Phone Upgrade? Challenge Everything

Finance
Phone Upgrade

I thought I would share one of my recent experiences on upgrading a cell phone. I am not sure if this will be applicable everywhere but the concept is basically to challenge everything. In order to make it more relevant I have illustrated all figures in USD as per the current exchange rate. This was a very simple way to save some money while getting what we wanted.

The Story

It was supposed to be a normal outing in November 2017. My wife was eligible for a phone upgrade. How phone contracts in South Africa work is that the normal period of the contract is 2 years. After this period the phone is paid for in full and your contract has expired. You can then select a new phone with a new contract providing specific talk time and data. As the contract has expired it can continue as normal without the down payment on the phone. I would however still encourage people to review it at this time as I have picked up some discrepancies in the past.

We required a new phone though. I previously went for a sim only contract (only talk time and data without a new phone) on my last contract. The reason was that it is quite frugal and my phone was still fine at the time. Unfortunately, since then my phone had a bath with the kids as well as a drop resulting in a screen shatter (we call it the Spiderman app). It was basically unusable and required a new screen and battery.

So here we were going to our local branch of our service provider Vodacom (basically the African version of Vodaphone in the EU). I have scouted deals on the internet and it seemed fair to stay with them at the time. My wife wanted an iPhone 8 plus which have a greatly improved battery life and camera compared to her current phone. Cameras start mattering exponentially more once you have kids and want to capture every moment of their growth. Her old phone is luckily still in a great condition after one of my better investments of buying it an Otterbox upon receipt (she is hard on phones).

What happened in the shop?

I was doing some research of what the difference is of outright purchasing the phone upfront or just taking the contract including the phone down payment. As these phones are a commodity the prices were very consistent and it was still quite new on the market. Doing the math lead to about the same answer over the period with small differences, even if you take the time value of money into consideration.

But then we got to the store and a new option came to light. We could buy the phone directly from the service provider at a reduced price (not sure how they do this) while taking a contract. There is a slight increase in the monthly payment as it is not simply a sim-only contract according to them. Naturally I quickly did the math in the store and made the decision on the spot. The below table illustrates the different options.

In the end we saved over $200 over the 24-month period even if the future value of money increased by 10% per annum (compounded annually). There are many articles on how to get the best deal or even to go prepaid. I believe there would be even more in developed markets where the industry is even more mature.

And the lesson is?

I always do a certain amount of research before a big purchase. This is a good habit, but not something which should be applied to all purchases. For example: “I really feel like having a coffee now”…then get the damn coffee. As long as you do not feel like you “really” need some coffee every 2 hours. The research definitely put me on the front foot so here is what I can take-away from this:

  • If you are prepared and planned ahead you can make better decisions on the spot, so do some research.
  • Challenge everything. Don’t be the worst customer ever but try to take different perspective on the purchase and understand how they got to the price.
  • Ask, this is not something the lady in the shop actively sold. I asked for the different options and this was presented to me.
  • Do not make big purchases impulsively (this is probably an over preached subject already).

Any similar events that you have had?

Always grow your wealth for tomorrow while being content with your wealth today.

Scroll to top