iPhones, Pets and other Financial Commitments

A few years ago, I had an entertaining experience while upgrading my phone, which I wrote about in our newsletter. It is once again time for a phone upgrade, so I thought I’d share this “throwback article”, which I hope you find amusing. – TR

I’ve been waiting for the new iPhone to be released for a while now. My phone is on its last leg, and rather than buy last year’s model, I decided to hold out until the newest model is released this fall. I usually wait until the kinks of new electronic devices are worked out, but with my phone failing, I decided to join the impatient masses who immediately pre-order the phone once it’s been released. So I went online to place my order, prepared to spend $299 for the model with more hard drive space, and was all ready to go with credit card in hand. (Note: that credit card gets paid off every month in full—says the CFO).

But then I hit an unforeseen snag.

It seems that the wireless carrier I use has upped the shell game of buying a phone. It used to be that if you signed a 2 year contract, you could buy the phone at a discount.

But the game has changed. Now there are essentially 3 ways to buy your new phone: (1) sign a 2 year contract and get a discount; (2) pay full retail and get a different discount on your service plan; or (3) FINANCE your phone at the full retail price. Finance a cell phone. Now granted, the interest rate is 0%, but the difference in price is 150%!

Being the no B.S. guy that I am, I selected the 2 year contract which brought the price of the phone to $299 as expected. As I proceed through the checkout, a warning message comes up that says I currently receive a $25/month discount on my service plan that will be lost if I don’t FINANCE the phone (or pay the full retail price). So with the loss of the service plan discount, I will be paying full retail price for the phone no matter which option I select.

I decided to call the customer service line and ask about this. You can imagine how that conversation went. Me: “I don’t want to finance a stupid phone”. Customer Service Rep: “I’m sorry sir, but those are the only options we have.” Me: “Can you hear my skull banging against the wall?”

So I closed the computer, put the credit card away and went for a walk to clear my head. Sometimes when I walk I listen to music, other times I listen to personal finance guru Dave Ramsey as he has good advice and is usually entertaining. On this particular day, I tuned in to Dave Ramsey, as I was miffed about the whole “finance a cell phone” situation.

Dave takes a call from some poor woman who was driving her car, and hit and killed a dog that ran out into the street. The dog did some damage to the woman’s car, and she wanted some advice on how to get the damage paid for. But she couldn’t get any money from the dog’s owners because they had no money for the car repair. The dog owner’s explained to her that they hadn’t even “paid off” the dog yet. Yes, that’s right, they financed the family dog! They financed the DOG.

Not only did they finance the dog, and let it run out in the street and get killed, but the now deceased “collateral” also did $800 worth of damage to the car that brought it to its ultimate demise.

It makes financing a cell phone look savvy by comparison.

I eventually went back and grudgingly bought the phone. But I wondered how many people gave zero thought to the fact that they were financing a cell phone. When establishing a budget (personal, or business), it’s important to incorporate major purchases and determine how those major purchases will be paid for. Some things need to be financed in a smart way. Other things should be saved for. And building a cash reserve should become part of your budget even though it’s not an “expense” on the P&L. Decide on an amount per week or month and move that cash into a separate account. Then go buy it when the cash is available.

Like many things in life, good financial decisions involve a little bit of up front planning, and the discipline to stick to the plan. Whether its buying a new building, a piece of manufacturing equipment, a cell phone, or a dog, thinking through the best way to make the purchase in a financially prudent way will keep more money in your pocket and ensure that you are not humiliated on a nationally syndicated radio show.

Besides, you wouldn’t want to have Fido repo’d, would you?

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For more information please contact us at info@michiganCFO.com.


Todd Rammler

Todd Rammler is the President and founder of Michigan CFO Associates.  Todd is a Certified Management Accountant (CMA), and holds an MS in Accounting from Walsh College (cum laude), and a BBA in Finance from Western Michigan University.

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