Picture this. You are in the office, having a break and browsing a website that reviews the latest cellphones. Your colleague passes by, looks over your shoulder and asks:
“Getting a new phone? That’s great.”
“I’m thinking of an upgrade. Any suggestion?”
Your well-meaning techie co-worker launches an impressive verbal review of his choices and the virtues of each recommendation.
In the end he says that if he were you, he’d rather “invest” in the latest smartphone release which is packed full of high-end features that your time-tested phone could only aspire.
Now, your skeptic self begins to wonder: What does he exactly mean by “invest?”
“What will I get once I swipe my credit card and commit months to paying for it?”
Here’s how Investopedia defines “Investment”
An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price.
Let’s break it down with the following keyword qualifiers: “purchased,” “generate income,” “appreciate in the future,” “create wealth,” “sold at a higher price.”
A new phone is purchased in cash or credit, or can be had at a monthly plan tied to a lock-in period. So yes, it’s definitely purchased. That’s one check right on our tick box.
You work in an office where cellphone use is allowed only during break time. You do not own a small business where you might use it to close sales with your costumers. In this case, it doesn’t generate any income.
On the other hand, you spend hours late into the night playing Flappy Bird or some other games you got hooked on. You were a few minutes late the morning after. On payday, you noticed a few minutes’ worth of deduction from your net pay.
Appreciates in the Future
Don’t get us wrong. Real estate may appreciate over time. Stock prices increase through the years. Your market value appreciates as you acquire more knowledge and skills.
On the other hand, most material things, especially gadgets, only go one way and that is toward depreciation. Once it is used and tagged “second hand”, a part of its original price is chipped away.
Sold at a higher price
Unless there is a great demand for your phone and supplies are scarce, your phone will never sell at a higher price. Chances of that happening are close to zero.
Is Buying an Expensive Phone Really Worth It?
The point is, we sometimes think that any addition to our possession are actual investments when they are simply lifestyle upgrades. Unless we use them to improve our income and generate wealth, a new phone, car, laptop, cable subscription upgrades are not investments.
Actual investments give us an actual return, perhaps in the form of reduced bills, increased salary, better health, reduced stress, etc.
Getting a fitness program may cost you money, but if it can significantly improve your overall health and reduce your hospital trips for the long term, then that’s an investment.
If attending a skills seminar that costs $500 can earn you a better pay in your company in the next months, then that is an investment.
Paying your debt, by taking out a loan at a lesser overall interest rate or through a debt settlement program can reduce your recurring bills. It could free up your cashflow and give you a better net income. In that case, you’ve made an investment.
A correct definition of an investment can put ourselves in the proper frame of mind as we seek ways to dispense our resources and time.
If something does not give you any future return by generating wealth, better health, reducing expenses or stress, or any long-term advantage for that matter, then maybe it’s time to think twice.