How much an iPhone will really cost you
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Look at this fascinating quote from this week’s Time Magazine: “…as of last week, the income segment with the highest percentage of visitors to the iPhone site was 18 to 24 years of age, earning less than $30,000 per year.”
For decades, personal-finance “experts” have told young people not to buy lattes, fancy electronics, and expensive clothes. To which I always reply: How has that been working, grandpa?
I try to take a different approach. Instead of lecturing young people who will simply press ctrl-w and go back to Facebook, how about showing how everyday decisions impact us?
Let’s take buying a relatively large purchase, like an iPhone or a Balenciaga handbag. If you’re going to buy something big, that’s fine — but consciously know how much it’s actually costing you. Not just how much money it costs today, but the total cost of ownership. One eye-opening way to consider a large purchase is the % of your income.
What percentage of income would an iPhone cost you?
Income — After taxes — % of income
$30,000 — $24,905 — 1.6%
$40,000 — $31,044 — 1.3%
$50,000 — $37,439 — 1.1%
$60,000 — $43,774 — 0.9%
$70,000 — $50,109 — 0.8%
I want everyone to pay close attention because, in the above table, something magical happened: I created the most ghetto HTML table ever constructed. Thank you, thank you.
(Jeff Kuo pulled those numbers here using the following assumptions: single, no children, standard deduction, no adjustments, 7.65% FICA, average state income tax roughly 4%.)
If you’re making $30,000/year, then, a $399 iPhone is roughly 1.6% of your salary. Also consider the opportunity cost of investing $399, and remember that the impact of large purchases is mitigated by holding onto something for a long period of time. For example, you save vast amounts of money if you drive your car for 15 years.
Bottom line: Look behind the numbers when you make a large purchase. It’s not just $399. And while this might seem to complicate things, ignorance really isn’t bliss. Just go to a mall and watch the people shopping. Can they afford their purchases? The sad thing is, most people don’t know if they can or not. But you can.
Sometimes, you get the most interesting insights from places you wouldn’t expect. Years ago, Tim Ferriss invited me to ...Read More