The 1-2-3 Money Plan Part 8

But more people are dumping landline service and using only a wireless phone as they get used to calling people, not places. A generation ago, callers would dial up a place, such as a home or an office because phones were literally tied to buildings. Today, wireless phones are a.s.sociated with individuals, so people call other people, not buildings. As wireless phones become commonplace, it's harder to justify duplicate landline telephone service.

Before cutting the cord, make sure you have adequate reception throughout your home. New technologies are evolving. Some allow you to put a small base station in your home to boost wireless signals by some carriers. If you currently get poor reception, keep an eye out for these new technologies, one of which is called femtocell. This refers to adding a small base station in your house that uses your broadband Internet connection to boost your cell-phone signal and improve call quality. The second caveat is to have enough minutes on your wireless plan to handle calls at home and on the go.

* Consider Voice over Internet Protocol (VOIP). Consumers have many choices for using their broadband Internet connection as a phone line, using VOIP. Skype and Vonage are examples of Internet-based phone services. Several traditional phone companies also offer VOIP service. It can be far less expensive than a traditional stand-alone phone line. And if you have strong, reliable broadband Internet service, call quality can be quite good.

The MagicJack Phone Solution.

MagicJack, www.MagicJack.com, offers phone service with unlimited long distance, voice mail, caller ID, call-waiting, and other features for $20 per year. That's per year.

For an additional $20, you must buy a small, matchbox-sized device that plugs into the flat USB port on your computer. You plug a phone line and phone into the other end of the device. Software loads onto your computer automatically and you get a dial tone. So, to get started, the device plus a year's service costs about $40, and you never get a monthly bill.

You can use MagicJack as a landline by plugging a cordless phone system base into the MagicJack line and adding multiple handsets throughout the house.

Drawbacks of MagicJack include not being able to keep your existing phone number. You'll get a new one. And you must have the computer on to place and receive calls. If it's off, incoming calls go to voicemail. The company is working on solutions to both of those disadvantages, MagicJack inventor Dan Borislow tells me.

And although MagicJack works flawlessly for many people, including myself, others seem to have problems. The service is only as good as your broadband Internet connection. Voice quality can range from as good as a landline to as poor as a cell phone with a weak signal. Use several online speed tests to measure your connection speed. Find tests by entering into your favorite search engine "VOIP speed test."

Use the 30-day money-back guarantee to try MagicJack before canceling landline service to make sure it works for you.

2. Rightsize Your Wireless Phone Plan.

I'm not going to tell you exactly what wireless plan to get. For one thing, offerings seem to change almost monthly. Second, people's needs differ depending on how they use the phone. Someone who uses the phone for hours a day and has subst.i.tuted it for their landline phone needs a different plan than someone who has a cell phone for emergencies.

But I can tell you how you should decide for yourself.

The big idea in buying wireless service is not to pay for more service than you actually use. That might sound obvious. But consumers waste a tremendous amount of money on wireless phone plans. Largely, the waste comes in the form of paying for unused minutes, month after month, year after year.

Consumers on a monthly plan used an average of 461 calling minutes per month in 2008, according to J.D. Power and a.s.sociates. Considering most plans include far more minutes than that, many people are overpaying.

Here's my big point on cell phones: Literally millions of people on monthly contract plans would be far better off using pay-as-you-go prepaid cell phones. They can be the best choice now for light and even moderate users. That's especially true for those who use their phone mostly for talking, rather than advanced features such as texting and Internet access. How does prepaid work? Each company is a little different. But generally, you buy the phone. Some are very cheap, starting at $10 for the simplest phones. Then, you buy minutes to load onto the phone. You can buy minutes online or in stores, in the form of a card with a code that you enter into the phone. Some of the better deals come from pre-paid providers ranking high on a recent J.D. Power customer satisfaction survey. See Figure 3.2.

FIGURE 3.2 Above-average prepaid providers Here are the three national providers of prepaid service that rank above the industry average: * Tracfone (and sister company Net10).

* Virgin Mobile.

* T-Mobile To Go.

Source: J.D. Power and a.s.sociates 2008 Prepaid Customer Satisfaction Survey Note: Cricket and MetroPCS also ranked above average, but they don't have nationwide coverage.

Here's a rule of thumb based on prices in 2008: If you typically use fewer than 400 minutes each month, prepaids are worth a look. Check your recent bills for how many minutes you actually use. Many people could cut their total cell service expense to about $10 per month or less, all fees and taxes included. And prepaid plans are getting so much better so quickly that as of early 2009, Consumer Reports magazine says even heavy cell-phone users might be able to save money with a prepaid phone.

You can retain your current cell phone number by "porting" it to the prepaid carrier. And call quality is generally good because prepaids use the same wireless networks as the traditional wireless carriers. Of course, like with the big contract carriers, call quality varies by region and even community.

Should you switch to prepaid? The math to compare prepaid and monthly contract plans isn't that difficult. Look at recent bills to find the average minutes per month you actually use.

Divide your total monthly wireless bill, taxes and fees included, by your average minutes. This is your true cost per minute. Compare that to the cost per minute of a prepaid plan. One of the easiest prepaid plans to compare is Net10, found at www.net10.com. It's 10 cents per minute, period. Taxes and fees are already included in the price of prepaid minutes.

So, a traditional $39.99 monthly plan that costs about $48 after taxes and fees and includes 450 minutes would have a per-minute cost of about 11 cents, which is close to the Net10 prepaid price. However, that a.s.sumes you use all 450 minutes every month. If you use only 125 minutes and lose the rest, your cost soars to 38 cents per minute, which is a lousy rate.

Other advantages of prepaids are you have no contracts, no early-termination fees, and no credit checks.

Of course, there are downsides. Prepaids tend to offer older name-brand phones, which might not have the most current features. And prepaid rules can be confusing until you learn them. For example, prepaid minutes expire. The more minutes you buy, the longer they last, typically up to a year.

QUICK TIP.

If you'll be sticking with prepaid for a while, add minutes that will last a year, so you don't have to worry about when they'll expire.

Most prepaid services offer nationwide access, but some charge for roaming outside a home region. A few carriers charge an access fee of $1, for example, on days you use the phone. But they might offer free calls to other wireless users on the same network for unlimited calls on nights and weekends.

Again, that complexity is why a simplified system like Net10 is attractive.

If you're uncertain, you can test-drive a pay-as-you-go prepaid phone. Go to a store or online and buy a prepaid phone that has some starter minutes on it. Test the call quality in your home and around your region. If you don't like it, you lose little. You spent $10 or $20 to potentially save hundreds a year.

My Prepaid Phone Story.

For years, my wife and I had one of those "family plans" from a well-known phone company. We use our phones frequently, several times a week, but we don't talk for many minutes. We were using an average of just 150 minutes per month but paying for 700 minutes, the least you could get with a family plan.

I switched both of us to prepaid cell phones. Savings per year: $800.

Bonus benefit: Call quality in my home is actually better with the prepaid than with the pricier monthly contract plan. Go figure.

So, if prepaids are such a good deal, why aren't more Americans using them? Why are people making an illogical choice to pay more?

Apparently, there is widespread uncertainty and some damaging misconceptions that keep people loyal to their contract plans, says a study in late 2008 by the New Millennium Research Council.

Foremost among these myths is that more than half of people think they are always under contract with their wireless carrier and always must pay a fee to switch, according to the survey. Of course, you might have to pay a fee, especially if you continue to upgrade your handset and accept two-year commitment renewals of your contract. But more wireless carriers are prorating the early-termination fee, which reduces the fee to get out of your contract. Many others are on month-to-month with no commitment, but they don't know it.

See Figure 3.3 for other myths about prepaid phones.

FIGURE 3.3 Prepaid phone myths.

* Nearly 6 out of 10 Americans (59 percent) including 70 percent of 1824 year olds-mistakenly believe that prepaid phones "are good only for people who rarely, if ever, use their cell phones." Less than one-third (32 percent) of respondents knew that this is a myth.

* More Americans than not mistakenly believe that prepaid phones are only available in "very basic models."

* Americans split evenly on whether this myth was accurate: "Prepaid cell phone plans where you pay for the minutes you use always cost more per month than contract-based cell phone plans where you pay a monthly fee."

* Only half know that it is untrue that "prepaid phones don't get very good reception and only work in certain places."

* Less than half know that it is untrue that "you can't get voice mail, text, or take photos on a prepaid phone."

Source: "Prepaid Phones in the U.S.: Myths, Lack of Consumer Knowledge Blocking Wider Use," prepared for the New Millennium Research Council by Opinion Research Corp.

Of course, pay-as-you-go prepaids are not for everybody. Here are your other basic choices: * No wireless. Yes, this is an option. Today, half of Americans consider a cell phone one of their untouchable "necessity" expenses they can't live without, according to a 2006 study by the Pew Research Center. A decade earlier, cell phones didn't even make the list.

If you truly "need" a cell phone for emergencies, you can use any charged cell phone to dial 911, even if it has no service plan. Ask around to family and friends. Somebody will give you an old phone for free. Any household typically has several lying in a drawer somewhere.

And if you have a cell phone for work and your company doesn't care whether you make personal calls with it-perhaps the work phone is on an unlimited-minutes plan-it doesn't make much sense to get your own phone too.

* Regular monthly contract. If you use a lot of minutes each month, for example, 500 or more, a traditional plan might be the way to go. It's also best if you do a lot of texting and Internet access on the phone. Or, if you must have the latest feature-rich phones, like the iPhone by Apple that was so hot, you'll need a monthly plan.

Again, this is where you must a.s.sess what you will really use. It might be cool to look up a stock quote, sports score, or news story on your phone. But if you're the type who will try out such services and never return to them, paying for such features month after month will amount to a lot of wasted money. Know yourself.

* Unlimited plan. Relatively new, unlimited plans let you talk as much as you want. They came out at $100 per month, which was about the price for 2,000 minutes per month. Think about that. The allure of "unlimited" is that 33 hours a month on the phone is simply not enough time?

But if you really talk that much, an unlimited plan might be for you. Just be clear about what it includes. Is that unlimited talking? Or unlimited texting and data too?

Online comparison tools for choosing wireless plans are fine to use. They might provide ideas about which plans might be right for you. But, through 2008, I'm not overly impressed with how good a job they do recommending the right plan to fit each individual's needs. Some to try include MyRatePlan.com, Wirefly.com, and LetsTalk.com. One other, BillShrink.com, is very slick and has a lot of potential because it recommends the very best plan for you, based on your actual use. It even explains why it chose the plan based on your needs. It's worth checking out.

Note that I didn't dwell on buying the phone itself. First, your purchase decision on wireless should be made based on the price and quality of service, not the hardware. That's because you'll spend far more on service, no matter what pricey phone you buy. Second, a phone is a one-time purchase. It's over and done with. It's a relatively small amount of money. However, a wireless contract goes on and on, month after month, costing big money in the long run. Information on phones themselves can be found at such Web sites as Cnet.com, PhoneScoop.com, ConsumerReports.org, and ConsumerSearch.com.

3. Regularly Review TV and Internet Service.

Like phone service, pay TV and Internet service continue to evolve. That's good because consumers will have more choices. And robust compet.i.tion could drive down prices. But it's bad because the sheer number of choices makes choosing a service more confusing-a lot more confusing. Nowadays, many consumers can get phone service from their cable TV company and pay television service from their phone company.

If you must have pay TV and Internet service-and unless you're living in poverty or are deeply in debt, it's not unreasonable-the easiest move is to buy them as part of a bundle from your cable or phone service provider. The drawback is that although you might get discounts compared with buying the same services separately, you'll probably get services you don't really need or want, especially TV channels you will never watch. However, to get services better tailored to your needs, you would have to become an expert on each service and try to cobble together services a la carte.

The point here, whether you buy services in a bundle or not, is to regularly review them and keep an eye out for new offers that might fit your life better. Offerings and prices are changing all the time.

Television.

The following are your basic choices for television service, some you've heard of and perhaps a few you haven't: * Broadcast only. This option has become a much better option lately. That's because with a set-top antenna, many people can pull in high-definition broadcast television signals to display on their newer HDTVs.

The best part? It's absolutely free.

Your picture will be even better than that of pay-TV customers who get high-definition signals from cable, satellite, or fiber-optic. That's because signals s.n.a.t.c.hed out of the air are less compressed. People who live farther away from transmitting stations might need a more powerful rooftop antenna to receive signals.

In many areas, you can get digital broadcasts from the major networks, including ABC, CBS, NBC, FOX, CW, and PBS. As long as you have an HDTV, the picture will be far superior to any a.n.a.log signal you've ever seen. However, those who live in remote areas, in valleys, or in urban areas with many tall buildings nearby might receive a limited selection of stations or none at all, leaving pay TV as the only option.

Of course, the big drawback of going with antenna-only is you won't get such cable channels as HBO, ESPN, CNN, The Food Network, and many others. You'll need subscription TV to receive them. That might be a deal breaker for using an antenna only. As a hybrid move, you can subscribe to a basic tier of pay TV service to get cable channels and use your antenna to receive digital and high-def broadcast networks-forgoing high-def versions of cable channels. You'll save the cost of upgrading to the digital tier to get HD programming.

If you have an older non-HD television, you can still get reception with an antenna. But you will need a converter box for each TV. The government has been issuing coupons worth $40 to help defray the cost of converter boxes, which cost about $50. Learn more at www.DTV2009.gov online or call 1-888-388-2009.

QUICK TIP.

There's no such thing as an HDTV antenna. An antenna is an antenna. Slapping an HDTV label on the box is just marketing. It's actually easier to pick up new digital signals than old a.n.a.log signals. You shouldn't get the old "ghosts" or "snow" with digital signals. It's either perfect or unwatchably pixilated. To choose an appropriate antenna, go online to antennaweb.org. It will help you select one.

* Pay television. Of course, you can pay for TV through a cable or satellite company. And, increasingly, phone companies are starting to offer pay television as they roll out fiber-optic networks.

* QAM tuner with cable. Here's a secret not many people know: You can get free HDTV with the most basic cable TV package and no cable box. It's a little techie, but it might save you money.

You'll need a high-definition television with a Quadrature Amplitude Modulation (QAM) tuner. Newer TVs have QAM tuners, and your TV's instruction manual should specify if it does. Alternatively, you could buy a stand-alone QAM tuner. You'll also need a cable TV package, even if it's the cheapest broadcast-only package.

Screw the coaxial cable wire directly into your TV. Then, go into your HDTV setup menu. For the source of the signal, select something like "digital cable" or DTV. The exact term varies by TV manufacturer. Then force your TV to automatically search for channels. When it's done, scroll through the channels.

With digital channels, you'll find multiple subchannels under the same number, labeled something like 87-2. The digital channels should look noticeably better. And when a digital program is broadcast in high-definition, it will fill the elongated screen of your HDTV and look fantastic.

The channels will have weird-looking names with lots of numbers in them, but your TV should allow you to change the on-screen label to ABC, CBS, CW, and so on.

How is this useful? If you use your HDTV in the bedroom or den for limited TV watching and you don't want to pay for another HD cable box, you can use this method to get broadcast digital and HD channels for no additional cost. Or, if you only need the broadcast channels, you can drop to the lowest level of nondigital cable TV service and still get digital and HD broadcasts.

Again, you will mostly get broadcast channels, meaning no ESPN or Discovery Channel. Those channels are encrypted and not accessible with the QAM tuner. You also won't get an interactive TV schedule grid, and you won't be able to pull up "on-demand" content. Your QAM tuner doesn't work with satellite TV signals.

* Online. More and more television content is available online to those with high-speed Internet connections. For example, many broadcast networks offer full-length shows at their Web sites for free. You can buy shows from Apple's iTunes music store and Amazon.com Video on Demand. Shows and movies are free at aggregation sites, such as Hulu.com, Joost.com, and even YouTube.com. Older movies, too, are often available online for free.

I don't watch a lot of television, but my wife and I often watch a show or two before bedtime. During the television writers' strike in late 2007 and early 2008, there was nothing new on TV. So, at the nearby video store, we rented DVDs of the television cop series, The s.h.i.+eld (which is a great show but probably too violent and rough for some tastes). Anyway, we watched all the seasons of The s.h.i.+eld that the video store had, which excluded the most recent one. So, we downloaded that season from iTunes to a laptop computer. We hooked the computer to a TV, and were able to enjoy the missing season. Another time, we were watching a recorded episode of The Unit when the ending was cut off because the show's start had been delayed by a football game. We fired up the computer and watched the last five minutes on CBS.com.