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

But financial advisors see it differently. By some estimates, investing $ 1,000 in a retirement account would climb to about $ 17,000 in 30 years.

In other words, $ 700 to $ 1,000 – the price range of modern smartphones – is a big purchase. Less than the half of American adults have enough savings to cover emergency expenses for three months, according to the Pew Research Center. But one in five respondents to the finance website WalletHub thought a new phone was worth getting into debt.

Tech companies argue, in fairness, that our smartphones are our most powerful tools for work and play and are therefore worth every penny. But they also play numbers games to downplay the cost of a new phone. Samsung, for example, has stated that its new Galaxy phone is priced at $ 200 – but that’s only if you swap a year-old phone for credit for the new one. The real price is $ 800.

So it’s worth looking at phone upgrades in a different light to weigh their financial implications. This can help us make informed decisions so that the move doesn’t happen automatically.

The irony of Mr. Cook’s coffee analogy is not lost with Suze Orman, the financial advisor who once famously linked people’s coffee habits with “$ 1 million peed down the drain“The seemingly small amount of money people mindlessly spending on Java – and now phone upgrades – could be a road to poverty, she said.

“Do you need a new one every year?” Asked Ms. Orman, the hostess of the “Women and Money” Podcast. “Absolutely not. It’s just a ridiculous waste of money.”

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

What is the Real Cost of a Phone Upgrade? Let’s look at the math.

Flipsy, a company that buys and sells used phones, released an analysis this year arguing this it’s smart to buy a new iPhone every year. Here was his breakdown:

  • The iPhone 12 was $ 799 last year. It’s now worth $ 460 if you trade it in to cover the cost of a new phone. The latest iPhone, the iPhone 13, is also $ 799. So if you trade in your iPhone 12, the iPhone 13 would cost $ 339. At that price, if you bought an iPhone every year for four years, including the original $ 799, the net total would be $ 1,816.

  • If you waited three years for the iPhone 15, the trade-in value of your iPhone 12 would drop to around $ 200. Trade it in and the cost of the iPhone 13 would be $ 599. Add the original $ 799 and your net cost over four years would be $ 1,398.

To sum up, upgrading annually for three years costs $ 418 more, or about $ 12 per month, compared to upgrading every three years, Flipsy said.

With that in mind, it might sound like a bargain to get a new phone every year instead of every few years. But plugging those numbers into a financial calculator tells a different story.

If you put $ 12 a month into a retirement account, like a Roth IRA with an average annual return of 10 percent, that amount would convert to $ 25,161 over 30 years Orman’s savings calculator.

Orman compared the trade-in dilemma to buying a car. Automakers might argue that the falling resale value of your car should force you to buy a new one on a regular basis – but don’t fall for it.

“I love my car and I don’t care if it goes down,” she said. “Think of the 11 years I saved money without having car payments or trading it in and spending more money to get another car.”

And what about those cups of coffee? On average, we pay $ 3 per cup, so for $ 1,000 it can buy about 333 cups. But of course it’s much cheaper to make your own coffee.

I put a couple of numbers in a Coffee calculator Designed by Bone Fide Wealth, a financial planning service. A $ 16 bag of Peet’s Coffee beans at Costco could make about 41 cups of coffee for 39 cents each. So a $ 1,000 iPhone is worth roughly 2,500 cups of coffee. Not so compelling.

Doug Boneparth, the president of Bone Fide Wealth, made a counterpoint. For people who have a lot of money and are aware of the implications of their spending, buying new phones compared to bigger expenses like housing might not have any impact on their overall savings goals – and if phones make them happy, grab them. He said he puts money aside every year to buy a new iPhone as a kind of hobby.

“Personal finances are very personal,” said Boneparth.

But he admitted that even his hobby had diminishing returns because new phones weren’t getting much better technologically every year. “13 is the first I say, ‘This one literally just has a better camera,'” he said of the latest iPhone.

Ms. Orman warned that the effects of a phone upgrade could be snowball-like for most people who don’t have that much cash in the bank, especially those in debt. A $ 1,000 phone charged to a credit card could turn into $ 3,000 with interest by the time it was paid out, she said. More debt can also affect your creditworthiness, making it harder to buy or rent a home.

“If you think a phone is worth going into debt, then, oh my god, you’ve just adjusted to being in debt all the time,” she said. “The truth is, there is nothing but medical expenses that are worth going into debt for.”

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