A good first step in the process of achieving FI is to look where your money is going, identify leaks and stop them immediately. As I dig through my personal situation and identify such mistakes, I will cover them as part of series -Stop bleeding. Today – I will cover my analysis of my current mobile service provider – AT&T.
Case for AT&T
Prior to moving to AT&T last year, I was using T-Mobile and I definitely see a positive difference in the performance and reliability of the AT&T network in my personal experience. I have no complaints from AT&T so far in terms of performance. AT&T also offers a rather generous discount of 25% through my employer. To sweeten the pot further, it also came out with a BOGO offer on Samsung Galaxy S7 edge phone last year if you sign up for their AT&T next plan.
Here is current snapshot of my bill for family plan of 2 lines –
|Itemized bill category||Amount
|Family Plan amount ( 5GB shared)||100
|Mobile device charges on AT&T Next plan ( 2 devices) for 30 months||53
|Rebate of Buy one Get one on mobile phone||-26.50
|Corporate discount (25% off data plan)||-13
|Taxes and fees||17.5
What’s the catch in my AT&T plan
As you can see, I was getting a rather generous credit through my employer discount and a free device as well. A point to note is that the free device is still tied to my AT&T next plan ( This plan splits the cost of the phone into 30 equal instalments) and the monthly amount due for the free phone is credited back to my account each month. In other words, I get to keep the phone for free if I keep my service with AT&T for 30 months. I am currently 12 months into my contract. Cost of switching carriers is $900 across my 2 phones to pay them off. No complaints here – Terms were set out before I signed the contract.
Looking around for options- What the hell is a MVNO
MVNO are service providers that piggyback on the networks of major mobile service providers such as T-Mobile, AT&T etc but at offer a much cheaper rate. The caveat here is that customer traffic from these providers is de-prioritized behind primary customers of the major cell phone providers.
Here is a quick table to highlight the cost difference for the plan I was looking for ( 2 lines with atleast 2GB data each)
|Provider||Underlying network||Compatible with my phone ( Samsung Galaxy S7 edge)||Cost ( For 2 lines. 4GB data shared)||Remarks
|Cricket Wireless||AT&T||Yes. ||70 ||Plans are tax inclusive.
|H20||AT&T||Yes||50||Plans are tax inclusive and no other fees apply. On top, they offer unlimited international calling to 50 countries (This covers the countries I call the most).
|Republic||T-Mobile||No||60||Much supported by FI community. For some reason they dont support my phone.
|Mintsim||T-Mobile||Yes||40 ( for first 3 months)||Think of it as a Costco of mobile service providers. You get a discount for prepaying 3,6 or 12 months of service.
|Google Fi||Multiple||No. ||75||Good option for international travelers. Offer credit back for any unused data.
Given that I just paid off a rather large amount for my phone ( where I used by new Chase Sapphire preferred card to get to the minimum spend) , I am not looking to buy new phones to switch carriers. Another key consideration for me is the quality of the network. I will prefer to pay a little more to get on the At&T network. With this in mind, I have shortlisted H20 wireless to be my next service provider. I will monitor the quality of service and update this post in some time to share my feedback.
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Being a software engineer at heart, I like taking advantage of technology to automate the mundane things in life. I strive hard to automate most of the monthly financial activities such as paying off the utilities and investing into my retirement accounts. It has dual benfits – By getting myself out of the equation, 1. I ensure I dont miss out on any payments or investments and 2. There is limited will power that we are provided with on a daily basis and I would hate losing it on non valueadd Activities. So, I was quite intrigued by robo advisors such as Betterment and Wealthfront ( I actually did a case study on the rise of robo investment options and the impact to the legacy brokerage firms as part of my MBA program).
After some initial research, I settled on Betterment for my investment needs in 2015. I would like to take a moment and this artile is in no way aimed at berating Betterment or roboadvisors in any way. Infact my personal returns with Betterment of around 10% are exceeding my expectations and I see a lot of value in their simplified interface and tools they provide to investors such as RetireGuide.
However, one of the side effects of getting on the FI bandwagon is the deep interest I have acquired into researching whether my money is invested in an optimal manner and how I can improve my chances of hitting my FI goals. With that in mind, I decided to do a deep dive into my use of betterment among other investment choices.
Advantages of using Betterment
- They invest money in low cost index funds to keep the expense ratio low. At this time, the annual fees charged by betterment is 0.25% of the assets under management.
- They use Modern Portfolio Theory to come up with an optimal asset allocation by diversifying across multiple asset classes. ( At this time, my asset allocation does not have any holdings in REITs explicitly)
- Support automatic investments.
- Automatic rebalancing of your portfolio – The software regularly tracks your actual portfolio against the optimal portfolio and comes up with a drift%. It will rebalance your portfolio automatically when the drift reaches 3%.
- Tax loss harvesting – This is a key benefit that attracted me to investing in their platform. The key premise here is that the software regularly tracks the performance of your investments and identifies opportunities where your investment is making a loss. In such cases, the software will “harvest” your losses by selling the loss making investment and replacing it with a similar investment to ensure your overall asset allocation is still not adjusted.
Even within the FI community, we have support for such tools from well known personalities such as Mr Money Moustache
. ( I would like to point out that I got started on the FI journey after hearing the Mr Money Moustache’s podcast on the Tim Ferris series. I have since been following both these bloggers and have been really impressed with what they put out. What I am writing here represents what works for my particular situation and is intended to help others who might find themselves in a similar situation. )
Why betterment does not work for me?
- With some effort, most of the benefits of the benefits of using a robo advisor can be achieved on my own. The underlying funds used by Betterment can be purchased directly by opening a Vanguard account.The fees of 0.25% might not appear to be a lot and can be offset by tax loss harvesting. But, from a perspective of folks targeting a withdrawal rate of 4% from their portfolio, this may turn out to be an insignificant portion of their income.
- There are lot of good documentation available on the internet to come up with an optimal asset allocation. My favorite source is bogleheads forums which have a wealth of information and answers to most common questions. (I will write a post in the future to discuss my asset allocation.)Once you have this figured out, you can replicate it easily via Vanguard account.
- Automatic investments can be set up using a Vanguard account as well. Pros: Adds simplicity to management of your finances. Cons: Different asset classes will appreciate at different rates and your asset allocation can drift away from your target. This can be solved by monitoring your portfolio at regular intervals and making adjustments as needed. In most cases, I will not sell my high performing assets to bring their allocation on par with the target as this will incur a taxable event ( Assuming the account in question is a taxable account) and I will rather contribute to my underperforming assets.
- Tax loss harvesting: This was definitely something missing from my arsenal. My tax deferred accounts are not covered in Betterment. Since these do not benefit from tax loss harvesting, I see minimal advantage to moving these funds to betterment. As per my understanding of tax rules, in order to claim tax loss harvesting, you and your spouse should not trade in similar funds that you sell to harvest your losses. This includes your taxable as well as non taxable accounts. Given that betterment only controls a portion of your overall assets, the onus is on you to ensure this is happening as per te defined rules. In addition, law of diminishing returns also applies – The maximum loss you can claim for any given year is $3,000. This makes the feature less desirable as the amount in your taxable account grows.
- Update: Thanks to the wonderful FI community, I found this blog that shares how you can do tax loss harvesting on your own. It is full of great information. Definitely worth a read.