There’s a lot of personal finance advice out there for those who want it. Buy fewer lattes, pay less for cable and switch your wireless provider are a few common themes for getting your day to day spending in order, but how valid are these assertions?
It turns out that with big data, we can analyze spending habits to determine which savings actually make the most sense. We can also see how well you are doing negotiating a good cable or wireless deal relative to other people. This is possible because anonymous spending data is available at scale. This data can be analyzed with the power of cloud computing. We can as a result move from general advice based on estimates and intuition, to specific, quantified analysis of large datasets of customer spending. So let’s go ahead and debunk a few personal finance myths.
Saving money on lattes
Looking at data on monthly Starbucks expenditure. It turns out that most people just don’t spend that much on coffee, so the savings to be had here aren’t all that great. null . This is US data based on analysis of January 2014. It turns out that cutting back on lattes is unlikely to impact your savings all that much, since most people appear to be casual users of Starbucks rather than caffeine junkies. The dollars being spent here by most simply aren’t that substantial. Of course this expenditure matters a great deal to Starbucks and you could make cheaper coffee at home, but doing so, wouldn’t help as much as some of the other ideas we’ll get to later.
The data is below and you can see the number of visits on the y (vertical) axis and the average expenditure per visit on the x (horizontal) axis. You can see that the vast majority of people are spending less than $50 a month and visiting less than 5 times. Some very high spenders or very frequent visitors are excluded from the chart to make it easier to read.
Cutting your cable bill
For cable, it’s possible to look at anonymous data on what people spend on Comcast. We’re just looking at Comcast as it’s one of the larger providers. Now, we don’t know the precise package and services being delivered to each Comcast customer, but it gives a good indication of savings potential. The chart below shows what proportion of Comcast customers are paying on a monthly basis. Note that some larger spending business customers are excluded. Most people appear to be paying $50-$150 a month for Comcast, so the opportunities for savings here are significant. All the more so when you consider that some of the variation may be due to negotiation and special deals rather than fundamental differences in services and channels. It’s not too hard to imagine many people being able to cut $50 from their cable bill without a significant deterioration in service, saving them up to $600 a year. It’s also a significant expenditure in absolute terms and so the strategy of cutting cable in favor of a combination of other services such as Netflix, Hulu and Amazon Instant Video may have merit as well.
Switching your wireless provider
In the world of cellphone plans, we can be confident there are savings to be had. Even within the big four T-Mobile in keeping with its current advertising, does appear to be cheaper based on what an average customer is paying, but beyond T-Mobile, the real savings come from switching to one of the smaller carriers where costs are on average $87 a month lower, over 2 years that’s more than $2,000. Predictably, this works out to be much greater than any subsidy for the latest and greatest phone. Of the three areas we’ve examined here, wireless offers the greatest savings potential by a significant margin over coffee and cable, especially if you live in an area where multiple providers offer good coverage and aren’t too obsessed with the latest data speeds. Ironically, it’s also an area where consumers appear to be the most reluctant to shop around.
Big data sheds new light on personal finance advice. Coffee isn’t the money pit many assumed it to be, but wireless and cable do seem to offer real savings that could really add up. Cutting $600 a year off your cable bill may be possible for many spending over $150/month and the savings on phone plans over a year could even hit 4 digits for those with some flexibility. So there’s the analysis, but you can only capture the potential savings if you take action.
The views expressed represent the opinion of the author and are not intended to reflect those of FutureAdvisor or serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities.