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July 07, 2008

Buy an iPhone, or be a Millionaire? You choose.

The choice is compounding!

If you had the choice of buying an iPhone now or being a millionaire later, which would you choose? This is the question we pose in our current Joy of Tech comic. Huh? You might be scratching your head over how we arrived at this strange conundrum's calculation, so let's see how we computed it.

The first part is pretty simple. In the USA, a top of the line 16 gig iPhone will cost you $299, but don't forget to add 36 bucks for the oh-so-important "activation fee". A top of the line plan (at&t's Unlimited individual iPhone 3G plan for $129.99 a month, which provides unlimited minutes and unlimited data and Visual Voicemail) will cost you $3,119.76 by the end of the two year contract. So add that up and you get a total of $3,454.76 for two years of iPhone 3G. Any applicable taxes not included.

Now let's pretend the dashing twenty-year-old dude didn't buy the iPhone, but instead invested the money. Using the Compound Interest Calculator over at moneychimp.com, if that $3,454.76 was invested in a broad-market index fund, and it earns the market's historical average of about 10% per year, by the time the young man is 65 years old, it would grow to a not-so-shabby $208,115.

That's pretty sweet, but if the kid can add to that pile of money every year, it gets really interesting, courtesy of the Miracle of Compound Interest. If he can add the $1560 that he would have been paying on an iPhone plan every year, in 43 more years his little iPhone-less nest egg grows to the deliciously giddy sum of $1,224,674.57!

Of course we make a lot of assumptions here. Investing money is almost never guaranteed, telecom plans tend to get cheaper, and you certainly don't have to forgo an iPhone in order to save some money. But the basic principles apply. If you are young, start to save a little bit of your money, and your money will take care of you very nicely in the future. If you are older, start to save some anyway, as you might live longer than you think!

Some additional links you might find interest-ing:
Want to Be a Millionaire? You Can!
What to Do With $5,000

Of course if you subscribe to the "Here for a good time, not a long time" club, well then... "iPhone 3G... WooHoo!"

Posted by Snaggy at July 7, 2008 12:08 AM


Of course, assuming an inflation rate of 3% over the next 45 years, that $1,224,674 is worth only $323,851.

Would you forgo an iPhone for $323,851 45 years from now?

Posted by: Charles Jolley at July 6, 2008 09:08 PM

Not sure what the value of this post is besides being an exercise in arithmetic? After all one can replace iPhone with food and arrive at similar numbers. It depends on the value of the iPhone to the user.

Posted by: Bead Tongs Gypsy at July 6, 2008 09:26 PM

The big question is how many iphones can you buy with the million in the future and what will they do?

Posted by: Graham at July 7, 2008 12:59 AM

If only the people that will be signing 3 year contracts from Rogers in Canada will realize this...

Posted by: iPhone in Canada at July 8, 2008 03:35 PM

@ Charles Jolley:

Would you forgo an iPhone if it meant you could retire 2, 3, or 5 years earlier than you had thought possible? For some people, it may definitely be worth it.

Posted by: Paul Williams at July 11, 2008 06:08 AM

Except you've given this person -no- cel phone and no plan. Assuming that the person "needs" unlimited 3g data and voice, then the cost difference over your two years between an iPhone 3g and a free 3g data-capable phone is $199. So at the end of 40-50 years you have about $12,000 extra. Not really that big a deal.

Now maybe you're saying, "don't have a cel phone at all." Which is equally good advice, but sort of misleading to pretend that it's the iPhone keeping you from your million dollars. It's your need for a cel phone (and perhaps want for internet/data/email) that keeps you from it.

Posted by: Contrarian at July 11, 2008 11:16 AM


I just found out about your fantastic site and
I'm blown away.

Great comic about the Iphone.

I definitely choose the "millionaire" route.
After all, I lived pretty well before the Iphone and will continue to do so without it.


Posted by: maria at July 12, 2008 02:01 PM

patience vs. instant gratification

Posted by: Harry Chen at July 15, 2008 11:49 AM

Cute comic. Very valid. If someone can afford an iPhone, their rent/mortgage and still save $200 or more a month, they can probably make a rational decision about the opportunity cost of purchasing an iPhone.

Then again, the people who would rationally consider the opportunity cost of the iPhone before buying/not buying are probably in the minority if consumer spending as a whole is any indication...

Posted by: Eric at July 17, 2008 03:31 AM

Wow. Did someone really just compare having an iPhone to buying groceries?

Discretionary spending, anyone?

Posted by: Mary Branscombe at July 22, 2008 01:35 PM

I'm just glad the man decided to fork over the money for an iPhone. It's worth every penny!

Posted by: Music Critic at July 30, 2008 10:53 AM

What an iPhone is worth to the individual only appears like it is "in the eye of the beholder." In fact, the matter of an iPhone is really a matter of jewelry in most instances: they're neat and clean and above all state of the art gizMore. Problem is, they are totally UNnecessary except as a mere artifact of want: an iPhone is NOT a need. Shelter/clothing and food, plus appropriate sex are each the basic needs of every human, each of whom can live from now until Doomsday without an iPhone, thank you very much.

As for the money calculation, hyou can decide for yourself: if I were, say, 21 again and knew the things "then" that I have learned during the too many intervening years, I'd say "Invest the dollars toward the retirement years," which I am living, having had a pretty good life, meanwhile developing a particularly good health plan, and enjoying what some would think a "good retirement." The problem with all that is that I do not have enough dollars to really engage the retirement years with that level of youth I and my wife still have at our physically able disposal, scrimping here and NOT doing there on a constant basis.

Forego the iPhone: anyone who wants to be that much "in touch" on a near-constant basis has reason to review that sense of want -- today. Do not put it off. Living for the day "Seize the Day!" does not mean Get It All While You Can but instead something more like Consider It All and Your Proper Place Within It Today (that you may better live it across all the tomorrows that may yet be yours.

Posted by: The Good Doctor at August 8, 2008 06:08 AM