You may have heard some rumors about me recently. The people say I have purchased the newest product from Apple. The iPhone X with 256 GB which costs 1,349.00€ ($1,562.75 *) in Germany.
Well, I guess, I have to make a confession. It’s true!
You may say ‘this Sir BUDGET is insane! How can he write about personal finance and spend more money on a smartphone than others spend on an entire car???’.
But please, before you start eating me alive, let me explain why I did this and why I back this decision to 100%.
*I know it’s less expensive in the USA. However, I wanted to show you how much you have to pay for it in Germany.
Note: I know there are more expensive iPhones but I’m talking about the ones for the mass market and not custom-made products.
iPhone X? 1,349€? Aren’t luxuries a bad thing?
Luxuries are a bad thing and personal finance bloggers should be doomed if they own any.
Well, at least this is the common persuasion of many PF enthusiasts.
I can’t disagree on that point more. I think it’s an idealistic thinking. There are not just apples and oranges. It’s not like you can only be a spender and make totally dumb financial decisions or a saver who just have no luxuries at all and know how to use his money reasonable. You can be pretty good with finances and still are no penny-pincher. You can also avoid all luxuries and are a financial mess.
So what do I think about it?
First of all, you should make a budget and stick to it 24/7! There are nearly no excuses for breaking the system unless you have to make a once-in-a-lifetime-decision which is emotionally very important. I am not talking about buying this decent car to impress your surroundings. I mean things, like creating your business (which could be planned ahead, too) or making a trip to Europe with your family member who is about to die in the next 6 months and you both dreamed of this since you were kids.
However, your budget should not make you a prisoner. Leave some money to play with but first take aside the money for short-, mid- and long-term goals. The iPhone X was my short-term goal and I didn’t have to take a loan or use 0 percent financing.
Long story short, it’s not about saving all the time. It’s all about conscious spending!
Related: Budgeting: Build a financial system
How I prepared myself (financially) for the iPhone X
I said it before and I will do it again. I am an iOS developer. So I knew that I need a new iPhone every 2-3 years to keep up with the most recent technology and covering most screen sizes while testing my app layouts.
Step 0: Initially, you need to create a budget. Though I see this not directly related and this step hasn’t to be repeated. You create it once and stick to it. You can make some refinements on a quarter or annual basis.
Step 1: My very first step is asking myself one question. What do I want? In this case, I wanted to buy the new iPhone X as I knew Apple hasn’t changed the design for 3 years and it’s the 10th version so it will be something big.
Step 2: This is again a question. When do I want to have it? Well, I want it when it’s brand new as I want to benefit from it as soon as possible.
Step 3: Now we can start doing something. We want to calculate the monthly contributions. Let’s do this.
I’ve created this calculation 1.5 years (18 months) ago and I was assuming the iPhone costs roughly 1,000€.
Now, it’s pretty easy. 1,000€ / 18 months = 55.56€/month.
That’s why I’ve put aside 55€/month for my new iPhone. It was a little bit more expensive but that was fine as I was able to get a small freelancing project for an extra 300€.
Step 4: Plan for the next iPhone. I’ve already created a new plan for the iPhone 12 or 13. Which will increase my contributions to 62.50€/month (assumed 1,500€ and 24 months).
This process works equally for mid-term goals like a wedding or a new car. You can also save for multiple things at the same time. The only thing to consider is that you shouldn’t neglect your long-term savings in form of investments. You may have to cut some wishes or postpone them to a later point.
Anyway, with this approach, you can have luxuries and still doing financial well.
Why stop buying luxuries can even have a bad impact on your budget
So I told you, how you can buy luxuries and still maintain your financial system. But here comes a little shocker. It can even be bad to stop buying luxuries.
Don’t get me wrong. This isn’t true for all people and it’s no explanation for spending all of your money and breaking the rules of your budget. Though, I recently asked for budgeting tips on Twitter and received a great answer.
Budget consistently. Then stay within your budget!
— Chris W Werner (@ChrisWWerner1) November 7, 2017
He got it. The most important thing is to stick to your budget. If, for any reason, you need some luxuries from time to time (which actually doesn’t make you a bad person at all), you will screw up your budget pretty fast if you don’t reward you here and there. This doesn’t mean you should reward you every single month. But it’s great to have a goal worth working towards.
If you calculate the overall expenses and save the money upfront you will not only avoid financial traps like loans or zero percent financing. You will also have no reason for feeling guilty after making a big purchase.
Last but not least, as it takes some time to save for your short- and mid-term goals you don’t buy them emotionally as you have a lot of time thinking about it.
What is your next luxury that you are saving for? Tell me by leaving a comment below or answer on Twitter.