I don’t want to take any moral high ground here by telling whether it makes sense to buy the new iPhone vs invest the money instead.
But just thought that I would share some bits of a conversation that I had with a friend yesterday.
This friend of mine is a gadget freak. And as of now, he has decided that he ‘should’ buy the recently announced iPhone X whenever it becomes available in India.
Unfortunately, he doesn’t have the financial solidity or high income to make the cash purchase. So he is thinking of taking the EMI route.
As far as I know, this new model is expected to cost around Rs 80,000 to Rs 1 lac. To be honest, till just a few years back I would not have thought that mobile phones would cost that much. 😉 But that’s how inflation and more particularly, lifestyle inflation is.
Coming back… I did try to reason out with my friend about the purchase.
I already know that he invests just Rs 5000 per month in mutual fund SIPs. And that is not because of lack of intent to invest more but because more often than not, his expenses end up being more than his income… almost every month. 🙂 Had it not been for me, he wouldn’t have begun even that smallish SIP.
I may sound odd but at the face of it, this purchase of a mobile phone for Rs 1 lac doesn’t make sense to me. Atleast not in my friend’s case. He might have his reasons to purchase it (remember he is a gadget lover)… but still, I didn’t feel it right.
So I told him so and he blasted back telling that he knew I would say so as I was always looking to for opportunities to give some financial advice. 🙂
I understood that his defenses were too strong for me to break down and he will do what he wants.
Nevertheless, I still tried. I compared his expected EMI of Rs 9000-10,000 with a SIP of Rs 10,000 every month in mutual funds.
Now the EMI payment for the iPhone would only last for 12-15 months. But just to sort of arm-twist him into believing in the power of investing, I showed him what a SIP of Rs 10,000 (which he could do if he didn’t buy the phone) could deliver in 5, 10, 15 and 20 years.
I have already done such calculations in this detailed post on mutual fund SIP sometime back. So using that, here is what I told him:
- 5 year SIP of Rs 10000 monthly = Rs 8.5 lakh
- 10 year SIP of Rs 10000 monthly = Rs 23 lakh
- 15 year SIP of Rs 10000 monthly = Rs 50 lakh
- 20 year SIP of Rs 10000 monthly = Rs 96 lakh
Note – Assuming 12% average returns with annual compounding.
He did see the merit in this “what if I invest” logic.
But then his heart took over again and he brought in the we-live-just-once logic. 🙂 He asked me what will he do with all the money when he becomes old. He also questioned me that I should not be telling him anything about spending when I myself spend money on travelling.
At that moment, I knew I had lost the debate. 🙂 🙂
I am pretty sure that he will proceed with the purchase. And I don’t blame him here. It’s simply about priorities. I cannot be the judge about how people spend money. I can only tell what I think is a better approach. I cannot force anyone. I guess many aspects of personal finance cannot be explained to people when their desires and incentives are strong enough. 😉
I don’t know what else to say to him or here…
Ideally, aspirations (desires and wants) should match our abilities to bear the costs comfortably and sensibly.
But then, it’s easier to say so.
If your wife asks you for a diamond ring which you cannot afford easily, I am sure you will do everything in your ability to make that purchase possible (irrespective of whether it’s sensible or not). 🙂
But just because you cannot afford something doesn’t mean you shouldn’t aspire for it. That’s like giving up. Work towards increasing your income if that is what must be done. And then just use your money sensibly. Don’t become a saving machine. Spend too. But don’t throw away your money. If you save money now, money will save you…if not immediately, then eventually.