MVNO" (a kind of subcontractor who provides cell phone services, but does not actually own the network). How do we keep costs so low? We primarily use free options to call and text (Google Voice for free texts and free calls in Gmail) when we're by our computers or in wifi. Which is all the time. We learned about this stuff from IP Daley, the guru of all things telecom, who we met on Mr. Money Mustache's forums.
All in all, we love the set up. We get free telecom services when we're near wifi (along with the extra-nice benefit of talking on a wireless headset). But we can use our phones for calling, texting, or data when we are out and about. Of course, I rarely use data at all (and actually just turn it off on my phone so it doesn't try to update apps when I'm on 4G). But if I need to get directions or to look something up online, I just turn on the data setting on the phone. Easy peasy.
The rub is that, since we're averaging something like $14 per month for two smart phones, it's difficult to justify a move to another option on a purely financial basis. Even if we wanted to go to a different MVNO, like Republic Wireless, we'd never break even on the cost of the $300 phone, since our monthly costs would go up, too. Our baseline cost is only $7 per month per phone...and that baseline is the basis for comparison for any other option. Because it's so low, transitioning to a new company (even one we might like marginally more) is difficult.
Spending more is an option, of course. But to a frugal couple like us, it's a hard option to pursue since, you know, spending more money sucks. So the low cost baseline traps us a bit. For the foreseeable future, we're married to the low cost service. (Full disclosure, I love my cell phone company. It's by far the best option for us. But even if there were a better company out there for us, it'd be tricky to leave PTel.)
The flip side of this situation is when someone has a very high baseline: like a $500 a month car payment. In this situation, finding savings is easy, since so many other options are cheaper. When the 2015 F-150 goes on sale, complete with a "high-strength, military-grade, aluminum-alloy body," all of a sudden a trade-in for a lower, $429 monthly payment sounds like a win. Boom, there's $71 more in your pocket every month. Maybe you'll even put that money in your kids' college fund, or start an IRA. There's no limit to the options. Never mind that the new deal is still a bad one, and will feed on your discretionary funds like a parasite for another 48 months. Your cash flow is improved, so it must be a good move... right? With a high baseline, low hanging fruit abounds.
Which all goes to say: baselines can be deceptive. They are simply the status quo in your budget: the thing we're used to spending. But a baseline spend isn't necessarily a good basis for comparison. While the savings (or additional costs) against a baseline are real and undeniable, they don't tell the whole story.
When we use our current costs as the basis for comparison, we're often engaging in a form of anchoring. We're letting past financial decisions shape and influence future ones. We get used to spending very little, or a whole lot. It becomes a habit. Then it becomes the anchor by which we compare alternatives. Other choices are viewed relatively, rather than in absolutes: this new option is 20% less expensive, or $50 more per month. The anchor frames the analysis, simply because it's what we're used to. But what you're buying today doesn't necessarily have a whole lot to do with what's optimal for you.
A better approach is to work from a blank slate: to forget the things we're used to, and make purchasing decisions based on what provides the best value for us now. This, of course, is hard. Maybe impossible.
A more reasonable suggestion might be to think long and hard before making financial decisions that will establish a very low baseline (like paying off your mortgage) or a very high one (like leasing a car). Either path will establish an extreme baseline, and can manipulate your future financial decisions.
*Photo is from KX Studio at Flickr Creative Commons.