Instagram, TikTok, and YouTube all have inspirational influencers with seemingly perfect lives who constantly show off their new purchases. It might be a Hermes bag, it might be a 2TB iPhone Duo, or it might be a F-350 turbo diesel. There are very strong incentives in our consumer oriented society to appear to be much more successful than we actually are. Credit cards with zero percent interest and Klarna make it easy to spend your next paycheck, today! The problem is that this spending beyond our means is a quick path to financial ruin and misery.
Three worst purchases
There are three things that are financially toxic, especially when you are young and starting out: new electronics, new cars, and high fashion.
Smartphones and computers: Lose 50% of their value after 1 year and lose 100% of their value after 5 years. From best financial decision to worst:
Buy a new smartphone under $300 and use a $20/mo 4GB pay as you go data plan (best)
Buy a flagship phone that is 1-2 years old and use a $20/mo 4GB pay as you go data plan
Buy a new top of the line phone and an unlimited data plan (worst)
New cars: Depreciate 11% when you drive them off the lot, drop 25% in value the first year and 37% after 5 years. From best financial decision to worst:
get an e-bike (best)
buy a one year old car with cash
buy a new car with cash
buy a new car with financing (worst)
Fashion: Loses 50% of its value the first time you put them on.
buy at second hand store (best)
buy basic clothes at big box store
buy stuff you see advertised on social media (worst)
Most dumb: iPhone Duo or Rolex watch?
Really interesting question and one that came up when I did this video on the accuracy of my Rolex Explorer II watch. Many people made comments about how this $8200 watch was ridiculously expensive and unaffordable for virtually all Americans.
So, which is worse, buying a new Rolex watch or a new top of the line iPhone? First of all, you don’t need either of these if you are in your 20s so they are both stupid purchases because you should be investing in a stock index fund every month, not buying crap you don’t need. Now that we got that out of the way, if you had to chose the iPhone Duo over a new Rolex, which is a dumber purchase? Well, lets look at the value of each 5 years later. The 2TB iPhone Duo will cost you $7159 over 3 years and be worth $0 in 5 years. If you don’t believe me, go to the apple website and you will see there is no trade in value for 5 year old phones. How about the Rolex watch? Lets use my Explorer II that I purchased for $8200 in 2021 as an example. The retail value of it now according to Chrono24 is about $10,000. Its actually gone up in value and has basically kept pace with inflation. I wouldn’t call the Rolex watch an “investment” but after 5 years it gives you $10,000 more in net worth than the iPhone Duo.
The funny thing is that probably the same people who said that the my $8200 Rolex was unaffordable who are lining up to buy the new iPhone Duo even though the phones are a much worse financial decision.
Back to financial basics
Lets bring this back to reality. Its fun to talk about spending money but try to remember that buying stuff you don’t need and can’t afford might bring you momentary joy but it can literally ruin your life. Consumer debt is legalized slavery. Only borrow money for things that go up in value faster than inflation. When making buying decisions you have to be brutally honest with yourself, is this a need or a want? Just because you need transportation does not mean you need a new 100k F-250 pickup. If you must buy electronics or a car, look at how they hold their value and make the least horrible decision. If you are in your 20s and 30s you don’t need an iPhone Duo, a new car, nor a Rolex. To minimize life stress, you should be doing dollar cost averaging investing into an S&P500 index fund ETF every month. Money in a savings account DOES buy happiness. Its a piece of mind should you lose your job or have a financial emergency. Its also a nest egg to quit a job you hate and start your own business or a nest egg to buy a house.