of miles away.) And, as long as I was weaving fiction out of the ether, I mentioned that my girlfriend happens to have a thick Czech accent. (More lying.) And, on the day before the account was set to auto-renew, she attempted to cancel via the…Interactive Voice Responder. Yeah, that’s it. But she couldn’t, because…it couldn’t discern her heavily accented English.

I felt dirty doing this, especially when the customer service person bought my story without question. I didn’t have to defend my ridiculous charade even slightly, which left me wondering whether she was naïve or just couldn’t be bothered to treat me with the skepticism I deserved.

If you’re persistent, polite, and apologetic, you can weasel your way out of minor charges like this. Which gives you a second chance to use the money you thus recovered to buy assets and sell liabilities with. (Note: This method will not work with the IRS or almost any other federal government agency.) But it does bring up an ethical question: How wrong is this? There are degrees.

Did I receive a service and fail to pay for it?

No, unless you consider the 1½ days of membership that I received but didn’t use to be a “service”. Extrapolating from the company’s annual dues, I owe them about 6¢. Having me on the membership rolls for that period cost them a small fraction of that.

How big a deal are we talking about?

Using the traditional scorekeeping method of dollars and cents, almost nothing.

What burden am I putting on the other party?

6¢ divided by all that company’s employees? I’d have cost them more money if I’d shown up at corporate headquarters and asked to use the bathroom.

Is there a pattern?

No. I learned my lesson. Once was enough.

Social convention dictates that we honor certain legal obligations and ignore others. Making the payments on your car falls into the former category—you can’t be surprised if your car with delinquent payments gets repossessed. Paying your mortgage used to fall in that category, at least before 2007. On the other hand, driving 4 miles an hour over the posted speed limit to keep up with traffic is hardly the kind of thing you should feel guilty about doing.

So is there a special circle of Hades reserved for deadbeats like me, or have I committed the equivalent of removing the tag from a mattress I don’t own?

*Alright, it’s American Greetings’ Blue Mountain. Pretty sure the statute of limitations on microfraud is less than 3 months.

**This post is featured in the Festival of Frugality Carnival**

**This post is featured in a Real Estate Investing Carnival**

Filed Under: Shopping Tagged With: , , ,

How to buy a cellphone

March 28, 2010

In 1990, this cost $1600. In 1990 dollars.

Welcome to another installment in our ongoing feature, “And That’s How They Screw Yez!”

Whenever you get the chance, pay up front. It’ll almost certainly save you money. (Don’t accept that statement unequivocally. To find the counterexamples, and to Control Your Cash, you have to do a little bit of math.) Paying upfront is the answer to most issues. For one example, see our post on Costco.

And hence to non-perishable cell phones, whose price is traditionally offered via “anchoring”.

(Here’s anchoring in one quote. “See this gorgeous, partially flawed diamond bracelet? You’d expect to pay $1200 for something like this, wouldn’t you? Well, we’re offering it for only $600. You save 50%!”

This will move far more product than the following: “See this gorgeous, partially flawed diamond bracelet? You’d expect to pay $300 for something like this, wouldn’t you? Well, we’re offering it for $600. You pay double!”)

It’s an integral part of the business models of all four of America’s major cell carriers – AT&T, Sprint, T-Mobile and Verizon. Each will plant a price in your head and then “bid against itself” for your business. Sometimes they go so far as to offer their inexpensive models “free”. You have to know that phones can’t be free, and that an iPhone only costs $99 if you’re paying factory price or buying a broken one.

Here are a few examples of cell phone “deals”. We took the 5 fanciest major-distribution phones we could think of, and listed the best prices we could find them for in bold. They’re listed along with the imaginary anchoring price each carrier thinks the phones should go for, along with the current offer on each carrier’s website and the corresponding fine print:

Upfront priceCarrier’s anchor priceCarrier’s ostensible priceThe catch
AT&T iPhone 3GS (32GB)600see below300$70/month for 2 years
Verizon Palm Pre Plus400600150“
T-Mobile BlackBerry Bold 9700400450130“
Verizon Motorola Droid425560200“
Sprint HTC Hero400480150$40/month for 22 mos.

AT&T can’t conjure up an anchor price for the iPhone because Apple lists it at $300. The upfront prices are the best available “Buy it Now” prices on eBay*.

That $70 number for AT&T, Verizon and T-Mobile includes $30 a month for talk, $40 for data. The plans listed are the cheapest ones these carriers will let you get away with.

We’ll say it again: look at every transaction from the other party’s perspective. What are they getting out of it? Is a cell company going to offer you a phone for barely more than it costs to manufacture it?

On the other hand, would you sell something for 50% or 60% off if it meant you’d receive several times the price of the thing over the next couple of years? (Answer: you would. It’d be like selling your $20,000 car for $10,000 but receiving lease payments of $3333 every month for the next two years. With an option to renew.)

People don’t like to delay gratification, and can even fool themselves into thinking that it’s better to hold onto that $175, $250, or $300 difference between the eBay and carrier prices than to spend it. It isn’t. Spending that money upfront will reap you >$1000 in savings over the next couple of years.

(Yes, you still need to pay monthly fees without a contract, and you’re going to want a data plan. But at least you’re not obligated for 2 years, which is longer than the average of this author’s sister-in-law’s 4 marriages. Nor do you have to worry about the $200 termination fee. Or $350 termination fee, in the case of some Verizon phones.)

When you pay straight-up for your phone and it becomes obsolete, which it will, no problem. You sell it on eBay, and consider yourself lucky if you get $100. While researching this very post on March 27, the author saw a first-generation iPhone sell for $160 on eBay, three years after release. You can thus consider the price you paid upfront for your phone, minus the residual 25% or so it’ll be worth once something better comes along, to be your de facto cost of use for the phone. Divide that by the number of months you use(d) the phone for, remember that you’re under no obligation, then look how that compares to the obligation you’d have if you bought a phone the way most people do.

Under a contract, your only alternative once your phone becomes obsolete is to buy whichever new yet-to-be-released state-of-the-art phone at the same carrier “discount”, then remain on the hook for another 2 years.

How much are you obligated for under a contract? Look at the last column and multiply. You’re committed for $1680 (or $880 with Sprint, the #4 network which is desperate for customers and rumored to be ripe for a takeover.)

Of course, the amount “$1680” doesn’t appear anywhere in the standard cell phone agreement, nor should it. It looks pretty big out there on its own, but it’s easy to calculate. (Sorry if you graduated from an American high school and the method isn’t self-evident.)

And despite this feature’s eye-catching title, and America’s newly developed victimization mentality, the cell phone carriers aren’t screwing you at all. To get you to pay these exorbitant prices, they use a sacrosanct document called a contract. It obliges both parties – you and them – to do something and get something in return. You should read it sometime.

*Among sellers with good feedback ratings. If you send $600 to someone who’s never sold anything on eBay, you deserve to lose it all and more.

Filed Under: Shopping Tagged With: , , , , , , , , ,

Needless expenses, expelled

January 11, 2010

You’re going to need a bigger cart

This week, a nontechnical but nevertheless effective way to build wealth, or at least increase cash flow by reducing outflow.

The Census Bureau claims that the median household income in the United States was $50,233 in 2005. Other sources claim that the average household spends 7.5% of its income of groceries. Yes, there’s a danger in mixing “average” with “median”, but it shouldn’t affect our calculations too much here: besides, there’s a larger point to be made. The average household makes more than the median, because there’s a lower bound to household income (which is of course $50,233 less than the median), but no such upper bound. Just as obviously, the less money a household earns, the greater the share of that income it’ll spend on groceries. Regardless, the average household spends somewhere around $4000 a year on groceries.

Would it be worth your while to cut that number by, say, $1600? As there’s no way to escape having to eat, you could almost think of it as a 40% return on a $4000 annuity.

Which brings us to Costco, one of the quietly great successes in American retailing. Control Your Cash got to the party late on this one, but that doesn’t make Costco any less amazing.

Stop buying your groceries at Safeway. Or Albertson’s. Or Ralph’s. Or Lucky. Or Vons. Despite its mellifluous slogan, Vons is not value. Nor is Publix nor Piggly Wiggly nor Wegman’s nor Pamida. Fine companies all, to be sure, but not committed to the principle of Controlling One’s Cash.

Pay $50 and buy a Costco membership instead. If you’re a human who enjoys eating things, it’ll pay for itself 40-fold. This is not an exaggeration.

Quick recap, if you’ve only driven by a Costco and have no idea what goes on inside: that membership entitles people to buy groceries and other stuff at prices around 30-40% lower than you’ll find elsewhere, with much of the merchandise stacked to the ceiling in aisles wide enough to hold chariot races in. This leads to the perception that Costco only sells in colossal lots, requiring you to buy, say, a year’s supply of cereal at a time. This is false.

Costco and its competitor, Sam’s Club, represent the zenith of human achievement, on a par with space travel and sanitation. With every dollar these retailer/wholesalers reduce prices by, customers have to expend ever less incremental effort to earn money to feed themselves with. Costco performs wonders by exploiting a fundamental economic truth: the more a seller can sell to a buyer, the more likely the seller is to discount what he’s selling. Therefore, the more you buy, even if it’s in concert with other members, the cheaper each unit becomes.

Costco and Sam’s Club have 90 million members between them, so it’s not as though either company is operating in the shadows.

Costco doesn’t just sell groceries. The displays are loaded with everything from vacuum cleaners to tires to flat-screen TVs to books. Even hearing aids and prescription glasses.  Another misconception is that Costco only deals in minor brands, which is also false. A look at digital SLR cameras at Costco.com, for instance, shows Canon, Nikon and Pentax offered, among others.

Downsides to buying at Costco:

  • Parking is scarce on weekends.
  • They keep standard retail hours, closing around 8:30 on weekdays and 6:00 on weekends.
  • You have to bring your own bags, or boxes.
  • There’s little variety among brands. Costco typically carries only one brand of a particular item (e.g. NutriSystem but not Alli, and no, we didn’t choose weight-loss supplements because we’re fat, or even use weight-loss supplements.) But this isn’t necessarily a negative.

When you’re torn between the Prego and the Ragu, or the Coke and the Pepsi, what criteria do you typically weigh when you buy? Be honest with yourself and ask: is there really that much difference between one and the next? And if price isn’t a criterion for you, would it become one if the differences among brands were large enough?

“I would never dream of shopping there.”

Some people find the idea of deciding to save lots of money on groceries to be gauche, a step up from collecting soda cans or beachcombing. Often, these people will justify it by assuming that no retailer could set its prices so low without exploiting its employees. Fine. If you’re wealthy enough to have such a limiting grocery-buying philosophy, or if overpaying somehow makes you feel rich, have at it. Have your kippers and water biscuits shipped over from the Marks & Spencer flagship store at Marble Arch. The rest of us will save money, thank you very much. And hopefully use it to buy assets with.

Filed Under: Shopping Tagged With: , , , , ,
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