Upgrading to iPhone 5 Despite AT&T, 2-Year Contract
The carrier subsidizes the phone -- $450 a pop for iPhone -- making its money back, and more, throughout the life of the two-year commitment. Wahlman argues that we're all suckers for signing the seemingly sweet deal. Basic math proves his point. You would be better off taking a hit on the phone today and coming out ahead over the life of the deal with a less expensive monthly plan.
In theory, I agree with Wahlman.
I don't drive, but, when my wife bought her last car, she actually bought it. We reassessed the practice of leasing and determined it made no sense. Leasing works for people who want to pay less money up front, face a lower monthly payment and get a new vehicle every two to three years with perceived relative ease.
We live in a world where two themes prevail: Lots of folks are pressed for cash and, as liberal use of credit cards shows, we frequently choose the buy-now, pay-later option. Until you hit a financial brick wall, paying later can feel like not paying at all.
That dynamic must trigger some sort of chemical in the debtor's head. By not putting cash (or more cash) up front for a purchase, I have it here to instantly gratify myself.
For example, that $450 I "save" by signing a two-year contract for an iPhone makes me feel "rich" today. Paying that $450 back over time for something I will likely not even use doesn't hurt nearly as much as depriving myself of something else I feel I "need," such as a weekend vacation or a big night out.
It comes down to budgeting and money management. Sometimes it's a responsible process with sensible tradeoffs; at other times, not so much.
I'm not sure why I do two-year contracts.
It could be that I like to torture myself. Because, really, that's what a 2-year contract with a wireless carrier often turns into. An excruciatingly painful process that either ends in an "upgrade" or something resembling bitter divorce proceedings.