Anyone here good with numbers?

[andrewducker]

I'm currently looking at the difference in price between going to a Samsung Galaxy Nexus by getting a contract (£35-ish/month) or by buying up front (£480+10/month). This works out to about £120-£140 cheaper by buying the phone myself, depending on exactly how I do it.

My question, then, is about discounting future costs. If I spend £480 now rather than in chunks then I lose the utility of that money over the next two years. How does one account for that?

I assume there's a simple equation I could plug in that would tell me to stop being so stupid and just buy the fucking phone, but I'd like to be sure...

Comments

[rhythmaning.livejournal.com]

I should know this... I spent years doing discounted cashflows (DCF)!

The thing to decide is your discount rate - the value you put on having the cash (all known as the "time value" of cash or - surprise surprise - the interest rate): one would usually use 5% or 10% for simplicity, but when you can only get c 2% interest in the bank that might make more sense.

But it looks like you've already done more or less that calculation - £120-140, you say.

DCF makes more sense over several years - monthly payments complicate it a bit...

[andrewducker]

Well, money I spend in a year will probably be worth 5% less than money I spend now. So in two years it would be worth 1.05^2 less, which actually isn't that much - £50 on the £500, and nowhere near the £120-£140 actual difference.

Not that I have £500 right now, but it sounds like any end-of-year-bonus I get ought to be spent buying the phone.

[octopoid-horror.livejournal.com]

If you have signed a contract to pay £35 a month, the money that you specifically are spending on your contract will not be worth any less, because in the last month of the contract, you'll be spending £35 on exactly the same as you were in the first month, regardless of inflation.

[andrewducker]

That doesn't make any sense to me. £35 in a year and a half will be worth less than £35 now purely due to inflation (unless inflation drops to zero, of course).

[octopoid-horror.livejournal.com]

In month 1 of your contract, £35 gets you a phone handset and a package including however many minutes, texts and whatever amount of data. In month 18, regardless of how much it now costs to buy a loaf of bread, £35 gets you the exact same thing. The month after your contract is up, it's a different matter of course when you have to get a new contract.

That £35 would buy you less of -other- things in eighteen months time compared to what it would buy now, but if you sign a contract for £35 then there will be zero inflation for that product (the product being your phone contract) over the following eighteen months. The contract on my phone costs me the same money each month, and I get the same thing every month, regardless of what inflation is running at in the UK.

I would also argue that if you are considering spending £480 on a phone, I would hope that the effect of inflation or indeed savings interest on £35 a month over eighteen months would not be material to you.

[octopoid-horror.livejournal.com]

Aside from that, is this a very new phone? If it's -not- a very new phone, I would definitely not suggest spending £35 a month for eighteen months, because when it's superseded, it'll be available on cheaper contracts and you'll feel slightly silly in six months when other people signing £35 a month contracts are getting the Galaxy Supernexus which does all that and a bag of chips.

[andrewducker]

It's the newest pure Google Phone. It will be superseded in approximately 12 months, and again 12 months after that.

It's most definitely the phone I want (I did a post, and nobody could recommend an alternative that fulfilled all of my requirements).

Buying it outright does give more possibilities for selling it on and getting another one though in a year if I'm staggeringly rich at that point, which is even better.

[autopope.livejournal.com]

It also gives you the flexibility of not being locked in with a carrier whose quality of service may take a dive in the next year (this is unknown but possible).

That's why I am now buying unlocked iphones at full retail price direct from Apple. Combined with a SIM-only monthly contract it works out about the same price as a two year contract, but if my carrier goes pear-shaped I can walk at a month's notice. (Oh, and I'm choosing to buy alternate iPhones, i.e. I started on a 3G, skipped the 3GS, am now on a 4, am skipping the 4S, will probably upgrade to an iphone 5 a month or three after it comes out ... unless Apple piss me off in the mean time.)

[andrewducker]

Yeah, that's basically what I'm doing. Which gives the options of selling it after a year if the next one is so awesome that I have to have it (unlikely), and more freedom. It seems like a definite winner so far.

[undeadbydawn.livejournal.com]

I went 1G to 3G to 4S.
The 4S is a fucking fantastic phone, but I don't love it in the same way as I did the 3G. This is entirely down to form factor: I did not and still don't like the 4 design, though it is growing on me daily. As a device to use, it is quite wonderful.

I will be sorely tempted by the 5, assuming I can afford it. The mock-ups posted based on 'insider info' were stunning

having now played with a Galaxy S II, I'm very happy to stick with iPhone. It just feels better to use - and saved my life countless times in Moscow.

[andrewducker]

It's as you say - I lock myself in to a contract, and thus give up the opportunity costs of that money - it's exactly the difference between the two amounts that I was asking how to calculate!

It's 24 months, and over that time, 10% of £the 840 is 1/6 of the original cost of the phone. That's certainly big enough to be worth taking into consideration.