Actual Cost of an iPhone 5

While I thought there would be more buzz about the increasing costs of an iPhone 5, there hasn’t been much discussion. A good friend of mine recently bought the iPhone 5 and was telling me that it is noticeable better than its predecessor. As he was showing it to me, I was jealous as I reached for my “dumb phone” in my pocket. While I wasn’t aware of it at the time, I was grabbing for my phone instinctively in order to measure its worth. By touching it, I guess I was looking for a reminder on how my frugal lifestyle is ultimately worth it.

In the end, I didn’t find any such comfort. Instead, I was reminded of the things that, as a dumb phone, it can’t do. It can’t surf the web. It can’t check my email. And if it can’t do the basics, it certainly won’t allow me to keep up with Facebook or tweet to my friends. Instead of being reminded that my sacrifice was worth it, I felt the weight of it in my hand. It is remarkably much heavier than my friend’s iPhone 5, despite offering significantly less features. It is certainly bulkier and more difficult to fit in my pocket.

cost of iphone 5

Before I knew it, I found myself justifying the splurge. My life would be so much better with this new device, I justified. It would add more than it would take away. Within only a few minutes, all of my frugal principles that I stand for and write about each and every week on this blog were in question. And so, I did what any other financially-obsessed person would do: I did the math. (Side note: apparently most families don’t do the math before leaping as phone plans are taking up a larger portion of family budgets; or maybe they are and just don’t care)

How Much Would it Cost me to Own an iPhone 5?

Most people don’t do the math. They may think that they do the calculations for owning an iPhone, but they don’t. Here’s a look at what the average consumer will probably calculate:

  • Retail Price of Phone + Taxes and Fees
  • Monthly Data Plan

That’s it. The two figures that come into play is the price of the phone and the monthly data plan. In many ways, this is a rational path to take. It is after all the amount of money coming out of your pocket. Why would the calculation be anything different? When you are doing the calculation like this, here’s a look at what the numbers look like:

  • Cost of the iPhone – $199 with 2 Year Contract
  • Cost of Plan for iPhone – $40-$70 per month (from Verizon’s website) Assuming an average plan of $50 per month, the total comes out to $1200 for two years
  • Total: $1,399 for the 2 year period (assuming no necessary repairs or replacement)

That’s right – whether you realize it or not, you are committing to an approximate $1,399 over the next two years, depending on your plan.

Cost of Upgrading to an iPhone 5

Now, in all fairness, the iPhone 5 does not bring that much of an additional cost for just the device, or even as an upgrade from a dumb phone. The figure of $1,399 is how much more someone who does not already pay for their phone. While all plans vary, I would assume a dumb phone user, like myself is paying $25-30 per phone per month. This would make the difference between getting a iPhone and keeping the current dumb phone much smaller.

Let’s take a look at the calculation when taking into consideration an already existing plan of $25 per month for one dump phone user (this is an estimate, assuming there are at least 2 people on a shared plan).

Current Cost for 2 Year Window: 

  • Phone: $0 (lots of free phones with 2 year contracts)
  • Plan: $25 per month / $600 for 2 year contract
  • Total: $600 for 2 year contract

Difference of iPhone 5 and Dumb Phone Costs:

  • Difference in Phone: $199
  • Difference in Plan: $600
  • Total Difference: $799

While I am using some estimates, I am saving $799 over two years, or an average of $400 per year by not upgrading to an iPhone.

The Actual Cost of a of Owning an iPhone 5

While $400 per year is a lot of for us recent college graduates, that’s only the beginning. This is only the cost of money coming out of your pocket. It fails to take into consideration the missed opportunity or return if you were to invest it. (In case you are wondering, yes, I would invest the money. Any extra money that we make is either going into retirement funds or a taxable investment account.)

Before I illustrate the actual cost of buying an iPhone 5 right now, let’s clear up a few points about my current situation. Please note that I don’t expect these calculations to transfer appropriately for everyone else, but it should still serve as a valuable illustration.

  • All investments currently being made are for long-term retirement goals
  • Because there will likely be years with negative returns, I am estimating 5% return on the money invested instead of the historical average of somewhere around 8%. This is meant to be a conservative figure, not one that is exaggerated.
  • I am currently, 25, so I don’t need this money for approximately 35 years (assuming retirement age of 60)
  • While the additional cost of $799 would be seen over a two year window, I am calculating the future amount as if it were all invested today (as I don’t think it makes that big of a difference)
  • I am also not calculating the continued cost from lifestyle inflation (i.e. never being able to go back to a dumb phone after the 2 years of using an iPhone 5) because I don’t know what future costs of data plans will be. Thus, the figures below are only illustrating the future amount of this $799 difference.

Okay, so how much would it really cost for me to upgrade to an iPhone 5?

future cost of iphone 5

As this graph illustrates, the money that I would have spent to upgrade to an iPhone 5 ($799) would be worth almost $4500 when I were at retirement age (again, assuming just a 5% increase each year).


From looking at this data, there are several points that I want to highlight:

  • When you factor in inflation, the value of this $4500 does not seem like that much, but remember that it fails to consider the future cost with lifestyle inflation.
  • Again, this is just the impact of one minor decision. Imagine if you made 10 of these type of decisions a year. Just for that first year alone, it would reduce your retirement savings by $40,000. I don’t even want to think about the cost of making 10 of these type of decisions each and every year for 30 years straight.
  • What seems like a $200 (or $650 without a contract) purchase to some is ultimately costing you much more than that!

47 Responses to Actual Cost of an iPhone 5

  1. Good analysis. But it gets even better. Because in two years’ time this will repeat. Add another $4,500 (or maybe a little less). And then two years after that. And so on.

    And don’t for a minute (pun intended) think you will be satisfied with the minutes you buy. You will go over at least once in the 24 month period, and then increase your minutes purchased per month so you don’t get caught again. So the total in the end is probably triple the $4,500… or more.

    I, however, can rationalize our smartphones. We’re old, see, so we don’t have as long for the savings to really make a difference. That’s my story and I’m sticking to it! 🙂

    • Corey says:

      haha! Everyone has their rationalization William. I agree – I could have extended the illustration further, but it was already getting long enough.

    • I personally go for a phone that is a generation older and get it for free. This saves some of the cost to me. I save a ton of time with my phone by filling in small pieces of time that would otherwise get nothing accomplished during. Is it a splurge? Yes, but it is a business expense and saves me some precious time.

  2. Michelle says:

    I’m still trying to decide if I want one. For me, the extra costs would be the $200 to buy it plus $30 a month for the data plan (as I already have a phone.

    • Corey says:

      Yeah, it’s a difficult choice. I am going to wait at least another year before I go for a smart phone, if I even do at that point.

  3. I’ve owned 3 iPhones since 2009 and will purchase the 5 at the end of the year when I’m eligible to upgrade. So as of right now, I’ve spent $600 on the phones themselves and about $1200 on my phone plan (above what I was already paying for my non-smartphone before). $1800 over 3.5 years isn’t too bad in my opinion, though I think it definitely depends on your reasons for getting the phone.

    When I bought my first iPhone, I did it because they were cool and I wanted one. Now, though, it’s an integral part of my business. Sometimes I receive time-sensitive emails that really can’t wait until I get back to my computer. I use my phone to send invoices, pay bills, deal with billing and customer issues re: my web hosting business, and (of course) to make business-related calls. I’m not sure how well my business would function if I had a phone that only made calls.

    So like anything else, I think the cost can be worth it if there are enough benefits. I will gladly pay money for the convenience of running my business from my pocket, but I have to keep in mind that it’s also a tradeoff. The money could be invested, as you demonstrated, but I have to ask myself, “Would I actually invest the money, or would I find something else to spend it on?” For me, the latter would probably be true, so I’m just as well off to invest in my business as anything else.

    • Corey says:

      That’s definitely a valuable counter argument. I agree that with a business a frugal mentality is not the best. I’ve tried to justify buying an iPhone (or smartphone) for my business, but I just can’t bring myself to do it yet. I’m within reach of WiFi 80% of the time. But, that isn’t to say it’s not valuable, especially with your horrible internet.

  4. Laura says:

    You didn’t research your choices fully so it makes it sound like you are sensationalizing for the sake of an article. We sold our iphone 4 on Craig’s list for $150. [Another Phone Company] is now in 50 states. They charge $35 a month for 1000 minutes (i don’t know how many minutes you use but after we got a texting plan our combined minutes went down to 500-700 a month) unlimited texting (including pictures and video) and web surfing ( no you can’t download songs on your iPhone under this data plan). That’s $570 a year if you upgrade every year.

    If you’ve never had a smartphone, you don’t need the latest and the greatest. The 4 works just fine. It’s a little more work to get the iPhone, but it’s less than your current plan. A win win I’d say.

    • Corey says:

      Laura, I hardly would call this sensationalism. I didn’t claim to offer the best deal, but perhaps one of the most common. Verizon is one of the most well-known companies and those prices were clear that they are estimates. The purpose was to illustrate the long-term influence of a short-term purchase.

      Regarding your second point, it seems like we are on the same page. The point was that the iPhone 5 is unnecessary.

    • Abigail says:


      Is your reference to Another Phone Company the actual name of the company? I couldn’t find anything about it in search engine results.

      I think he actually underestimated the costs of a phone. I looked into it recently because my husband really wants one. With the bare minimum number of minutes and no text, just data, the cheapest I could find was about $70. That’s before fees, taxes and protection plan. I know the last one is optional, but not if you’re as klutzy as we are.

      In short, the total would come close to $90 a month.

      The other option is Cricket, which has the lowest costs: $55 a month for a smartphone plan. But, again, that’s before taxes and fees. So let’s call it $65. Might be closer to $70. Plus, you have to pay full price for the phone.

      So you’re paying around $300 more than you would with a regular plan. Amortized over two years, which is a generous estimation of how long most people keep their phones, you’re looking at about the same as if you’d just gone with a Verizon or AT&T.

      • Corey says:

        Interesting calculations Abigail. Part of the confusion was my edit. I wasn’t sure if Laura’s comment was just promoting a service so I removed the name. Perhaps being over-cautious…Sorry for any unnecessary confusion. She was referring to Cricket, as you mentioned.

  5. Abigail says:

    I recently kvetched on my site about my desire for a smartphone. By the way, I blame FinCon. Whenever I go to conventions and see people playing with those gadgets, I come home with a burning desire for one. Or, at least, a burning desire to rationalize one.

    That ended once I did the math. It’s easier for us, though. We’re home all the time. (I work from home, and my husband currently isn’t working.) So it’s hard to rationalize the expense of any cell phone, let alone a smartphone. When my mom gives up her current (family) plan, we’ll probably switch to a cell with prepaid minutes.

    The fact is, most of us are at a computer for 8ish hours a day and then at home. We’re generally within reach of a computer for most of our waking day. There are some people who genuinely need smartphones to stay in touch. But most of us don’t.

  6. Kelly says:

    Great analysis. While it won’t be the same math for everyone (plans can be discounted, some may expenses their phones) it’s a general analysis that works because of the sentiment behind it.

    Personally I did my math and it’s worth it for me. I don’t pay for upgrades instead selling my older model phone (for a net gain usually), and since my use of the phone is 70-75% business I expense the purchase and the plan. We also get an additional discount through my husband’s work on the main part of the plan (sadly they don’t discount data).

    • Corey says:

      That’s great Kelly. Yes, it sounds reasonable for some people to pay the extra expense. It’s nice that you get a discount.

  7. laura says:

    i love gadgets and people give me a hard time because I do buy them while i’m still getting out of debt. I guess i am just sensitive when i hear it from people I know and in print that buying gadgets like the smart phone is not a financially smart move. It can be a smart move if you do it correctly was my point. I was just disappointed that you didn’t research the article more thoroughly. When I’m deciding what to do (for example, I am considering switching to Cricket — and this is the reason I clicked on the article) I research ALL alternatives. I would especially do this if I were going to publish my findings.

    Abigail, i typed in a random zip code into Cricket. We are looking outside of our state for new jobs so I figured the zip code didn’t really matter much. I don’t know what it was. I typed in my own zip code just now, 77027, and it gave me a plan of $45 for what I described earlier (which they label the value plan). Cricket is out to sell a service so of course they label the $55 plan as the most preferred plan for an iPhone. but if you read it through carefully, this is just a recommended version. It’s not the only plan they have for the Iphone. It’s the one I’m thinking of using, though, since it has unlimited voice.

    Most people do use their phones for two years. but the people who read personal finance blogs aren’t “most people”. You don’t have to pay full price for the phone if you buy it used. A co worker bought hers through AT&T. Then when her contract ended she switched to cricket with the same used phone. $45 x 12 months plus a used $150 phone is still only $690. And yes, there are taxes associated with it, but the author didn’t include them so I didn’t either to make the comparison easier. granted, in my zip code it’s a little higher, but if you get value out of the phone, such as using red laser or other apps to help you save money, etc., then the cost can zero out.

    • Abigail says:

      Cricket’s value plan, at least here in Phoenix, doesn’t cover most smartphones. For example, the iPhone 4, 4s, or 5. But it does seem to cover some smartphones, so I guess it just depends. Not that I even want an iPhone. We get most of the same functionality with an iPod touch.

      We could get into a whole ‘nother post about money-saving apps versus cost. It’d actually be an interesting point/counterpoint. Frankly, it doesn’t work out for me. Depending on how you use it, I guess it could. But so does comparison shopping at home. But, again, that’s a subject for a whole post. Or two. Or more.

      I get the sensitivity about gadgets. They fascinate me and I have to keep reminding myself that I don’t need them.

      The best way I have found to get/justify gadgets is rewards programs. I won’t mention actual programs here, since it may come off as shilling for a specific site. But a couple of sites have helped us get a PS3, a PSP and an iPod. Plus a slew of graphic novel and related figurines because, uh, I knew he was a nerd when I married him.

      Of course, he/we still don’t get half the gadgets we would if we could. But since you’re probably restricting yourself too… It’s something to look into. If you want more info, you can contact me through my website and I’ll give you the details of which programs work best.

      • laura says:

        “figurines”. lol! i’ll have to use that term. My husband insists I call them “action figures”. He’s fun to tease. Can’t wait to use “figurines” instead.

  8. Bridget says:

    I just ordered the iPhone 5 for $850 (no contract, because that’s BS)

    Actual cost of being without an iPhone? -6927529472 in happiness points.
    Price of my happiness? Priceless.

    I win.

  9. […] you go over to 20s Finances, you’ll see a piece about how much the iPhone would truly cost him. Not just the actual […]

  10. I am one of those people who upgrade technology when a need (usually a dire need) arises. Other than that I am ver indifferent. However, after I got my iPhone, I habe to admit I cannot imagine myself without being connected to the world 24/7. But spend crazy money on it. Hell no. I probably will have my iPhone 3 until it dies. 🙂 Just the same way I had all my other cell phones.

    • Corey says:

      Do you feel like your life is improved now that you have the iPhone? Or just like your life is now dependent on it? Part of me thinks that I would enjoy it, but I’m not sure it would add that much value… I could be wrong though.

  11. This whole iPhone 5 business has been really confusing me lately (so much so that I wrote a blog post about it). I can only attribute the mass hysteria surrounding this phone to people needing to keep up with the joneses.

    When speaking to people about why they bought the iPhone 5 there are so many different justifications that people give. It’s almost like they need to convince themselves that it was a good use of their money.

    • Corey says:

      Yeah, that could be the case. I do think there is value in the smart phone industry, but I’m just not sure it justifies the expense. Plus, if I splurge here, what’s to stop me from splurging again and again?

      • I agree, there is definitely value to be had with smart phones. I use one all the time for work.

        I just don’t see the need to spend heaps of money on the latest and greatest brand new iPhone. Look at phones 3-6 months old – they will save you heaps of money and will likely have all the features you “need” in a smart phone.

  12. Funancials says:

    How about the girl that claims you’re sensationalizing!!?! Ahhh
    I think you underestimated the cost. Now you have to have a $50 case to protect your new gadget. $5 screen protectors to keep it looking fresh. New apps costing $1.99 to get the full feel of the phone. New iTunes songs that you can jam to for $1 each. A new adapter to convert all of your old cords to this new one.

    Its a ridiculous phone. Amazing. But it’s an amazing phone for someone that can afford it. Too many people can’t.

    • Corey says:

      haha, yeah, I know right. Yeah, I am sure I would enjoy it… but I really like the idea of keeping my monthly expenses to a minimum for the financial independence aspect. 🙂

    • Evan says:

      And insurance – on Sprint it is another $10 a month

  13. LaTisha says:

    Verizon lies like a cheap hooker! 40-70 my arse! I pay about 85 a month. But I consider it a necessary cost. I previously paid 30 a month for a NetBook with 3G so I could do business wherever I was, and another 50 for my dumb phone. With my upgrade I’m saving time and at least breaking even, so it’s a justified cost for me. But for the average person without the ability to make money wherever there’s an Internet connection, I agree with the choice to abstain.

    • Corey says:

      Ouch! That’s $85 more than I spend, but I have a unique situation. 😉 That’s for another post, and part of why I won’t upgrade. I think it can add benefit and I applaud your efficiency, but I can’t help but wonder if it just leads to a more expensive lifestyle.

  14. LaTisha says:

    Oh yeah, btw I’m keeping my 4s. No point in upgrading.

  15. Great analysis! What really gets me is the fact that people camp out for this stuff. I can’t think of many things I’d camp out for, much less a smart phone. I think in the end people tend to do it because either they have to be the first with the shiny new phone, but also it communicates a status to many people. I think I’ll be happy with my phone until it no longer works.

  16. My iPhone is paid for by my company, so I don’t pay the monthly fees. When I got my phone switched over to the company plan, I upgraded to a 4S, and since someone had recently left the company and surrendered their phone, I got the device for free too. When I eventually leave my company to be a stay at home mom, I’m going to have a tough decision to make. You really get used to having the smart phone, so downgrading to a dumb phone would be a difficult transition. Maybe by the time I leave my job the costs will have come down? I can hope, right?

    • Corey says:

      That makes two of us. Yes, I’m afraid of making the jump for the same reason. It would be nice to have, but it is sure nice knowing that I can live without it. I feel like I don’t use my dump phone all that much anyways.

  17. I ditched apple products a few years ago (only ever owned an ipod) so the choice is easy for me 😉 I do like my Evo, tho, so it’s a comparable product. It really is incredible how expensive phones are, but they have basically become a necessity.

    • Corey says:

      Yeah, I am hoping that smart phones and their data plans become more affordable in the next few years, but I fear they will only get more expensive with faster speeds.

  18. I like the way you analyzed this, very well done. There is a real opportunity cost to making such purchases, or at least to making unnecessary upgrades too soon. When these incremental expenses are added up, and the future value of investing these savings is taken into account, it’s clear that there is a big price today and in the future to making big purchases.

    What’s funny, of course, is how some folks (you know they’re out there) really think this upgrade is a NEED rather than purely a WANT. There are probably some younger folks spending a significant percentage of their incomes on this purchase.

  19. I have already an iphone 4 and I’m still deciding if I need an iphone 5 or not. But your graph has opened my eyes.
    Great article.

  20. Julie says:

    I NEEDED an iPhone 5. But I design and develop iPhone apps, so I can absolutely justify the cost (and afford it). 🙂

    • Corey says:

      That’s certainly seems like a great reason to upgrade. What type of apps do you design/develop, Julie?

  21. Christa says:

    I love your breakdown, but for me, it goes even farther. I don’t use my phone. In fact, I had a smartphone for a while and got rid of it because it was an uber waste of money. Other people may have a valid work reason for owning a smart phone, but the cost per use for me was sky high.

  22. […] Actual Cost of an iPhone 5 (20′s Finances) – “Most people don’t do the math. They may think that they do the calculations for owning an iPhone, but they don’t.” […]

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  24. Corey, I think you’ve got to get a smartphone if your phone can’t even check e-mail!

    Besides, it’s a business expense, so take 25% off the price!

  25. […] Buy Last-year’s Model – Are you looking to upgrade? If it is an electronic device, odds are that there is a upgraded version every year. It is hard to keep up with the latest model. My wife and I needed to buy a new camera when our old one broke unexpectedly. We looked at all the new ones out there, but decided it was worth it to us to buy the 2nd-oldest model. It came with just a few less features than the latest and best on the market, but it was well over $100 cheaper (33% savings!). We all know the true cost of an iPhone. […]