Blog — Sisters for Financial Independence

“Stop buying things you don’t need, to impress people you don’t even like.”

I recently asked my Instagram followers this question: Why are people willing to pay $50 a month for life to get a new phone, but find it hard to save $20 a month? The question came about as I was doing some research on the latest iPhone. I’m not yet on the market, thankfully, my iPhone 6 is still going strong, but I thought it was a valid question. My research on the new iPhone led me to the Phone Upgrade Program. I had heard of this program before, but never fully looked into the details. I was surprised that so many articles provided numbers that were unfavorable for the program, but yet still so many people wanted in on it. Here are some of the responses that I received on Instagram and a bit of my perspective on that psychology and how to mitigate.

Background: iPhone Upgrade Program

The iPhone Upgrade Program is a program set up by Apple that allows you to upgrade to a new iPhone every year. This means you never pay full price for the iPhone all at once. The cost is spread out over a 24 month period which includes insurance, called Apple Care. The program is 0% interest and after 12 payments, you are eligible to upgrade to the new model and start the cycle again. The chart below breaks down the costs.

On a separate note, many cell phone providers have offered the same thing for years and I believe I also was on an installment plan with Verizon for my iPhone 6 many years ago. From what I remember, this installment plan meant that once you paid off your phone after 2 years, you would be eligible for an upgrade. The thing with this was that it was 2 years so there was a bit of a wait time to upgrade. If we look at the numbers above, we see that for the cheapest iPhone model, the XR, it is $37.41 a month. That amounts to $448.92 a year. This price includes Apple Care and the chance to upgrade to a new phone after one year. The alternative is to pay for the phone up front at $749 or do the installment plan of $31.20 without Apple Care.

Societal Pressure

Whether or not we admit to it, we do succumb to a little bit of societal or peer pressure. A friend getting the latest phone will want to brag about it because that new feeling is fresh. Exposure to ads and other forms of marketing will entice us to get the latest device because of all of the new, better features. There is shame sometimes in having an old device in your hand. If we are like the average person, we are bombarded with so many ads telling us what to do and what to buy and if we are not aware, it’s easy to get sucked into the promises of advertising. So the pressure to have the latest phone may be enough for people to stick with this upgrade program.

Status Quo Bias

Another reason people may be doing this program is because it’s what they are used to. It’s their status quo. A new upgraded phone is so normal that they don’t realize how much this really is costing in the long run. Of course, this is dangerous as this means a few folks out there are just living and spending blindly. The baseline remains the same so any deviation from it results in a feeling of loss.

Planned Obsolescence

Many people feel they need to constantly upgrade because their phones get slower over time. It was true that Apple and other companies admitted to modifying the settings of the phones to preserve battery life and that included slowing down a few processes in the background. Planned obsolescence is real and easy to do with technology. Companies will continue to design technology in a way that requires it to be changed and upgraded because the profit incentive is high. Apple’s worth continues to rise as long as people continue to buy new products. (Full disclosure: I own Apple stock so yes I am profiting off of people participating in the upgrade program. Even though I am an Apple stockholder, I have not bought a new phone in 3 years.)

The New Feeling or the Law of Diminishing Returns

The new feeling is great, but fades fast pretty quickly. The term in economics is called marginal utility. The Law of Diminishing Returns states that the more a good is consumed, the less marginal the benefit of the next unit. In plain speak, we get used to things so our baseline luxury changes and we seek out the next new thing. If you get a new phone, it’ll probably take you a day or two to get used to the new features, like those emoji avatars, but after that, they become old and silly and your brain wants new things to be entertained with.

Folly of Prediction

People also feel like they need the upgrade program because in the future, they will want a new phone, but the reality is that most of us can probably wait to upgrade. Years ago, upgrade plans with cell phone providers were every two years and we all survived. The Upgrade Program builds in AppleCare for another $7 a month. Instead of doing that, how about saving that money yourself because AppleCare still charges you service fees anyways. And also take care of your phone. It may only cost $30 a month, but if you quantify that in terms of time at work, it could be 1 or 2 or 3 hours of work each month.

Pride of Ownership

I also thought about the pride of ownership. I had recently read that many people are losing touch with the pride of ownership because no one is really buying anything. Instead of saving and buying a car, people are using Uber or Lyft. The same way goes for the iPhone. I thought people wanted the pride of owning this amazing electronic device, but the reality is that this is not owning anything, this is renting a phone for the rest of your life. The constant upgrade means you always return and exchange the product for something else. It’s never yours. You are basically just paying Apple to use their product for 12 months. Yeah, it’s interest free, but you get nothing in the end.

Societal Status

Status was a reason that was brought up. We know that people buy things to show off, look rich or look important. The more I thought about this though, the less this made sense. For many of us, the first thing we do when we get a new device is to protect it. This means getting a cover which hides the brand and the model. So I’m not sure if status would still be a driver for most folks. Yes, there will be some people out there that want the bragging rights, but it seems like such a short lived right.

The Opportunity Cost

So what’s the opportunity cost to paying for a new iPhone every 12 months for life? Well, the biggest thing is the opportunity to save that money instead. Yeah, the iPhone will be interest free, but you can at least save that money and get 1% or 2% by keeping it in a savings account or you can get bold and save that money to buy instead Apple stock which has significantly increased over the past year. Sometimes, we make decisions based on short-term thinking, but we need to understand that we need to plan and save today to ensure our future selves have a better tomorrow.

I’m updating this post with numbers for the recently announced iPhone 12 which goes in pre-order on November 2020. Admittedly, the iPhone 12 Pro looks sleek and has the latest tech, but it’s $1000. By now, we’re used to that price especially since many of us do the monthly installments to pay for our phone, but let’s go back to the opportunity cost analysis for this.

I wrote this post originally on October 23, 2018 and if I had invested an initial $50 + $50 monthly, which is around the cost of the phone per month, towards the purchase of Apple stock since then, I would have a pretty hefty return. Granted, a lot happened during these last two years, but this just another way to shift your thinking from buying depreciating assets.

Skip the iPhone Upgrade Plan, Invest That Money Instead

How to Combat All of These

As a proud owner of an iPhone 6, I’ve had my share of temptations, but there’s how I’ve solved them. To combat planned obsolescence and still enjoy the new feeling, I reset my phone at least once year. This means a complete wipe and reset to factory settings. I then go through the process of setup which makes it seem like I have a new phone. Resetting also allows me to get rid of junk apps and files that I know I didn’t need or use, but kept around just in case. Doing this at least once a year means I regain some performance back to my phone. Second, I also took advantage of Apple’s Battery Replacement for $29 because my phone was out of warranty and I know that battery replacement can be so hard with Apple products. They never make repairs easy. With this battery replacement, I also was able to get some performance back.

Third, I don’t feel bad about not having a good camera because I’ve learned the art of filters. No, seriously! I take a lot of photos for Instagram and using a common filter makes any image look better because you can readily adjust to your theme. Plus, what’s even the point of having nice photos if you aren’t going to post, look at them often or print them for future generations. It always boggles my mind how much storage we used in the cloud for photos that we don’t even access. If you use your photos to bring your side income, then perhaps there’s some justification to get the latest iPhone, but if not, might as well, stick with what you have now. Facebook lowers quality on upload anyways to save themselves space.

Lastly, my phone has a simple cover so it’s barely noticeable what brand or model it is. For me it just works and it’s paid for. I’ve also been trying to reduce my phone usage so I don’t feel the need to compulsively take it out and play with it which means I don’t feel the need to compare my phone with others.

So for me instead of paying between $30-$60 a month for life for a new phone, I would rather use that money to pay off debt or add to my investment pot. What about you? Did you join the Apple iPhone Upgrade Program? Will you upgrade your phone within 12 months?

Here’s a quick breakdown if you keep your phone for a year instead of upgrading for a new one. You would save that $37 a month. That amounts to $444 a year. That’s enough for a flight somewhere in the US. If you opt for the more expensive phone, that’s $68 a month you will save and that amounts to $816 and that gets you to Europe.

P.S. I did eventually upgrade to an iPhone 11 in March 2020. I saved up a bunch of Verizon Up credits towards the phone and we used a new credit card to reach a mileage reward so we stacked as many offers on it as we could.