Tuesday, July 29, 2008

High-tech lifestyle takes toll on budget

This is an article from Lo Hud.com:
High-tech lifestyle takes toll on budget

TiVo. Netflix. Satellite radio. World of Warcraft. The iPhone. The BlackBerry. Audible.com. Flickr. Amazon Prime. The list of new digital services and gadgets keeps growing.
There's just one catch: Much of today's technology comes with subscription fees that might not seem like a lot individually, but can add up to hundreds of dollars in new expenses.
Just ask the Sabater family of Bardonia, which at one time or another has paid monthly fees for satellite radio, audiobooks, movie downloads, online games, DVD rentals and lavish cell-phone text messaging.

Barbara M. Sabater, a social services administrator and mother of four, said her family's bill for digital services is several hundred dollars a month.

"You justify the extra expenses and you don't think about it, but if you start to look at it, the cell-phone bill is $181. The Netflix is like $9 or $10. The cable with the Internet is another $150 when you add in the house phone - which never gets used because we all use cellphones.

Now you're up to $350. Then the World of Warcraft is another 15 bucks a month," she said.

While subscribers aren't thrilled by the budget-busting potential of the digital fees, they tend to think of them as the new utilities of the 21st century.

Just as people in the first half of the 20th century got used to paying monthly bills for heat, lights and water, today's tech-savvy citizens are paying new bills for digital services that enhance their lives.

Jessica Spencer of Mamaroneck, 24, said she pays monthly fees for her BlackBerry, Netflix subscription and a TiVo-like digital video recorder, or DVR, from her cable provider. "I consider it just another bill, like the electric bill, and it goes into my budget that way," she said.

Chappaqua native Jordan Edelson, 23, has a BlackBerry from AT&T, a wireless Internet card for his laptop from Verizon, satellite radio and a data backup plan from Dell - all with monthly fees adding up to more than $200. And all are services Edelson said he doesn't want to live without.

"It's not even an optional cost. It's the cost of my lifestyle. It's become more acceptable," said Edelson, who started a company that broadcasts video-game tournaments. "Kids are using cell phones at a very young age, and learning about the fees associated with them."

As for the satellite radio, it came with his car, and Edelson continued paying after a free trial. "They give you a little taste, and then they've got you," he said.

Sabater also was introduced to satellite radio and the navigation system OnStar when the family bought an Acura in 2005.

But after Sabater realized that she made just one call to OnStar in a year - when she accidentally left her cell phone at home - she cut that out.

She also realized the only person using the satellite radio was her husband. "And he only drives the car on the weekend, and if I'm in the car with him I don't want to hear the country station," she said.

She paid fees of more than $20 to both companies for months before she wised up.

"They count on you forgetting and just continuing to pay as an expense," Sabater said.

James Van Dyke, an expert in payments and financial services research at Javelin Strategy & Research in Pleasanton, Calif., said none of today's digital services would thrive if it weren't for the ability of consumers to pay the fees automatically through credit or debit cards.

Van Dyke calls it the "set it and forget it" model.

"The way we're moving money is changing," he said. "With just a few keystrokes, we can not only move money from one place to another, but set it up automatically and forget about it."

The trend started in 1981, Van Dyke said, when CheckFree Corp. was founded to automate payment of monthly fees for health clubs. "Back then, that was an unusual concept," Van Dyke said.

Today, more than two-thirds of U.S. households pay some recurring bills automatically, according to MasterCard International of Purchase.

About 38 percent of households link the payments automatically to a credit card, while 31 percent link them to a debit card.

MasterCard reports that automatic payments are most popular for telecommunications charges, Internet services, health-club memberships and commuting expenses.

Web designer Tom Ossa of Stony Point, 32, said he probably wouldn't keep up his $20 subscription to World of Warcraft or his $17 Blockbuster DVD plan if he couldn't pay the monthly bills automatically.

"People are always going to take the path of least resistance. If I had to write a check out to Blizzard Software for World of Warcraft, I wouldn't do it," Ossa said.

Jeff Blyskal, senior editor for personal finance at Yonkers-based Consumer Reports, said automatic payments shouldn't mean putting your budget on autopilot.

Consumers who don't closely monitor their spending will even find themselves paying more than once for the same service. For instance, a consumer who subscribes to a cable movie package might then sign up for Netflix, and if there is no new DVD in the house might drive over to Blockbuster to rent one for that evening's entertainment.

"Here you are paying Blockbuster. You're paying Netflix. You're paying cable. And it all adds up," he said.

The reason people are lured into duplicating their spending is the individual services often don't cost a lot. "A lot of things are set at prices that people say aren't a lot of money. It's only $4.99 or it's only $9.99," he said. "It looks cheap and people say, 'What's $5?'"

He advises consumers to spend a half-hour adding up all of their monthly expenses - including tiny recurring charges.

"There are lots of ways to save if you take the time to sort through what you're paying," he said. "Ratchet down your autopilot payments."

Barry Doyno of Scarsdale prefers not to add up what he pays for digital services, thanks very much.

"I haven't a clue, but it's far too much," he said. "We have almost everything. We have cable. We have satellite TV. We have Internet through the phone company. We have multiple cell phones with expensive data packages. We have a land-based telephone. What else is there, and I'll probably check off yes. We have Netflix, of course. And then the things with the kids with the iPods buying songs," said Doyno, a lawyer by training who runs his family's hardwood flooring business, Peiser Floors.

The Doyno family - which includes mom, Ruth, and sons, Stefan, 19, and Justin, 16 - has a cell-phone bill of at least $200 a month. The Internet and multiple home phone lines are about $300. TiVo and Netflix add up to around $40 combined.

Most notably, Doyno pays twice for TV service: $80 a month to Cablevision and another $80 or so to DirecTV. The arrangement dates back several years to the days when Cablevision was on the outs with the Yankees over broadcasting their games and legions of local fans turned to satellite TV to get their baseball fix.

All told, Doyno estimates he is paying around $800 a month to experience all the new digital services he enjoys.

"You get so accustomed to things that you ask, 'How did I live without this?' " he said. "It would be a terrific thing if we all could do some simplifying. We all managed to live pretty well with what, seven channels on television? But I don't see us going back. You do get spoiled by all the technology that's out there."

Mahopac resident Matt Ganis, an IBMer and adjunct professor at Pace University, said he hasn't counted the costs as he's added new digital services to his life, including a DVR, the online game Second Life, Netflix, his Internet fax service and his Sirius satellite radio.

"You don't think about it and before you know it, you have recurring fees all over the place," he said. "If you did a budget, you'd say, 'Why am I spending all this?'"

That's what Bob Knight asked himself recently before he did a purge of his monthly digital services.

A public relations expert who advises companies on their digital strategies for Harrison Edwards of Bedford Hills, Knight said he canceled Netflix and TiVo and now downloads TV shows and movies online, either through iTunes at $1.99 a pop or free from the networks' Web sites.

"I was just fed up with all these excess bills, and I took inventory of what money was going out and what services are out there on the Web that don't cost anything," he said.

Knight's remaining indulgence is a BlackBerry with a $180 phone and data plan - but he canceled his home phone to help pay for it. "Right now, the BlackBerry is the most important tool in business," he said.

Leyla Z. Nakisbendi of Pleasantville, a pediatric dentist and mother of three, is a self-described "lunatic" when it comes to fees - and her reluctance to pay them.

She has TiVo but paid the lifetime fee when that was still an option. She chose the cheapest $4.99 option for Netflix. When she is allowed, she pays monthly fees a year in advance.

"I'll pay stuff all at once, just to not do it monthly. I hate monthly bills. My kids had RealArcade, which is an online computer game, and I canceled it. I said, 'Forget it. I can't stand looking at the $10 every month,' " she said. "It's bad enough you have to pay your mortgage, your electricity. I don't need all the little extra things."


Paula said...

Debt has become an accepted part of everyday life for many individuals and it is hardly surprising. Advertising is constantly trying to tempt you into having credit cards and loans. The general philosophy is buy now pay later...sometimes much later and much more too.

Frugaleconome said...

I know it's "buy now, pay in 3 years!"
Well, I don't know if I'll still have a job in three years!

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