The real cost of changing your phone

Buying a $ 1,000 iPhone can be the equivalent of giving up $ 17,000 in retirement savings or 2,500 cups of coffee.  (Glenn Harvey / The New York Times)

© Distributed by The New York Times Licensing Group
Buying a $ 1,000 iPhone can be the equivalent of giving up $ 17,000 in retirement savings or 2,500 cups of coffee. (Glenn Harvey / The New York Times)

(Circuits) ; (Tech Fix)

Let’s talk about buying an iPhone for $ 1,000. Tim Cook, Apple’s CEO, once compared this staggering price to buying a cup of coffee a day for a year. It’s not a big deal, is it?

But financial advisers see it differently. By some estimates, a $ 1,000 investment in a retirement account today would skyrocket to around $ 17,000 in 30 years.

In other words, between $ 700 and $ 1,000, the price range of modern smartphones, is a considerable expense. Less than half of American adults have enough savings set aside to cover three months of emergency expenses, according to the Pew Research Center. Yet one in five people surveyed by the financial website WalletHub thought a new phone was worth going into debt.

Tech companies rightly argue that smartphones are the most powerful tools for work and play and are therefore worth every penny. But they also play tricks with the numbers to minimize the cost of a new phone. For example, Samsung has said that the price of its new Galaxy phone is $ 200, but that’s only if you trade in a year-old phone for credit for a new one. The actual price is $ 800.

Therefore, it is worth considering phone changes from another perspective to gauge their financial impact. This can help us make well-thought-out decisions and not act automatically.

The irony of Cook’s coffee analogy is not lost on Suze Orman, the financial advisor who once compared people’s coffee habits to “throwing a million dollars down the drain.” He claims that the seemingly small amount of money that people mindlessly spend on certain types of coffee and now on changing phones could be a path to poverty.

“Do you need a new phone every year?” Asked Orman, host of the “Women and money” podcast. “Of course not. It’s just a ridiculous waste of money. “

Apple and Samsung did not immediately respond to requests for comment.

So what is the true cost of changing your phone? Let’s use math.

This year, Flipsy, a company that buys and sells used phones, published an analysis arguing that it is smart to buy a new iPhone every year. This was the breakdown the company made:

– Last year, the iPhone 12 cost $ 799. Now its value is $ 460 if you trade it to cover the cost of a new phone. Newer iPhones, like the iPhone 13, also cost $ 799. So if you swap out your iPhone 12, the iPhone 13 would cost $ 339. At this rate, if you bought an iPhone every year for four years, including the original $ 799, the net total would be $ 1,816.

– If you wait three years for the iPhone 15, the trade-in value of your iPhone 12 would decrease by more or less 200 dollars. If you change it, the cost of the iPhone 13 would be $ 599. Add in the original price of $ 799 and the net cost over four years would be $ 1,398.

In short, changing phones annually for three consecutive years costs $ 418 more, or about $ 12 a month, compared to changing devices every three years, according to Flipsy.

Viewed this way, it can seem like a bargain to get a new phone every year rather than every few years. But the story is different if we input these numbers into a financial calculator.

If you put $ 12 a month into a retirement account, such as a Roth IRA, that has an average annual rate of return of 10 percent, that amount would become $ 25,161 over 30 years, according to Orman’s savings calculator.

Orman compared the trade-off dilemma to buying cars. Automakers may argue that your car’s declining trade-in value should force you to buy a new one regularly, but don’t be fooled.

“I love my car and I don’t care if the value goes down,” he said. “Think of the eleven years that I have saved money without having to pay for the car or change it and spend more money to buy another car.”

So what about those coffee cups? On average, we pay $ 3 for a cup, so $ 1,000 could buy about 333 cups. But it is obvious that making your own coffee is much cheaper.

I entered some numbers into a coffee calculator designed by Bone Fide Wealth, a financial planning service. At Costco, a bag of coffee beans from Peet’s Coffee costs $ 16, and you could make about 41 cups of coffee at a cost of 39 cents each. So a $ 1,000 iPhone is worth around 2,500 cups of coffee. This is how things change.

Doug Boneparth, president of Bone Fide Wealth, offered a counterargument. For people who have a lot of cash and are aware of the effects of their expenses, splurging on new phones may be inconsequential to their overall savings goals compared to larger expenses like housing and, if phones make them happy, ahead. He said he sets aside cash every year to buy a new iPhone as a kind of hobby.

“Personal finances are pretty personal,” Boneparth said.

But he acknowledged that his hobby is starting to have diminishing returns because the new phones they launch each year aren’t getting much better on the tech side. On the latest Apple model, he mentioned: “With the iPhone 13 is the first time I think: ‘It really only has a better camera.’

Orman cautioned that for most people who don’t have as much money in the bank, particularly those who are in debt, the effects of a phone change could increase. A $ 1,000 phone charged to a credit card could turn into a $ 3,000 with interest the moment it’s paid for, he said. More debt could also affect your credit score, making it difficult for you to buy or rent a home.

“If you think it’s worth getting into debt for a phone, then, my God, you’ve set yourself a trap to always be in debt,” he said. “The truth is that, except for a medical expense, there is nothing worth going into debt.”

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