The cellphone cost cycle
Every second year, like clockwork, we renew our phone contracts. We go in with a preconceived idea of which phone we want and just renew the contract. Never do we compare phones, we simply buy the latest phone from the brand we love. Two minutes later, we have our brand-new cell phone. We rush home to charge it, so we can transfer all our contacts and install all the applications we need. How else are we going to let everyone on Facebook know we have a new phone?
Then for the next two years, we pay the monthly cost. By the end of year two, the phone is terribly outdated, and we can’t wait to upgrade. Two new versions of the phone have been released since our last upgrade. So, without looking at any of the other phones that are available, we take the latest iPhone and the two-year cycle repeats itself.
Cell phone cost: Option 1
Relative to your salary, the cost of the contract is minimal. When you extrapolate the cost of the two-year contract though, it paints another picture. Option 1: You buy a brand new Iphone Xs 64Gb on contract with Vodacom. For comparison, I will compare phones on a contract with 50 minutes and 2Gb of data per month.
The total cost of the phone is R28 800 and growing, every two years.
Cell phone cost: Option 2
You decide that to bypass the system, you are going to buy the phone cash instead. Then take out a sim-only contract for the minutes and data. This is option 2.
This ends up costing you even more at R29 972. Buying the phone on contract works out cheaper than buying cash. Buying on contract also allows you to invest the difference you would have spent on the initial purchase. For simplicity, I’m not going to incorporate investment into the equation.
Cell phone cost: Option 3
The third option is buying the latest Android phone. For option 3, I opted for the purchase of a Samsung S9 on the same contract.
The total cost for the top of the range Android phone in comparison is R21 576 for the two-year contract. That is more than R7 000 less than the Iphone, for arguably a phone that is just as good. It is still a lot of money to pay for a phone though.
Cell phone cost: Option 4
For comparison I looked at buying a cheaper, but still decent Samsung. The Samsung J7 Pro, which is option 4.
This option is more than R17 000 cheaper than going with the Iphone. This is a significant amount of money that can be saved. I don’t know what social circles you move in, but most of my friends would not even notice that I roll with a cheapy.
Cell phone cost: Option 5
I ended up going with an even cheaper option 5 for my wife’s new phone, a Xiaomi Redmi S2. The current contract that my wife is on costs R382 per month. Since the two-year payback for the previous LG G4 is done, the contract reduces to R232 for 2Gb and 100 minutes. After a bit of research, I found that the ratings for the Xiaomi are extremely good. At R2 400 it is a steal and performance-wise it is also not a slouch. This was our option 5.
The total cost for this option is about R8 000, which is a massive saving of almost R21 000, every two years. If this does not sound massive to you, let me break down the figures for you. If you purchased the Iphone variant over the Xiaomi variant consistently for 40 years, instead of saving that into shares at 12% annual growth, you’d lose R13.6 million rand in retirement savings. This is about R1.3 million in today’s money. This means working an additional 3 years and 8 months before being financially free or retired. Odds are, both you and your wife have phones, so you can multiply that by two!
I know what you are going to say, Apple Iphones are much more intuitive and will last much longer than other phones. Why would I want to buy a Xiaomi made in China? If you replaced your Iphone only when it broke down irreparably, I would agree with you. However, most people replace their phones the moment the two-year contract has run out. If you must buy the latest Iphone, I suggest keeping it for 3 years instead of two and giving yourself a payment break between purchases.
Iphones are made in China too, so that is not something you can hold against Xiaomi. Well assembled at least. The parts are made in Korea and Taiwan before final assembly in China. Lastly, you’d probably have to replace the Xiaomi seven times during the two-year period for the Iphone to become an option. Most people are reporting them lasting around 2 to 3 years, so I’m not too worried about that happening.
The point is, having the latest technology at your fingertips is expensive. If all you do is call, message and Facebook, basically any phone will do. So next time you renew your contract, make sure you know exactly what you are signing up for. Is that R1 000 per month phone worth it, or are you gaming on your Play Station anyway.
This is an excerpt from the Tigers on a Golden Leash blog. Reposted with permission.