Let’s face it – we all love our gadgets. Whether it’s our iPads, iPods, MacBooks, MacBook Airs, Samsung Galaxies, Samsung Notes, iPhones, Kindles, Kindle Fires, Blackberries…. er no scratch that, nobody loves Blackberries any more. But you get the point! The only thing I love more than my gadgets is the ability to update them when the new version comes out. Judging by the lines outside Apple stores when they release new iPhones, I am clearly not in the minority here. Of course upgrading your gadgets on a regular basis is darn expensive right? Well maybe, maybe not. A recent Twitter conversation with BigHabitat got me thinking about my own strategy that I have applied over the years to a variety of gadgets, so here’s my take on it:
Get a New MacBook Every Other Year With Full Warranty
My main laptop is a MacBook Air. It’s a great laptop and I love it. I bought my current model in November 2011 using an American Express Mercedez-Benz Platinum card and paid $1,120 for it a time when it retailed for $1,299.
My first strategic decision was whether or not to get an extended warranty. While extended warranties are notoriously bad value, I’ve heard good things of AppleCare. For a MacBook Air like this you are looking at $249 to extend the warranty from one year to three years and that includes premium support. While premium support is nice, I find google a pretty good tool for sorting out my tech problems (I’m not much of a handyman around the house, but I am pretty decent fixing tech stuff). Anyway by buying with an Amex Platinum I already extend the warranty by one year from the manufacturer’s warranty (note if you do buy an extended Warranty the Amex extended warranty will extend that too, though the value for me decreases as the item gets older and it’s value diminishes). Anyhow my plan is that I am going to replace this laptop in around two years, so the one year plus Amex extended was perfect.
The second strategic decision was after getting home and making sure everything worked well, I took the receipt and put it in the box and then put the box in a storage room. When it comes times to sell this item, having the original packaging is going to make it that much easier to sell and more valuable. And also if you ever make a claim on that extended warranty from Amex (or Chase or whoever your credit card provider is – just check they have good extended warranty coverage) you are going to need that receipt – more on that later.
So in November 2011 I buy an Apple MacBook Air for $1,120 (RRP at the time of $1,299)
Using the Extended Warranty
Fast forward from my original purchase to October 2013 and my trusted MacBook Air has developed a problem with the trackpad in that clicking “sticks” which is really annoying. I call up Amex and they tell me to go get an estimate for repair. I ask if I can just get it repaired and send in the bill and they say yes. After the call I get a message that the battery needs servicing too. So I go to the Apple Store and have both the battery and trackpad replaced. The total cost is about $250 – which incidentally is about the same cost as the 3 year AppleCare extended warranty. I submit the receipt from Apple for the cost of repair along with the original purchase receipt, and soon after I get reimbursed for the full cost of the repair. So now my failing MacBook Air is once again “good as new”.
What if you had cancelled the card?
Well in my case I actually had cancelled the card. In 2011 you recall I used a Mercedez-Benz Amex Platinum. If you read my recent post on my Amex Platinum Strategy you will know I don’t hold on to these cards for more than one year. It varies between issuers but for American Express the extended warranty does not expire if you cancel your card. I have claimed on Amex warranties on canceled cards twice – once on this one, and once on another item I purchased on a Bank of America issued Virgin Atlantic Amex a few years ago. But you do need to keep an American Express account open. The official terms & conditions are a little ambiguous on this point, stating your American Express card account must be open and in good standing, but does not specifically state the card account used to make the purchase.
What if I Use Gift Card to Maximize Points?
A popular trick for buying items on Amazon is to buy gift cards at office, pharmacy or grocery stores using credit cards that have high multipliers at those stores. So you might buy $1,000 worth of gift cards at Office Depot with a Chase Ink card and earn 5,000 Chase Ultimate Rewards on the transaction. However that means you give up the additional credit card benefits on the purchase. Taking a $1,000 laptop as an example, I think the most aggressively you could ever value the 5,000 points earned would be around $100, and for me that it’s not worth giving up the credit card protection on.
However there is a potential middle ground alternative. Again the official terms & conditions are a little hazy, but it appears that the extended warranty is valid to whatever amount you paid for with your American Express card. So a middle ground compromise might be to pay for say half your laptop with gift cards that earn multiplier bonuses, and then half with your credit card to get extended warranty coverage. So it would not protect you if say your laptop caught fire and melted (not particularly likely) but would cover you if say the hard disk failed (quite likely).
Time to Sell to Upgrade!
Now we are in January 2014 and the MacBook Air I am writing this on is now officially out of warranty. Scanning around the RRP of the current base 13″ model that would directly replace it is $1,099, but is available on Amazon for about a $50 discount. I can set up an alert on SlickDeals to let me know if anything gets posted matching “MacBook Air” to try to get a better deal.
A quick scan on eBay shows that the old laptop will probably sell for around $550-600 depending on my luck, so around $470-510 in my pocket after eBay and Paypal take their pound of flesh. I can also try selling it locally through a couple of very active buy/sell Facebook groups I belong too (I prefer these to Craiglist as you always have some ability to “vet” the buyer through their FB profile). Long story short, I am pretty sure I can get $470 back and could get as much as $550 back for it. At the mid-range of $510, the two year cost of ownership will have been $610 ($1,120 original cost minus $510 proceeds selling it), or about $25 per month.
While the case for upgrading might be slim, what I do get is:
- Another two years of warranty coverage, so now I am the same as the guy who bought AppleCare on the first computer
- I get the latest operating system without having to pay to upgrade
- Everything is brand new – no aging hard disk or battery or keyboard or trackpad, things that can all break over time
- I get the benefits of the latest incremental developments like longer battery life and sharper screen resolution
But the Store is Offering me a Trade In Credit For My Old Tech?
Generally speaking these are terrible deals. The amounts offered are usually pitiful compared to what you can get to selling the item yourself either on eBay or through local trade sites. Taking my current MacBook Air, BestBuy is willing to offer me $220 for it assuming it’s excellent condition. That is less than half of what it’s really worth.
The one exception to this rule, and it really wouldn’t apply to this two year upgrade strategy, but worth mentioning anyway – sometimes stores offer specials with minimum trade in values. Target ran one last year where they’d give you $200 for any iPad. If you have a really old model that has lost all it’s value, then these minimums are a great way to cash in (I traded in first generation basic iPad worth less than $100 for $200 in that Target promo).
Isn’t this like leasing?
YES! This is exactly how leasing works. Leasing is based on the concept of only paying for an asset’s depreciation during the period of the lease, so in my example the $610 depreciation works out to around $25 per month. As with car leasing the key to a good deal is:
- Making sure the original acquisition price is as low as possible – always get the best possible discount
- Buying an item with a high residual value
- Keeping the interest rate on any financing as low as possible
The last point is only relevant to true leases, here we are paying cash (or, rather we are paying with a credit card, or a mix of credit card and gift cards).
Ultimately if you want to be the most frugal it is probably better to buy a computer and keep it for it’s functional life, much the same way as if you want to buy a car as frugally as possible you should keep it for years. But if you know that you are likely to want to upgrade to keep up with the latest developments, you should also think about the resale or residual value of an item and the cost of long term warranties. For me at least, upgrading high residual items like many Apple products every other year is not as expensive as it might seem.
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