The legendary investor Warren Buffett just gave up his $20 (Rs 1,500) flip phone for an iPhone 11. You might have perhaps shortlisted your favourite model to switch over. But wait; does it suit your pocket?
Often, people buy phones that they can’t afford. How does one figure out if a smart phone is apt for you?
Cash or nothing
First of all, if you can’t buy the phone outright it is not for you.
Often, bank or credit card companies offer options to pay for expensive smart phones in the form of EMIs. And some are actually zero-interest loans. However, the big question is whether you can afford it.
Buying it through a credit card or a loan postpones your expenditure, thereby stretching your finances. If your finances go awry, it can lead you to a debt trap. Don’t do that.
It’s not about the price!
Moreover, it’s not just about the cost, but the cost over the usage period that matters. For instance, if you are buying an Rs 60,000 smart phone and using it for three years, your effective cost works out to Rs 1,600 a month. A cheaper phone priced at Rs 40,000 - but having a shorter life span of two years - offers a similar value proposition (costing Rs 1,600 a month).
So, instead of focusing on the price point, look also at its durability, technology and dependability.
Mobile phones like car are depreciating assets and needs to be replaced after a period of time. Outdated technology and wear-and-tear would mean replacing the phone at least once in three years.
Moreover, it fetches a poor price in the secondary market – as nobody wants to buy an outdated phone. So, while you might stretch a bit to buy a house, doing it for buying a mobile is not a wise move.
Usually, experts recommend spending about 5-10 percent of annual income on personal items. Buying a Smartphone shouldn’t result in overshooting these sub-limits of your household budget.
Budget and save
Your budget shouldn’t be thrown off-gear just because you bought a smart phone. If you are earning Rs 1 lakh a month, blowing away a month’s salary in buying a phone is certainly worth it. Spending 12 percent of your salary on a depreciating asset is certainly not recommended.
Usually, experts recommend spending about 5-10 percent of annual income on personal items. Buying a Smartphone shouldn’t result in overshooting these sub-limits of your household budget. Moreover, ensure at all times your investments into various financial goals are not compromised.
Start a fund
Try and start a fund as soon as you have made a decision to buy a new phone. Of course, you can’t do that if your existing phone is already sleeping. A 9-month EMI plan for an Rs 60,000 smart phone works out to an outflow of about Rs 6,700 every month. Instead, start an Rs 2,500 SIP in a liquid fund. In a span of two years, it would accumulate more than Rs 60,000 needed to buy it.
In a way, you can start a fund as soon as you buy a new phone to sponsor its replacement. If you are really serious about owning it, you will take necessary steps to cut other unnecessary spends and save for it.
Buffet’s net worth is as much to own a significant stake in Apple, the company that makes the iPhone. Without getting pressurized to keep up with the Joneses, buy a Smartphone that fits your budget. Alternatively, start a fund if you are really keen to own your favourite model.