Making Money

Why spending $1.000 on a telephone is a terrible idea and could mean you’ll work until you’re 82

Unless you’ve been very far away, or you mostly just read books and sit in deserted parks, you already known that Apple has come out with a few new iPhones. They really aren’t extremely new as they look just like the old ones. Call me old fashioned, but new for me means different to the old. Like the Maserati Levante, which looks nothing like the Maseratis before it. Or like when Apple first came out with the iPod, that was pretty “new”. What I do see new, is that Apple is now selling the new iPhone X Max at prices starting from $1.029. Spending over $1.000 on a telephone is a terrible idea. If you’re considering it, chances are you’ll probably ending up working until you’re 82.

But wait, I’m sure you’ll say that the new iPhones are teeming with new functionalities?

But are they worth that much money?

 

Let’s look at the new functionalities:

  1. They have larger screens.
  2. They are more durable: “Surgical grade stainless steel” says the marketing.
  3. The cameras are better.
  4. More storage: up to 512GB.

 

And as far as I can tell, that’s it. Starting at $1.029.

 

It must be worth it, because Apple is such a great company?

I’d say it depends on your definition of great. Read some more below on what I think Apple is really after.

 

And the Larger Screens?

If you have chronic eye problems from too much screen time, this could be useful, but then again you probably have bigger problems and may want to put the money aside for future medical needs. Eye damage caused by blue light screens is apparently not repairable.

 

More durable is good as I always drop my phone!

But a cover is probably cheaper, replies the Chief Money Man.

 

I take lots of pictures and need a good camera!

Unless you are turning pro or it is your business, do you really need such a high-tech camera for the 1000s of photos you’ll take at that next concert, only to forget about them a day or two later?

 

I take so many photos (that I never look at or show to anyone) so I need the extra storage!

Do yourself a favor and check out Apple’s own iCloud service. You can get 1TB at very reasonable rates.

 

Okay, so I really just want to be cool and have a great next gadget that everyone will be wanting to look at!

And here we are!

This is the thing Apple is counting on.

In our connected world of Instagram and Pinterest, being cool is just a picture away and Apple wants to exploit that. That’s why they’re a 1 trillion dollar company. And why the vast majority of us are crippling under debt.

 

Let us remember a few things about a telephone/smartphone:

  1. They are meant to be used for staying in contact (telephone and messages)
  2. They help us remember the things we forget or find things we are looking for (internet, maps)
  3. Everything else on your telephone is pretty much useless and just wastes your time and excludes you from being in the real world.

 

How many times have you gone out recently and noticed that couple sitting on the table next to you or across from you at that restaurant.

They were both looking at their phones weren’t they?

Did you think how silly it was that they were together, but yet so far apart? I bet you probably do the same thing.

Remember when last, over this summer, you went to the park or the beach or sat by the pool? I bet you sat a good time glued to your phone?

 

Well it turns out everything is done for you to spend more time on your phone!

Apple wants you on your phone for as long as they can get you on it, as that way they can sell more apps and as you use your phone, it wears down and then you’ll buy another one. There is a good reason you can’t change the battery.

Everything that Facebook, Instagram, Twitter do, and those huge teams they employ, is to figure out how to keep you on your phone.

And guess what?

They are pretty good at it.

And we are, in general, pretty hooked on our phones.

 

So, the new $1.000 iPhone doesn’t have functionalities that can’t be found elsewhere, or which are indispensable to our lives. It pretty much, like any other phone, will attempt to suck us in and try to steal all our time. And it could irreparably damage your eyes.

 

Sounds like a good deal?

 

If you’re still shaking your head and thinking this is a load of rubbish, then let’s look at the financial consequences of your upcoming purchase.

 

$1.000 on a new phone. Let’s also assume you buy a new one every year and Apple increases its prices as the same rate as its historical annual average of 14% for the next 10 years and then the average price drops to 5%.

I use this drop in annual pricing as keeping a 14% annual price increase just seems impossible over the long-term (even though Apple has been doing it since 2007) and when I first did the calculation, the prices meant that either everyone needed to become super wealthy to buy a future iPhone or only a very small percentage of people would have them.

What about the old phones?

I’ll assume that you give them back to Apple every year and they give you a voucher equivalent to 20% of the value of your old phone.

Let’s also assume you keep buying a new phone for the next 40 years and that you’re going to work for the next 40 years before you retire. After you retire, you’ll be travelling the world and your iPhone won’t be useful.

 

Running the above through my trusty Chief Money Man future growth software shows the following:

 

On average, you’ll be spending about $6.000 on your device annually. Over the next 40 year’s you’ll have shelled out $200.000 on telephones, even after the 20% voucher Apple gave you every year.

What is even more eye-opening in this example, is that if you invested the money every year instead of buying your Apple device and you managed to get an 8% annual return, you would be sitting on a retirement nest egg of around $830.000!

 

That is a lot of money to walk away from just for a telephone!

 

So, why will you probably have to work to 82, if you’re the one who is buying these new iPhone’s every year?

 

If you’re so attracted to these new devices, and in contrary to all the reasons I evoke above, you still can’t stop yourself, it probably means that you also can’t limit yourself just to the iPhones.

 

If spending over $1.000 on a phone seems reasonable then so must a lot of your other spending habits.

I’d assume as well that you’ll be the type of personal who doesn’t believe credit card debt is a bad thing?

Possibly you also eat out or buy take out a lot and buy new clothes on a very regular basis?

You probably don’t have much savings and your net worth is negative because of your deb?

If this is the case, then you probably won’t have enough savings to retire at a reasonable age which means you’ll be working until you die.

Currently the highest life expectancy in developed nations around the world if 82 years old, which means with a bit of luck you’ll be working until you are 82.

And that’s why I think buying the new iPhone probably means you’ll be working until you are 82.

 

So, if you feel the temptation to go buy that $1.000 iPhone, think first whether you want to work up until 82 years old, or if you’d rather have close to a million dollars when you retire comfortably at 65 (or hopefully before)?

 

The CFO

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