The Finances of Buying a New Phone

It’s officially New Phone Season, with Apple announcing the iPhone 12 and Google putting out their flagship Pixel 5 (shortly after releasing the mid-tier Pixel 4a). Between the marketing campaigns from these two titan manufacturers and the collective desire for any and all distraction from the ceaseless dread that is American life in the year 2020, you might find yourself thinking it’s a good time to buy a new phone.

As your voice of financial responsibility, it is our solemn duty to inform you that it’s not. It really never is.

It used to be a matter of course: your cellphone contract included an upgrade every two years (or even every year, if you were willing to pay the premium). And there was a period of time where upgrading this frequently almost made sense, as phone technology developed rapidly. But that isn’t the case anymore. Cell phone hardware has hit its stride, and you’re not going to find the massive differences in performance between the newest phone on the market and one from a few years ago… with one major caveat: 5G compatibility.

5G is the newest generation of broadband technology, or what your phone uses to transmit data when you’re not on WiFi. It promises more coverage, better reliability, and faster speeds than today’s 4G standard—if your cell plan covers it. At this time, it’s such a new technology that only a few devices are 5G compatible and 5G coverage is by no means widely available. In other words, it’s definitely not anything you need to invest in at the moment.

And that’s sort of the crux of the whole cellphone thing—it’s hard to justify the latest and greatest phone as an absolute need. 

Okay, but what if I want a new phone? 

Well, that’s different. But it’s still hard to justify the expense of buying the newest phones. Google made headlines for their latest flagship offering’s “low” price point of $700 USD. This happens to also be the entry price for this year’s iPhone, with the maxed-out option costing twice as much. And that’s before you take considerations like cases, chargers, and other goodies into account.

Now ask yourself, what else could you spend that money on? The answer is a lot. And between the lack of COVID relief for the average consumer and the ongoing uncertainties of our economy, is buying a new phone really the best financial decision you can make right now?

If you answered yes to the above question, we’d genuinely like to know your reasoning.

Now, for the rest of you—we do have a solution. If your current phone is starting to show its age, buying a new one is a reasonable expense. We just recommend you buy a previous year’s model.

Compare the prices and the performance, and you’ll see why. Aside from 5G coverage, which is by no means a must-have technology at this point, there isn’t a whole lot of difference between this year’s phones and phones from the past few years. Camera technology is probably the biggest differentiator, and it’s easy to get caught up imagining all the great photos and videos you’ll take with your shiny new device.
But ask yourself how often you look at the camera roll on your current phone. It’s probably not a lot, and almost certainly not enough to justify the expense.

A sunk cost

Even if you have the money to spare, buying a new phone falls under the same sort of general financial decision making as purchasing a brand new car. You spend a lot of money, and as soon as you take it out for a spin it’s not worth nearly as much. Oh, and next year there’s going to be a brand new model everyone is drooling over.

That’s really the biggest issue with spending money on new tech like this. There’s never a good time to buy a new phone, because there’s always a newer phone just around the corner. And as soon as you pay top dollar for a phone, it’s money you’re practically guaranteed to never get back.However, if securing a new-to-you phone (or any other significant purchase) is something you’re thinking of doing, why not take time to consult with a professional accountant to see what sort of financial burden you’re looking at? Yes, even for a purchase of a few hundred dollars, it makes sense to discuss your plans with a pro. And we’re always ready to help!