Break Even Points?

[Insanity]

What is your rule of thumb for spending money if it saves you money in the long term?

For instance-
Refinancing a mortgage - Usually if you are going to break even in under 2 years (my rule of thumb) it is worth it.

The reason I am asking is two fold:
1) I am looking at Ting as a provider.  Problem is, I have a Sprint Iphone 4S which isn't supported.  So I have to buy a new phone.  I will probably go with either the Galaxy 3 or 4.  After selling the iPHone, I'm probably looking at a year+ before I break even (I don't want to go to Sprint's new lifetime pricing because it still requires a 2 year contract - and so while it will save me some money, it isn't worth it for two years). 

2) Ditching cable.  In order to prove it is worth it, I'm going to need to spend some money while paying for cable (even if I go to FIOS, I'm still looking at $130+ a month).   I figured I would buy an OOMA device (a friend has had it for over a year and is very happy with it), a Roku/HTPC/XBMC + external hard drive,  hulu plus (my wife and I are both into wrestling - don't judge :P).   I'd then just have to go to internet service with Comcast (which is about $55 a month for what I need.  I figure this break even should be less than a year if I can convince her it is worth going off cable.  However, it will be an increase if I can't.  (note here:  I can do a switch to FIOS for an initial slight savings - not a lot, but some, but this seems like a lot of work if the ultimate goal is to get off of cable entirely)


So the general question is: how much are you willing to wait before you break even to save money in the long run? Seems kind of simple --- determined by usage period of devices?

[Spudd]

I know you're asking in general, but for the phone one I would look for another cheapo provider that will let you use your existing phone instead of having to pony up for a new one.

In general if I will break even within a year I consider it a win. However, I'll consider things with a longer break-even period, if the payback is sufficiently high.

[Insanity]

I know you're asking in general, but for the phone one I would look for another cheapo provider that will let you use your existing phone instead of having to pony up for a new one.

In general if I will break even within a year I consider it a win. However, I'll consider things with a longer break-even period, if the payback is sufficiently high.

Unfortunately for the Sprint iPhone, there are almost zero options :-/

[Matt K]

You may be surprised at how little internet connection you need for video streaming.

I have a 6mbs connection and it is sufficient to stream HD content over Netflix and surf the web or play an online game at the same time. It is not enought for two HD streams. The bigger issue is how much transfer the plans allow (Canada is much worse than the US, around here most $50 plans only allow 60gb per month, where as I think Comcast tends to be 300gb?)

We used close to 60gb with just netflix, so we switched to a small independant ISP and now get 6mbs & 300gbs for $5 less than the big ISPs want for 6mbs & 40gb (not sure on the exact numbers, the plans keep changing).

To answer your original question, I figure anything up to a year is an easy choice. Longer time frames, such as two or three years depend on what else may change in two years. Would I switch cell phones if the pay off was two years? Probably not, because the cell phone landscape, both phones and plans, are changing rapidly. What I want in two years will probably be different than what I think I want now. Would I refinance my house? Yes, because I'll probably still want to be living in my house in two years.

[Rebecca Stapler]

Generally, a year. Case in point: Sodastream. We broke even on our seltzer purchases in less than a year.

There are outliers, however, like our Prius. I'm sure there were less expensive cars out there, but we were buying for long-term reliability and short-term gas savings; instead of short-term big savings.

[huadpe]

Re: Ting, you might want to look into buying a used Galaxy S3 if you want the full modern smartphone experience.  Ting will actually go out and find one for you if you ask.  That'll be a lot cheaper than buying the device new, and since you still acquire it via them, they'll guarantee it actually works and isn't stolen.  I suspect that between buying the new phone used and selling the 4S, it brings the breakeven time way down to where it's in no-brainer territory.

Also, if you are gonna switch and don't have someone else's, here's a referral code for $25 off.  https://zfe8hfk8g.ting.com/

Edit to add: looks like they are not acting as an intermediary, so there is still some risk of the phone not working, but you should be able to ask them what to look for/what they looked for as far as buying used (after all, if they send you to buy a brick, they lose you as a customer) Ref: https://ting.com/blog/ting-launches-personal-shopper-the-easiest-way-to-find-a-used-sprint-device/

[ioseftavi]

Generally, a year. Case in point: Sodastream. We broke even on our seltzer purchases in less than a year.

There are outliers, however, like our Prius. I'm sure there were less expensive cars out there, but we were buying for long-term reliability and short-term gas savings; instead of short-term big savings.

I use a year as well for smaller purchases (less than a few hundred bucks).  Generally, if you can get a small item that pays for its purchase in a year, you are doing great.  A few examples from my own life that I can think of:

Buying a bicycle: $60 outlay + $200 in additional gear.  Monthly savings over an 'unlimited' subway pass in NYC: $68 (A monthly pass is $112.  I still spend about $44/month on the subway, so my savings is the difference).  Payback period: Less than 4 months.
Switching to a high quality double edged razor instead of a cartridge razor (Mach 3): Outlay was probably in excess of $70 for all the stuff I got.  Monthly savings (disposable double edged blades bought in bulk vs cartridge blades bought in bulk): $10.83.  Payback period: 6.5 months.
Buying my own cable modem, ditching the rental from the cable company: $45.  Monthly savings: $5.  Payback period: 9 months.
Moving fiancee's cellphone to an MVNO: Cost $275 in early termination fees.  Savings: $60/month.  Payback period: 4.5 months. 
Moving fiancee's rollover IRA to Vanguard: Cost us $50 in account closing fees.  Monthly savings due to lower expense ratio: $11.80.  Payback period: a bit over 4 months.

These are VERY short payback periods, and they make these decisions no-brainers for me.  Cash is yielding literally almost nothing right now.  If you can spend $50 now to lower your monthly fixed expenses by $11.80 (as in the last example), that is an insanely high return on your investment.

For larger expenses (such as a more efficient car, a solar power system, selling my house in order to buy a cheaper or less costly one, etc), a multi-year payback period is to be expected.  I'd put the numbers into a spreadsheet using realistic numbers and I'd compare the "likely realized return" to what I could get in other asset classes over the long haul.  If you can spend $10,000 on something that will save you $2,000 per year, that's a long payback period (and a sizeable outlay) but a wonderful ROI, if you can get it.

[Rural]

Definitely depends on the lifespan of the thing in question. Also depends on careful consideration of the actual value of the item.

On our house, for example, we were okay with structural upgrades during construction being on the order of fifty years' ROI since we fully expect to be here if we're still anywhere in fifty years, and we'll definitely be too old to, say, replace a roof at that point.

For purely aesthetic upgrades, we accepted that the ROI would be "never" and considered very carefully whether it was worth it to us and whether there were alternatives. Which is a roundabout way of saying that the ROI of doing without is instantaneous, and the downside usually isn't nearly as dire as we think.

[nawhite]

For things that have a very long life, I generally go longer term than most. I figure out what the return on investment is and if it is greater than what I'm earning in the market, I'll go for it. For example

Front loading washer, cost on craigslist: $200. Monthly savings $2 for less water, $2 on less water heating, $2 for less sewer usage or $6/month. So the payback time is over 2.5 years but its still like a +30% annual return on that $200 which seems WAY worth it to me since I'm not getting 30% in this ridiculous year of the stock market. Its even more worth it if I can sell my current washer for more than nothing.

[Insanity]

For things that have a very long life, I generally go longer term than most. I figure out what the return on investment is and if it is greater than what I'm earning in the market, I'll go for it. For example

Front loading washer, cost on craigslist: $200. Monthly savings $2 for less water, $2 on less water heating, $2 for less sewer usage or $6/month. So the payback time is over 2.5 years but its still like a +30% annual return on that $200 which seems WAY worth it to me since I'm not getting 30% in this ridiculous year of the stock market. Its even more worth it if I can sell my current washer for more than nothing.

These are the types of break evens that are difficult.  Even the LED lights (I just bought 6 for our kitchen since they are on all the time, I need to buy more for the office as I only have two out of the five - and those two aren't dimmable) which have savings of $1.xx over certain hours.  Your looking at roughly 10 years for a return?  Or something like that.

As I said in the LED thread, I actually was ok with getting them solely because when we do go solar, I will need a smaller number of panels to run the house which should impact the cost there.

[livetogive]

I've gone down both paths.  My suggestions:

1.  Ditch the Galaxy S4 in exchange for a Google Nexus 4 (used) or wait for the Nexus 5 in a few weeks.  These phones are priced between $200-350 off contract.  The cheapest Galaxy S4 I've seen used is still north of $500.

2.  Build your own HTPC.  It's very easy to do and you can take your time finding components on the cheap or use an existing computer/laptop and slowly learn how to use it.  I overspent on mine (about $450! Ouch!) but it has paid for itself about 4x over already.  For me no cable was between $60-100/mo in savings depending on the promo.

[naners]

I'm not clear why you have to spend $130/mo on FIOS. Have you looked at IP Daley's superguide?

https://forum.mrmoneymustache.com/share-your-badassity/communications-tech-isps-voip-cell/

In the past I've had 1.5-3Mbps and it's fine for streaming netflix. Even here in NYC that costs a max of $60/mo, and you can probably do less. If you want to do a lot of online gaming that might be different, but then we're not talking about just cutting cable.

I'm also not clear why you can't sell your iphone and buy a cheaper android phone. That Iphone 4S should be worth at least $250. Or buy an unlocked gsm iphone 4 or 4s and use it on an MVNO.

[jrhampt]

Just a quick note on the cable: you don't need all that stuff.  Just an HDMI cable (you may even already have this) and maybe an antenna.  That should be the only upfront cost, and you should recoup that in less than a month.  Then get rid of the cable tv and downgrade to a 3mbps connection with Comcast (if you don't already have your own modem, you should really get one of those also, but you don't have to do this right away).

There really is no break-even period on this; you should see the benefits immediately.

[Daley]

Here comes a massive info bomb...

Insanity, I know you've posted there, but you really should read back over the first seven posts of the Superguide that Naners linked. I figure it's safe to assume you haven't actually read them because of your choice in VoIP provider and the mention of FIOS. This is exactly why I try to maintain a list of good, solid, frugal options for these services with the ability to get a good ROI making the switch. (Ooma and FIOS both aren't on that list for that very reason, by the way.)

For the sake of simplicity for you, I'll condense all the relevant links you need to better prepare for this stuff. Get comfortable, you've got a lot of reading... but persevere as it'll be worth it in the end.

You're on the right track with some stuff, but you're off with some others. One of the biggest is Ooma (as I pointed out), and doing the math on it in relation to real VoIP providers really shows how bad the numbers are on ROI with the service, especially given how stripped down their service is in relation to other full-serviced VoIP providers like VOIPo.

https://forum.mrmoneymustache.com/share-your-badassity/communications-tech-isps-voip-cell/msg47654/#msg47654
https://forum.mrmoneymustache.com/ask-a-mustachian/landline-simplest-most-mustachian-solution/msg66868/#msg66868

The Superguide covers the general topic of VoIP providers:
https://forum.mrmoneymustache.com/share-your-badassity/communications-tech-isps-voip-cell/msg2715/#msg2715

Have a guide for doing VoIP phone service in the home:
http://www.techmeshugana.com/2013/04/voip-and-the-return-of-the-home-phone/

Do you have a laptop that you can hook up to the television? If you do, you don't need to spend money on an HTPC up front to see if streaming media can replace your cable habit. Just detach the cable box, connect the laptop, and force yourselves to watch TV through streaming only content providers as there's not much available through a media box that you can't also access through a full fledged computer. You could even do this with a desktop for a bit if you're willing to be slightly less comfortable for a week of entertainment vegging... or if you have an Android tablet, you can try it from there as well. It might be a bit inconvenient not having a remote or anything and staring at a smaller screen, but it'll be a starting point. If it works? You're golden, and you didn't spend a dime to trial run it. If you want to get a dedicated HTPC from there, you can then move onto this:

http://www.techmeshugana.com/2013/09/ask-daley-entertainment-on-the-cheap/

Remember, you don't need HD video to enjoy entertainment. SD video can stream plenty well with a 3Mbps connection. HD can run over 6Mbps, but it'll be tight.

Don't bother with FIOS, you'll lose access to cheaper DSL access and you'll inescapably lock yourself into more expensive internet service than you need to pay between a FIOS and Comcast duopoly. The Superguide (again) covers this:

https://forum.mrmoneymustache.com/share-your-badassity/communications-tech-isps-voip-cell/msg2717/#msg2717

As to the whole Ting thing (or possibly choosing any other MVNO)? Have a wireless ROI calculator designed for just such an occasion:

http://www.techmeshugana.com/tools/wirelessroi.html

Also, give this a read regarding smartphones when you're shopping for a new handset:

http://www.techmeshugana.com/2013/01/are-iphones-worth-it/

Finally, if you're considering having to invest in all new handset equipment anyway due to the Sprint iPhone, what other wireless providers in the area offers good coverage? If AT&T or T-Mobile offers good coverage, it might be worth considering jumping over to a GSM provider instead of Ting. The Superguide covers this as well:

https://forum.mrmoneymustache.com/share-your-badassity/communications-tech-isps-voip-cell/msg2714/#msg2714

You research and make the right choices in the first place, you shouldn't have to worry about any return on investment taking more than a few months as they'll be well researched, solid choices... and the ones that do? You'll be better prepared to answer if the savings is enough to pursue from that point, because you'll have more solid numbers going in.

[ritchie70]

Keep in mind that Comcast are a bunch of bastards, and they'll likely raise your internet cost when you cancel your cable. They jacked mine up $10 and said it was because I didn't have cable. Then the lady at the office when I went in to return boxes lowered it to $19 for six months then $35 for 4 months or something before it goes up to $54. Without my even asking.

I don't know how you feel about what is really theft of service, but even without paying for cable you can probably still get the most basic of channels (broadcast TV) on the Comcast wire. They're working to require a box for everything but at least here they haven't done it yet. At that point you're really just using their antenna instead of your own.

[jrhampt]

They are bastards, yes, (Comcast) but the trick is to specifically request the 3mbps speed.  It is plenty sufficient and will cost you $39/mo (at least in my area, which is high col -- other areas may be able to get it for less).  That is still less than what it will cost you to have both cable tv and internet.

I will add to my earlier suggestion (you need nothing other than an HDMI cable and a laptop) to note that if you are going to be streaming a lot, it is nice to have a wireless mouse.  You don't need it by any means, but it's nice to have, and you can pick one up on Amazon for less than $20.

[Insanity]

IP: I have read a lot of the super guide, and it is very informative -- but there is almost too much information in there so I get a bit confused.. I follow that thread heavily and pick up bits here and there.    Thank you for specifically referencing the links that mention VoIPo.  After reading it, and they are backed by HostGator, I will have to give them a deeper look.  The main reason I was looking at OOMA is that I have a friend who is pretty good with the VoIP market who recommends them.  Hard to argue that.  I will agree the numbers are higher (and a personal friend recommendation worth $91 over the course of two years, that's a tough call - no offense IP).

As far as the internet goes - part of it is for work.  I do large file transfers from at least 3-4x a week (known to be in the gigabyte range for D/L and 200 MB range upload has not been out of the ordinary).  I am not able to expense it (contractor) and it becomes a nightmare to try to manage for write off purposes (yes, 50/50 might be a fair split -- until I start streaming then I am not sure what the split would be).   I need a high capacity pipe.  So, I eat the cost of this.  But getting it to the destination as quickly and reasonably as possible is key. I try to balance work performance with cost. 

As far as TV: it is pretty simple.  We watch too much of it. Sports, network programming, cable programming, you name it we watch it.  We watch it mostly at night after the kids are in bed.  It is our way of relaxing.  I tend to do internet surfing and some of my side gigs while watching it).  We watch way too much of it.  but we also watch a lot of sports.  Both watch football and baseball, she watches her alumni college football team, I watch hockey.   

After doing  some price breakdowns I came up with buying each (phone, internet, tv) separately through low cost means.  Surprise - about as much as cable (comcast or fios).  It can be done, but in order to get in market games, you need to go through a VPN based outside your market (I love sports broadcasting laws).

[pteam]

You really should look at the airvoice wireless $10 a month smartphone plan and just use wifi everywhere like your home and office.  We did this switching from Verizon and save $1700 per year now.

[kittrad]

Just my rule of thumb, money spent monthly should only be 1/3 of what I earn that month.