New device cycles, such as the latest iPhone and Apple Watch coming out, may prompt you to make a potential spending choice that you otherwise may not have thought about. Apple announced all the new features, how much faster it is and how the cameras have improved, and in this year’s case, the free Apple TV for a year you get with every device. This may get you thinking about what you perceive as inadequacies about your devices, aspiring to live better and do more with them. And then when you go to research prices, while the price tag may say $700 or $900 or $1,300 it is rarely just left at that – you can pay it off, 0% interest, over two or even three years now for $50 a month or less. That’s a whole lot of good being done for just $50 a month, right?
As you can see, the purchasing decision is layered pretty thick skewing it toward the “buy” category. Yet consumer behavior has been more tepid in recent years, more skeptical of the need vs. want to buy new devices. People have held onto their devices for three or four years instead of the two year cycles of the past. And obviously, 0% interest does not mean there is no borrowing cost – the asset is a depreciating one, akin to a car with respect to its rapid depreciation. So while it IS exciting to see new features and capabilities, our behavior has shifted more toward upgrading out of necessity. But with the new 5G phone supercycle likely coming in 2020, the question remains – should you upgrade?
The answer: It depends on the motivation.
If you’re using a phone that’s several years old, chances are you have experienced slowing performance and crashing issues, if not with the operating system with the battery life or other hardware components. You could wait a year and jump on the front end of the 5G curve, which a number of consumers are expected to do. At the same time, this strategy requires you to suffer with the issues for yet another year. A year is a long time – with users spending on average nearly 4 hours of time on their phone each day, that’s 1,460 hours or 87,600 minutes of continued frustration, and there’s no confirmation that 5G will absolutely hit the market in 2020. Your mileage may vary on this approach.
Another way to look at it is this: Phone prices save the highest end model are going down in this year’s cycle. You may pick a two-year 0% interest approach and upgrade the phone now, which can confer a couple of advantages. First, you’re speeding up your life and increasing enjoyment of something you spend one-sixth of your life in front of. Second, you’re getting it at a reduced cost with an entertainment bonus that you may really enjoy. And third, most phone carriers have rollover program packages such that if you truly want to upgrade in the first year, you can make that choice, or you can wait out the new-adopter pains and buy into 5G after the inevitable bugs are worked out a year after. This seems like a prudent approach as well.
This all said, you do have to be careful that IF you choose to upgrade, that the upgrade is right-sized with how you intend to use your phone. It is very easy with YouTube videos to be convinced that you will become an award-winning photographer by purchasing the Pro phone model. This ignores one key fact – you have to actually use the phone that way to receive the benefit, meaning that if you want to take breathtaking landscaping shots, you need to travel to where you’ll be taking that quality of photo. If you don’t travel like that, I hate to crush your dreams, but it’s likely not going to happen.
When you look at the difference broken down monthly – $30 a month can feel a lot like $60 a month, but over two years that’s a $720 difference in cost. That’s money that could have been invested, potentially growing in value for you. If you buy your phone at age 35 on a 3-year plan, assuming an annual rate of return of 9% that investment would have grown to $8,790 over a 30-year period of time. Right now, can your future self afford to lose $8,790? It’s tough to say no to yourself here and now, especially conceding that our future is always uncertain. But the question isn’t whether you get a phone or not – this is whether you get the most expensive, highest end phone, whether that “need” exceeds the needs our future selves will have.
Unless you are well on your way to saving for retirement, you know what the right answer is here. Do what’s in your best interests, always.