£3000 for a new iPhone – no thanks


It is September again which means that Apple will be releasing its latest and greatest iPhone, their best selling product. Many will splash out a lot of cash on this gadget without assessing how this may impact their finances in future. After doing some assessment of my own I was astonished at how big the impact is due to the huge costs involved.

I have to admit that as an iPhone 6 user I have been tempted to jump on the bandwagon and upgrade to the new version of the product after watching the slick Apple 2018 keynote product launch presentation which was streamed from the Steve Jobs Theater in Cupertino.

The average selling price for iPhones is now higher than ever before following the release of the Xs, Xs Max and Xr versions with starting prices at $999, $1,099 and $749 respectively in the US. The annoying thing is that the same number (£999, £1,099 and £749 ) is used for the price in the UK despite the pound being stronger than the dollar. These prices are obviously crazy if you consider what other phones with similar specs are currently on the market.

Buying on contract

Costs are even crazier once you realise how much people end up paying by getting these devices on contracts as most cannot afford to pay cash upfront. My strategy is to buy a phone SIM free for cash and buy a separate monthly contract which is suitable for my needs. Currently I have a contract for just £10 a month and purchased an iPhone 6 for £260. The phone was refurbished but you couldn’t tell it apart from a brand new one.

To see how much a new iPhone would cost I logged on to my mobile service provider’s website. In-order to have the new iPhone Xs Max on a typical contract you would need to pay £100 cash and then £103 a month for 24 months. Over the 2 year period total costs would come up to £2,572.

As it is such an expensive purchase, the service provider suggest that you insure the device, at £14 monthly. This would result in a total cost of £2,908! This is shocking as I would have paid only £240 on my current plan over the same period by not doing anything. I might be missing something but the iPhone 6 seems to be pretty fast, runs the latest quicker IOS 12 software, has a good “retina” screen, decent battery life and perfect camera.

Investment impact

Being a personal finance geek, I decided to plug the numbers for the contract for upgrading into an investment calculator to find out how much someone could have from investing all the payments in the stock market (or better yet in Apple stocks) at a typical 10%  annual return rate.

Phone contract payments invested over 2 years

Phone contract payments invested over 2 years

The figures keep on rising and the final total cost for the insured gadget comes in at £3,364.24. This is definitely not worth it. I don’t  even want to go into the impact over a 10 year period.

Moore’s Law

While studying electronic engineering I got acquainted with Moore’s Law. Moore’s Law is an observation that the number of transistors in a microchip doubles every year while the costs are halved.

This is why computers have gotten smaller, better and cheaper with time. For this reason, the £3,000 iPhone we are considering here would have greatly devalued and seem outdated compared to new devices by the end of the contract. Some may consider taking a further hit then by buying the latest device.

I would prefer to maintain my current device for as long as practicable and invest in real assets for now. After investment, some of the proceeds may be used to get a good device at a good price in when the need arises.




8 thoughts on “£3000 for a new iPhone – no thanks

  1. weenie

    I’ve never joined the iPhone bandwagon so am never tempted! Apple must have to hold back technology so that they have something ‘new’ each time, they couldn’t release too much good stuff all at once as they need to keep the gravy train moving along! But good for them, with a product which people feel that they ‘need’ to buy.

    Reply
    1. Simba Post author

      Weenie,

      I resisted getting an iPhone for years but decided to get the iPhone 6 a couple of years back. It was very cheap because it was not the latest and was refurbished but it felt like new. I was impressed with it; it works perfectly but Apple always make it seem like the new stuff is way better. They definitely hold the new technology back so I’ll stick to my current device for as long as possible and see what the best value once is when the time comes. Better than being locked into a long exorbitant contract.

      Cheers

      Reply
  2. Giselle M

    The pricing is ridiculous. But the upshot is that the older versions will get cheaper. LIke you have mentioned in the comment above, I always use the older versions because Apple tech is undeniably good and subtle and user-intuitive. But it does not mean spending 3000 pounds just because I will feel FOMO. Nah!

    Reply
    1. Simba Post author

      Giselle,

      I agree, it is always better to go for the older versions of Apple tech as it will still be good enough and a lot more value. No point in shelling out a lot for the latest stuff; this will seem outdated soon as they release something new.

      Cheers

      Reply
  3. Frenchie

    I made a funny calculation once.

    If in September 2016 you bought 10 Apple shares at 90 euros + a 200€ phone instead of buying a 256Go iphone 7 plus for 1129€, you would have 1888 euros in apple shares today + 45€ in dividends aka 1923€ !

    Basically your 200€ phone would have been “free” and you would have earned 700 euros more 😀

    Reply
    1. Simba Post author

      Frenchie,

      These calculations are interesting and the impact is very real. This kind of thinking will make you an “owner” of investment assets rather than a consumer of liabilities. Thanks for the perspective.

      Reply
  4. Get Rich Brothers

    Hey CYF,

    This is the sort of thinking that more people need to be doing before shelling out their cash for new devices. The real costs of these things are not truly understood. The opportunity cost of where else the dollars could be spent gets missed as people become starstruck with a few nice features that come with each new release (I would argue the marginal gains are becoming even less noticeable rather than increasing).
    Thanks for writing this.

    Take care,
    Ryan

    Reply
    1. Simba Post author

      Hey Ryan,

      That’s right, for every purchase there is an impact because of the opportunity cost. It is always hard to resist upgrading to the latest devices but most of the time the core functions of our existing devices still provide the same value as the new gadgets. Technological advances seem less and less noticeable these days.

      Cheers

      Reply

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