Let’s talk about buying an iPhoneFor $1,000 Tim Cook, Apple’s chief executive, once compared this eye-popping price tag to buying a cup of coffee a day over a year. No big deal, right?
ButFinancial advisers see it differently. ByAccording to some estimates, a $1,000 investment in a retirement account today could balloon to approximately $17,000 in 30 year.
In other words, $700 to $1,000 — the price range of modern smartphones — is a big purchase. FewerMore than half AmericanAccording to the The Adult Savings Plan, adults have enough savings to cover three months worth of emergency expenses. Pew Research Center. YetAccording to WalletHub, one in five people surveyed thought a new phone was worthwhile going into debt.
TechMany companies argue that smartphones are the most powerful tools we have for work and play and therefore well worth every penny. ButThey also play numbers games to reduce the cost of a new phone. SamsungFor example, a has stated the price for its new Galaxy phone is $200 — but that’s only if you trade in a year-old phone for credit toward the new one. TheThe true price is $800
So it’s worth looking at phone upgrades in a different light to weigh their financial impact. That can help us make well-considered decisions so that the move isn’t automatic.
TheIrony of Mr. Cook’s coffee analogy isn’t lost on Suze Orman, the financial adviser who once famously equated people’s coffee habits to “peeing $1 million down the drain.” The seemingly small amount of money that people mindlessly spend on java —And now phone upgrades — could be a path to poverty, she said.
“Do you need a new one every single year?” asked Ms. Orman, who hosts the “WomenAnd Money” podcast. “Absolutely not. It’s just a ridiculous waste of money.”
Apple and Samsung didn’t immediately respond to requests for comment.
So what’s the true cost of a phone upgrade? Let’s look at the math.
Flipsy, a company that buys and sells used phones, published an analysis this year arguing that it’s smart to buy a new iPhoneEvery year. HereIt was broken:
TheiPhone12 cost $799 last fiscal year. It’s now worth $460 if you trade it in to defray the cost of a new phone. TheLatest iPhones, the iPhone13 also cost $799 SoIf you have traded in your iPhone12. The iPhone13 would be $339 AtIf you purchased an i, this is the rate.PhoneFor four years, the total net amount would be $1,816. This includes the $799 initial payment.
IfYou waited three years before you could get the iPhone15. Your iPhone 12’s trade-in value would diminish to about $200. TradeIt in and the cost of iPhone13 would cost $599 AddYou would pay $1,398 net for the original $799.
InSummary: Compared to upgrading every three years, upgrading annually costs $418, or about $12 per month. Flipsy said.
FramedThis is why it might seem like a bargain to buy a new phone every few years instead of every year. ButThese numbers can be plugged into a financial calculator to tell a completely different story.
If you put $12 a month into a retirement account, like a Roth I.R.A. If the average annual rate is 10 percent, this amount would be equivalent to $25,161 over 30 year, according to I.R.A. Ms. Orman’s savings calculator.
Ms. OrmanThe trade-in dilemma can be compared to buying cars. Car manufacturers could argue that the diminishing trade-in value of your car should compel you to buy a new one regularly — but don’t fall for it.
“I love my car, and I don’t care that the value goes down,” she said. “Think of the 11 years I have saved money not having car payments, or trading it in and spending more money to get another car.”
SoWhat about those cups? OnAveragely, we pay $3 for a cup. So $1,000 could buy approximately 333 cups. ButNaturally, it is cheaper to make your own coffee.
I put some numbers into a calculator for coffee designed by Bone Fide WealthFinancial planning service -. A $16 bag of beans Peet’s Coffeeat CostcoYou could make approximately 41 cups of coffee for only 39 cents per cup SoA $1,000 iPhoneAbout 2,500 cups of coffee is worth it. Not as compelling.
Doug BoneparthThe president of Bone Fide Wealth, made a counterpoint. For people who have plenty of cash and are aware of the impacts of their spending, splurging on new phones could be inconsequential to their overall savings goals compared with bigger expenses like housing — and if phones make them happy, go for it. HeHe says he saves money each year to buy a new iPad.PhoneAs a hobby.
“Personal finance is quite personal,” Mr. Boneparth said.
But he acknowledged that even his hobby was beginning to have diminishing returns because new phones weren’t getting much better technologically every year. “The 13 is the first one where I’m like, ‘This one literally only has a better camera,’” he said of the latest iPhone.
Ms. Orman cautioned that for most people who didn’t have as much money in the bank, especially those in debt, the effects of a phone upgrade could snowball. A $1,000 phone charged to a credit card could turn into $3,000 with interest by the time it’s paid off, she said. MoreYour credit score could also be affected by debt, making it more difficult to rent or buy a home.
“IfIf you think that a phone is worth taking out debt for, then you are wrong. God, you’ve now just set yourself up for always being in debt,” she said. “The truth of the matter is there’s nothing other than a medical expense worth going into debt for.”
Source: NY Times