Opportunity Cost and the True Cost of an iPhone

Well folks, some people have questioned my conclusion on the real cost of owning an iPhone.  (It’s more disbelief without countering the facts or data).  And it’s not surprising given the shocking nature of the conclusion. But I wanted to elaborate a little more about this topic (as a supplement to the book Iron Not Wood).

First, opportunity cost is the difference of any two alternatives (as I mention in the book) – using the exact same amount of money.  So in the spreadsheet supplement below:

http://ironnotwood.com/wp-content/uploads/2015/02/True-Cost-of-an-iPhone.pdf

I went through a year by year cost of owning an iPhone throughout our adult life.  It turned out to be about $183 thousand dollars (but as I mention in the book, I didn’t factor in the higher cost of upgrades every few years which would make it much higher).  But, if we took this EXACT same amount of money and invested it every single year, based on the average stock market investment return over the past nearly 100 years, we would end up with a positive $4.8 million.  The gap or difference between these two numbers is nearly exactly $5 million.

This is exactly how much money you would have if you just took the exact same money you would have spent on an iPhone every year and instead just invested it, year by year.

This really is the actual cost of owning an iPhone in America.  People may not believe it, but it doesn’t change the fact this is absolutely true.  There is no ambiguity here.  This is undeniable fact (and silly to argue because you’re simply wrong).

The value of money is time dependent.  It can become worth less and less every year – due to inflation typically – or it can increase in value every year if invested wisely, outstripping the effect of inflation.  Both the upside and downside value of money is a function of time.

I only write this to make people really think about even the little things in their lives that we choose to spend our money on every single day: daily Starbucks lattes, a cup of morning Joe at Dunkin’ Donuts with a dash of sprinkled sugar donuts, another Guinness beer or Mai Tai cocktail at our local bar, that second delicious appetizer at Applebee’s, that mouth watering frozen yogurt at Tom and Jerry’s, those gorgeous pair of Jimmy Choo stilettos, or that bi-annual iPhone upgrade to the latest sexy model.

The real cost of all of these purchases are the opportunity cost, not the number you see on a tiny, inconspicuous price tag.

At 18 or 25 years old, none of us can imagine life at 50, and we think, “shit, it’s only a few dollars.  It’s better to enjoy life now; what’s a few bucks gonna do for me at 50?”  Well, the real answer is a lot!  Millions of dollars  – a lot.  As I say throughout the book, our human brains are wired be irrational to a large degree – today’s pleasure is seemingly  worth infinitely more than some time in the distant future we cannot fathom.

Our lives are 99% due to the outcome of our own cumulative choices.  We have no one else to blame  but ourselves for nearly everything.  Occasionally shit happens that we can’t control, but that’s just life.

Well, I hope each of you get to realize your biggest dreams.  That’s the only reason why I write about this stuff.  Life, success, your dreams; they’re all in your hands.  Just open your eyes.