Author: David

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Chance Doesn’t Exist

Posted on by David

Sorry I haven’t posted for a while. We had a sickness go through the home and I just didn’t feel like writing. This post is way more esoteric than the usual “how to save money” article, but it’s something I’ve been thinking about lately. Statistics are 100% true but only under the variables at which they were measured. Any application or inference drawn from a statistic is by definition false, because not all the variables can be accounted for. The application may be useful, but it’s not true like the statistic itself is. This is because chance doesn’t exist.

When a study is performed or survey is conducted, a specific group is sampled. The facts about this group are compiled into statistic. These statistics are true for that specific group at that specific time. The design is usually that the sampled group is representative of the whole and therefore applications drawn from that statistic may be useful for the whole. But since not everyone is sampled, the resulting statistic isn’t true for everyone. It is only true for the sampled group. It is only true for that specific group at that specific time. This means it is not 100% true for you now.

A Coin Flip

Here’s an example of what I’m saying. Statistically a coin flip is 50-50 heads or tails. If someone flipped a coin 100 times and got 50 heads and 50 tails you’d say that makes sense. Someone will then say, based off this statistic, that a coin flip has a 50% chance of landing on heads and 50% chance of landing on tails. But that’s not true.

The reason it’s not true is because chance itself is not a factor for causing a coin to flip or land. The factors include: your thumb, the amount of force you exert upon the coin, the angle at which you flip it, the density of the air it’s falling through, whether there’s a sudden gust, etc. All of those are variables affecting the process of flipping the coin.

We call it chance because we don’t know or account for all the variables (and sometimes we can’t even know them all!), but all those variables are deterministic in nature. Meaning if the variables are controlled for, the outcome is determined. If you are able to flip a coin with the same amount of force, at the same angle through air which has the same density etc. you will get the same result every time. This is because nature is deterministic.

Stanford coin flipping machine
Coin flipping machine – Source: Stanford

In fact researchers at Stanford actually did this (Source). They built a machine that could flip a coin with repeatable force and angle and found that “With careful adjustment, the coin started heads up always lands heads up – one hundred percent of the time. We conclude that coin-tossing is ‘physics’ not ‘random’.”

So does that mean that you can’t use a coin flip to make a 50-50 choice? No, it works fine. Because humans are good at introducing extra variables into their actions, it’s a good approximation of chance. It’s close enough that it’s useful, but it’s not explicitly true that if you flip a coin it will have a 50% chance of landing on heads or tails. This is because chance does not exist. The world is deterministic.

80% of Students Change their Major

Another example is the statistic that about 80% of college students change their majors at least once sometime before graduation. This statistic is 100% true, for those specific students at that specific time. Roughly 80% of the people surveyed changed their major at least once. But there’s no true application that can be gathered from it. You could say that based on past results a college freshmen is likely to change his major, but you cannot say to that college freshmen that he has an 80% chance of changing his major.

The reason you can’t say that is because chance isn’t a factor of collegiate study decision. The factors include: interest, drive, stick-to-itiveness, finances, input from friends and family, etc. If this freshmen loves his current chosen field, and has the drive and financial abilities, He is likely to stick with it. He does not have an 80% chance of switching majors. Whereas someone who doesn’t have an interest in college and just signed up for whatever program their parents recommended is much more likely to switch majors.

What we call chance is just our inability to account for all the variables.

A quick sum up (so far)

These two examples have two entirely different sets of variables so their outcomes are going to be different. But still their outcomes are based on the variables affecting the mechanisms (factors) that drive results. The issue is that chance doesn’t affect results because chance isn’t a mechanism that drives results. What we call chance is just our inability to account for all the variables.

Statistics may be true, but the applications drawn from them are not. They have varying degrees of usefulness. Consider the application that if you flip a coin, you will get a random 50/50 result. That application is not true, but it is very useful because empirically the answer usually comes out close to 50/50.

The application drawn from the statistic that 80% of college students change their major, that you have an 80% chance of changing your major, is less useful. It’s not entirely un-useful, but the mechanisms that drive collegiate study decisions are much more varied than a coin flip. And there are many more variables that come into play.

Covid-19

Let’s now look at an example that is very applicable to everyone currently: Covid statistics. Why do some people catch Covid and some don’t? Why does Covid affect some people so badly while others are completely asymptomatic? We don’t know a lot of the variables that surround Covid infections, but we do have lots of statistics.

In the US 1.7% of Covid cases resulted in death. What application can you draw from that? If you said, “If you catch Covid 19 you have a 1.7% chance of dying from it” you have missed the point. The only helpful applications we can draw are that Covid is more deadly than other similarly contagious viruses that have lower mortality rates.

Saying that if you catch it you have a 1.7% chance of dying from it just isn’t true. It also isn’t helpful since it ignores all the variables at play. Early in the pandemic the mortality rate was higher, implying that a given person is less likely to die from Covid now than they were in April of 2020. We also know that variables of age and health are big factors. A young healthy individual is much more likely to survive Covid than an old fat one.

But either way neither one has a “chance” of dying of Covid because chance never killed anyone. There are factors behind death and those factors are affected by many variables. Many of those variables are still yet to be pinned down. For example there are healthy young people who have died of Covid and unhealthy old people who have been asymptomatic, and we don’t know why.

Purity of Science

What we do know with 100% certainty (assuming the statistical data collection methods are true) is that 1.7% of Covid cases in America have resulted in death. We also know that the world is deterministic. If the same variables affect the same situations the results are the same. This is why Physics is considered a pure science. There are relatively few variables. We know that if something with a known mass is launched from earth at a known force and angle, it will land at a known location. It’s very reproducible.

Biology and medicine are less pure sciences because they have more variables. If you set up the same experiment with two different people, you can have wildly different results because the human body has millions of mechanisms that are each affected by millions of variables. Social sciences like psychology or sociology make biology look like a pure science because of their massive amount of variables. But like anything else in this world, there is still no chance. The absence of chance is what makes science possible. The fact that the world is deterministic makes experiments repeatable. We may not be able to account for all variables, but we can draw inferences from them. We just need to be clear that the inferences are always untrue. They may be useful, but they are always untrue.

How does this relate to FIRE?

FIRE utilizes a lot of statistics. The 4% rule is based on statistics, the believe that the stock market will produce an average annual gain of 7% is based on statistics. The average retirement age, income, cost of living etc. are all based on statistics. These statistics may be true, but the applications drawn from them are not. They may be useful, and you can use them as guidelines to model your financial independence plans after, but everyone is unique.

The trinity study gives investors a certain chance of surviving their retirement even though chance doesn't exist.
Safe withdrawal rates as a function of portfolio allocation Source: Early Retirement Now

According to the Trinity Study, if you have a portfolio of 75% stocks and 25% bonds and you withdraw 4% of your portfolio per year and increase with inflation, you have an 88% chance of your money lasting 50 years. But as I’ve been saying, that conclusion is false because chance doesn’t exist. The Stock Market has its own factors that affect how it produces returns. Also we as investors have our values and variables that affect the mechanisms by which we spend money.

If you are already good at adjusting your spending for when times are tough, a stock market correction early into retirement won’t affect you as much as it would someone who can’t reign in their spending. What I’m saying is you don’t have a “chance” of things turning out a specific way. You have control over it. Obviously there are things outside of you control, but nothing is outside of control. The universe is deterministic because God is sovereign. Control what is in your sphere of influence and leave to God all that isn’t (and all that is as well).

What do you think? Was this post too esoteric? Should I have stayed sick longer? Let us know in the comments below!

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How to Save Money on Cell Phones

Posted on by David

The average cell phone costs $471 and the average premium phone costs over $1000! According to a Time Magazine poll, 84% of people surveyed said they couldn’t go a single day without their mobile device in hand. Given how important cell phones are, and how expensive they’ve become, how does one save money on cell phones?

Hardware as a Service

While a cell phone may seem like a one-time purchase, it’s getting harder and harder to treat it as one. Instead of being something you make last until it finally dies, the prevalent attitude about smartphones is to upgrade sooner rather than later. With the advent of the smartphone, the cell phone has grown to become a “hardware as a service model”.

What do I mean by that? Two things: 1) Each new model of smartphone comes with new features you may or may not want (Which you have to upgrade to get), and 2) manufacturers only support a certain model for so many years. It seems like every phone these days is advertised not by processing power or battery life, but by its better camera, new ID technology, and storage. These new features may be useful to you, but whether or not they are is irrelevant. The problem of “hardware as a service model” comes from the second point. Let’s look at an example.

In 2018 Google released a shiny new Google Pixel 3. With it came Android 9 Pie. The next year when Google released Android 10, the Pixel 3 was able to update and install it. Android 10 came with new software features like Dark Mode. It also came with new security patches. Google has promised support for the Pixel 3 until October of 2021. That means the Pixel 3 will be able to update to Android 11 and 12 and get security updates until October of this year.

But what happens after October 2021? Well if you have a Pixel 3, it means you won’t get any new software features that come with new versions of Android. For better or for worse you may want those new features or you may not. But more important than the new features, you will also miss out on the security patches that that come with Android updates.

Technical Security

I’ve personally never needed the newest smartphone features. I really just want my phone to be able to call people and surf the internet, but I’m very concerned with having the latest security updates. With more and more of our lives being online, technical security is a very real concern. In the US in the past 5 years there have been 6,469 data breaches totaling over a billion (1,026,000,000) records exposed. That’s three per person just in the last 5 years. And as I am morally against bad statistics, I am duty bound to remind you that since that includes children that are too young to have any online presence, that number is likely higher per person.

Source: Statista

These stolen records are usually credit card numbers, usernames, and passwords. The kicker in these data breaches is that nearly all of them could have been easily avoided by installing security updates. In these cases hackers exploited vulnerabilities in software that was either not updated or no longer supported by the manufacturer. This is why it is imperative that you update software on your electronic devices and that includes smartphones.

If your smartphone manufacturer no longer supports your smartphone, you are not getting security updates. Because of this, your phone will become increasingly vulnerable to the malicious intentions of bad actors.

To Upgrade or Not

All this to say that though in theory people don’t have to buy new cell phones regularly, in practice upgrading periodically is a necessity. In 2020 the average phone sold in North America cost $471 and increased by 7% annually. And as of 2018 the average smartphone user waited 24.7 months before upgrading. This comes out to an annual expenditure of $228.83/year on cell phones.

North America spends the most on cell phones. Apparently you can save money on cell phones by moving to Africa.
Source: Gizchina

So the average American spends $228.83/year on cell phones. $229 a year doesn’t seem like a lot of money but if you put that money into the stock market making 7% interesting, assuming a 7% increase in price, after 20 years that’s $16,536.93. In 2017 the iPhone X was released at a starting price of $1000. And as of 2020 the average premium smartphone is now over $1000. If you bought the flagship iPhone model every year for 20 years, it would set you back $72,330.55! This number, of course, is assuming a 7% increase in price.

That is the cost of buying new smartphones. Obviously very few people buy a new iPhone every year, but the average American is spending hundreds of dollars a year, and losing out on thousands in potential savings. How can they possibly save money on cell phones?

iPhone or Android?

I know this seems counterintuitive, but buying an iPhone is the better financial decision. I say this because, while Android phones are cheaper, Google only supports them for a couple years. They’ve promised to support their own phones, the Pixel line, for three years. Other high end Android phones, like the Samsung Galaxy line, usually get 2 years, and some of the cheaper android phones don’t get any updates. Google is working to change that because of security risks, but they won’t ever get more than 2 years of updates.

Apple on the other hand doesn’t promise any specific support window, but they’ve consistently supported phone models for 5-6 years. That means that if you pay $800 for a new iPhone that lasts you 5 years you’re spending $160/year on a smartphone. On the other hand if you buy a budget $400 Android phone that is supported for 2 years, you’re spending $200/year on a smartphone. As you can see in this case the iPhone is a cheaper option even though it initially costs twice as much.

As a rule of thumb I like to keep my cell phone budget to less than $100/year. If I spend $200 on a smartphone I hope to keep it at least 2 years. But I won’t keep a smartphone past its support window. This is the same reason I don’t use Windows XP: using software that’s no longer supported is a security disaster waiting to happen. For example I spent $190 on an iPhone 7 in fall of 2019. It should continue to get security updates for at least another year. If Apple stops supporting it in fall of 2022 then it would have cost me $63/year to use this phone.

Both iPhone and Android suffer from a short support window. Microsoft supports their operating systems for like 10 years. Shame Microsoft is awful at making phones.
The people that fight about which mobile operating system is better are much more entertaining than either phone could ever be.

Buy Used

The easiest way to save money on cell phones is the same as saving money on cars: Don’t buy a new phone. There are many ways to purchase used smartphones. Aside from general sites like Craigslist or eBay, there are several sites specifically for buying and selling used cell phones.

Swappa

Swappa is a site where sellers can list their old phones and buyers can buy from them directly. In that way it’s like eBay, but Swappa has specific rules such as the phone has to be working, clean, and not blacklisted from any carrier. I originally used them because they had a deal with Ting that would guarantee with phones worked with Ting and would come with a free SIM card. They are also usually the best deal I can find.

Swappa is mostly for phones, but they also have computers, tablets, and video games. They currently have the iPhone SE 2nd Gen starting around $215. And since the SE will probably be supported for another 3-4 years, that comes out to only spending $70/year on an iPhone!

Gazelle

Gazelle is a site that buys old smartphones, refurbishes them and then sells them at a discount. I bought my wife an iPhone SE 2nd Gen for $265 last fall. The SE 2 was new that year at $400 so $265 was a great deal. If Apple supports it for 5 years, that comes out to $53/year. Nearly half of my phone budget! I didn’t actually have a good experience with Gazelle or their customer service team, but I did get a great deal.

Back Market

Back Market is another site that buys old smartphones and refurbishes them for sale. I’ve never used it, but I’ve heard good things.

Conclusion

In conclusion, smartphones are hardware as a service. Because they shouldn’t be used outside of their support window, customers need to regularly upgrade to stay safe. Because of this you can’t just buy a cheap phone and use it forever like you can most things. This is why I propose the $100/year cell phone budget. I aim to spend no more than $100/year on cell phones.

This means I buy my phones used and then keep them until their manufacturer no longer supports them. Furthermore I pretty much exclusively buy iPhones because Apple supports their phones much longer than Google does. That said I don’t really have brand loyalty. I would by an Android if it were a better financial decision but for now I believe iPhones are the better deal on a per year basis. I recommend, as always, that you do your research.

What do you think? Which phones do you use? How much do you spend per year on cell phones? Let us know in the comments below!

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Save Money on Your Phone Bill with Ting

Posted on by David

The average cell phone bill is $70/month or $840/year for a single line according to JD Power. And a family of 4 can expect to pay anywhere from $120 to $220 a month for 4 lines from a major wireless carrier according to Tom’s Guide. Allconnect estimates the average cost of a single cell phone plan at $113 and $170 a month for a family of 4. My cell phone bill was just $11/person per month last year. How did I accomplish that? Here’s how to save money on my your phone bill with Ting.

Full disclosure, this post is not sponsored. I’m just a happy customer.

Ting has been around since 2012 and got their start by buying airwaves from Sprint. There was a flat rate for the number of lines you had and the rest was billed in buckets of minutes, text messages, and data across those lines. If you didn’t use your cellphone as your primary phone (ie, you had a landline) and didn’t use much data, it was a great alternative to an expensive phone plan with the Big Four carriers.

Using Ting it's very easy to save money on your phone bill

It worked for my family because we had a landline and we didn’t use much data because we had wifi at home (like nearly everyone in America).  The four of us usually kept ourselves under 500 minutes of talking, 1000 text messages, and 100 MB of Data. So it rarely costs us more than $41/month.

After moving out my sister and I started using our cell phones as our primary communication devices so minutes and texts went up. We combated this by getting google voice and using that for our longer conversations. It helped for the most part, but even if we went over on minutes or texts, Ting was still wildly cheaper.

Then I got Married

After getting married we added Courtney onto our mobile plan for a total of 5 lines. That extra line tipped us over to the next bucket for several of these. (That year Pokémon Go also came out but I’m sure that didn’t affect my data usage at all *cough* *cough*). At 5 lines, 1000 minutes, 2000 text messages, and 500 MB of data, our monthly bill was looking more like $66-$83 per month. That is still so much cheaper than just about any other option. Especially for 5 people.

We did this for a while, then Ting was bought out by Dish. We’re still not sure what that means for customer service or reliability, but after this they changed the billing system. Their new plan is much simpler: Unlimited Talk and Text for $10/line plus $5/GB shared across all lines. They have other plans if you need more data, but this has worked great for us.

New Ting plan has unlimited talk and text
New Ting plan has unlimited talk and text

So with 5 lines and never going over 1GB of data our bill comes out to $55/month or $11/person!

But what if I need Data?

I’m going to say something a little controversial: you don’t need that much data. It’s been my experience that no one needs data, or at least no one needs as much data as they think they do. No one needed it ten years ago and now that nearly every home, business, and restaurant has wifi, there’s no need to use cell data. The most data we use is for Pokémon Go and even that only ends up being like 200 MB/month.

Everywhere I am has wifi. The only places that don’t are when I’m actively driving and at the park. And you don’t need to use your phone when driving or enjoying the outdoors. You can stream music or watch YouTube videos on data, but you don’t need to stream music or videos when you’re out. But what if my work doesn’t have wifi I can access? You’re working, you don’t need to be on your phone. If you want to watch something while on your lunch break, download it before you leave home. Netflix allows a variety of episodes and movies to be temporarily downloaded.

Some people stream music when they’re driving or running, but that’s just a modern luxury. Just pretend it’s the distant past circa A.D. 2010 and put some music onto your phone. Modern phones have a crazy amount of storage now. You can put so much music on them! With the money you save by not paying for data, you could buy several albums a week.

What carriers do they have?

Originally it was just Sprint, but now they have deals with all the major carriers. We’re currently using them on Verizon’s airwaves, or the “Red Network” as they call it. Never had a problem with coverage.

Do I have to buy a new phone?

No. Ting works with nearly any phone. They have a phone checker that will make sure your phone is compatible with their networks, but pretty much any modern phone will work now that the government has forced the Big Three to play nicely. If your phone doesn’t work on Ting or you just want a new phone they have a shop where they sell compatible phones at or below new prices. That being said I only buy used phones from Swappa.

What if I *actually* need data?

They have other plans that are more data-friendly, like unlimited talk and text and 5 GB of data for $25, but for the most part we don’t *need* as much data as we think we do. The less data you use the more you can save money on your phone bill.

What about Google Maps?

Google maps uses surprisingly little data. An hour trip might use like 30 MB. If you use Google maps a lot, you can download an offline map while at home then you won’t need data to use the GPS.

Captain Picard saved money on his phone bill by switching to Android
Captain Picard saved money on his phone bill by switching to Android

Conclusion

I like Ting a lot. Our family spends roughly ¼ of what the average American does on cell service. And now that they have unlimited talk and text for $10/line it’s pretty hard to complain. I don’t use much data and frankly have never felt that I needed more than the 1 GB we use. Even for a family of 5, we only ever use a few hundred megabytes. Remember mobile data is a luxury, and while it’s ok to indulge in the occasional luxury, they aren’t needs.

What do you think? How much do you spend on cell service? How do you save money on your phone bill? Have you been looking for a new cell plan? Let us know in the comments below.

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100 Million Americans Have no Retirement Savings!

Posted on by David
Millions of Americans retirement savings are dangerously low

Recently, while complaining about rich people using IRA’s, Senator Ron Wyden said that 100 million Americans have no retirement savings. You mean 1/3 of Americans have no money saved for retirement? Oh Noes!

This is a startling statement meant to be an eye-catching headline. It may even be true, but let’s look further into this statement before we make our minds up. Like I said in my post on whether 40% of Americans Don’t have $400 in the Bank, “There are three kinds of lies: lies, d***** lies, and statistics.” I’m sure you’ve seen studies that show that the average American only has several thousand dollars saved for retirement. While it’s true that most people aren’t pursuing FIRE, I don’t believe we have an impending retirement crisis on our hands.

First off let’s look at the 100 million Americans figure. 100 million people represents almost 1/3 of America. But if you look at the population of America by age and sex, you’ll see that the number of Americans under 25 equal 103.26 million.

100 million Americans have no retirement savings, but that is because they are children...
Source: Statista

So right there you can see that there is an issue with the “100 million Americans” figure. Very few people under 25 even have a job much less a job with a 401(k). And at 25 very few “adults” are worried about saving for the future (even if they ought to be). If they are looking towards the future at all, most of them are looking to pay off student loans or save to buy their first house than actually save for retirement.

According to Vanguard, the average 401(k) balance for people 25 and younger is $6,718. Knowing this it makes sense that 100 million Americans have no retirement savings, but that doesn’t necessarily mean it’s concerning.

Why don’t older people have more in their 401(k)?

The 401(k) started as part of the Tax Revenue Act of 1978. It was mostly an accident and it took tax lawyers a couple years to notice it as a tax loophole. It wasn’t until 1981 when the IRS issued new rules that allowed employees to fund their 401(k) through payroll deductions. After a couple years most big companies offered 401(k) plans. This means that someone who is currently 65 had been working for roughly 7 years before the 401(k) had become a thing that was available to them.

That easily explains why 401(k) balances of people over 65 aren’t proportionally higher than those of younger savers. They didn’t have them available when they started their careers. They had pensions. The 55-64 year-old crowd also likely had pensions. The 401(k) is a relatively newer retirement tool. And even now that 401(k) plans are more popular than pensions, many people still have pensions. Most teachers, contractors, and government workers still have access to pensions. So they have to be accounted for these kinds of surveys.

How many retirement accounts do you have?

Another issue with surveying the average balance in a retirement account is that it ignores the fact that most people have more than one retirement account. A family with two working parents can easily have several retirement accounts even though the family is saving for retirement together. If each parent has both an IRA and a 401(k), that’s 4 retirement accounts. And if each parents has both a traditional and a Roth IRA that can make 6 accounts. And that’s only if both parents only have one 401(k) each.

Over the 1994-2014 period, 25 million 401(k) holders separated from an employer and left at least one account behind and several millions of those holders left two or more 401(k)’s behind. According to the Social Security Administration (SSA), in 2013 over 33 million individuals could have potential benefits from past retirement accounts. Source: https://www.gao.gov/assets/gao-15-73.pdf

“The considerable mobility of U.S. workers increases the likelihood that many will participate in multiple 401(k) plans. Over the last 10 years, 25 million participants in workplace plans separated from an employer and left at least one account behind and millions left two or more behind. When individuals hold multiple jobs, they may participate in many 401(k) plans or other types of employer-sponsored plans and upon changing jobs face recurring decisions about what to do with their plan savings.”

Government Accountability Office

It’s not hard to have several accounts

If you leave your job, you can opt to either withdraw your 401(k), roll over the money into another retirement account, or leave the money in your old employer’s custodial care. Below is a graphic depicting how a worker could accumulate several retirement accounts. A couple years after starting his first job, he leaves for a new one. Instead of rolling his 401(k) into an IRA, he leaves it with his old employer to manage. His employer then places it into a forced-transfer IRA, An IRA for previously terminated employees. After leaving his second job he rolls over that 401(k) into an IRA. When he leaves his third job he leaves the 401(k) with his old employer to manage. And he starts his fourth job and opens up a 401(k) with them.

The average retirement account by definition is average rather than cumulative.
This worker’s average retirement account is only $4,250 rather than $17,000

So by the time he is onto his fourth job, this hypothetical worker has 4 retirement accounts totaling $17,000. Though his retirement savings total $17,000, the average amount in his retirement accounts only equal $4,250. Using this example you can see how someone saying “the average retirement account only has X amount of money in it.” That may be true, but the average American may have more than one retirement account.

According to indeed the average employee stays at their job for just over four years. If that’s true and they don’t get around to rolling over their 401(k) into their new employer’s 401(k) or an IRA, the average worker could have 10 to 12 different retirement account by the time they retire.

Conclusion

As you see these kinds of charts and statistics can be misleading. Who are they counting in their surveys? Are they counting all Americans, or only working Americans? What types of retirement accounts are they factoring in? Is it all kinds of retirements accounts, or just certain ones? Are they accounting for pension plans? Just like with everything you read or hear, a little critical thinking goes a long way. Is the average American not saving enough for retirement? Yes, I believe everyone could benefit from a little more discipline when it comes to delayed gratification. But is the future all doom and gloom? I don’t think so.

What do you think? Are we headed towards a retirement crisis, or is it all fake news? Let us know in the comments below!