Frugal Underground

Don’t Always Take That Deal!

Sarah made a great post about using Netflix to replace your cable or satellite provider; and depending on your tv viewing habits that might be the best solution for many.  For the rest, well there’s still cable and satellite.

The important thing is not whether you choose Netflix, cable, satellite or any other entertainment provider, but whether your choice both meets your needs and makes good financial sense.  That’s the key, you need to do both.

We’ve all seen the deals:  Six months of service for this low introductory price, with three months of six movie channels for free and an automatic upgrade to a “free” DVR.  It sounds great.  Everyone wants free and everyone wants a good deal.   It all reminds me of a term from an old Robert A. Heinlein novel: TANSTAAFL.

• There
• Ain’t
• No
• Such
• Thing
• As
• A
• Free
• Lunch.

At this point you’re probably thinking of all the hotels that offer free continental breakfasts and all the other “free” things you’ve received from various companies.  None of it invalidates TANSTAAFL.   Companies give you free stuff for one reason and one reason only:  (answer after the cut).

They want to make their money from you somewhere else.

If a hotel provides a “free” breakfast, the rooms cost a little more.   If a bar gives you “free” snacks it’s always salty foods like peanuts and pretzels to make you thirsty in the hope you will buy more beer.  There’s nothing wrong with this, it’s not evil, it’s just part of doing business.  Businesses exist to transfer money from your wallet to their coffers – the more the better.

That’s what all the special deals are for:  give  you a good deal now, and collect more money later.

They load you up with more channels than you could possibly watch, then bring the price up gradually as the additional packages move from free to pay.  Most people take the free movie packages at the start, and then just don’t cancel them. Some cancel the packages a month or two after the bill hits, and almost no one cancels them before they start to charge you.

It may not sound like much, just $20/month for cable movie packages, but if you really look at it, there’s a lot more to it than first appears.

This is exactly the kind of thing that got us into the current economic mess in the first place!

It’s the housing collapse writ small.  People bought houses on two-step mortgages with a low initial payment that later ballooned beyond their means and drove them out of the houses and often into bankruptcy.  Get them in cheap, and jack the price up later.  It’s been good business, lots of profit to be had doing things that way.  The problem from my point of view is that once you run all the nunbers it usually ends up costing more than it would otherwise – and spending more isn’t frugal.

My own advice is that if you do think about getting one of those deals, you sit down and do all the numbers first.  Make sure you know what you are getting into financially and when the charges will hit.  Don’t take the movie packages:  that way you won’t get used to watching them or get hit with bills because you didn’t cancel add-ons in time.  Phone companies are the same way:  these companies are literally banking on the fact that you won’t cancel a feature before they can start charging for it.

Take your time and think it through.

In the meantime, please don’t hesitate to use the comment box at the bottom for your thoughts, rants, and responses.