Expenses Tracking: The True Cost of an iPhone, a Car, and Other Things You Don’t Know About
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Budget planning and expenses tracking are two things that we care about here at Mint. Learn more with great budget planning tips in our blog article index.
Budget Planning: The True Cost of an iPhone = $2,200
The iPhone will run you about $2,206. And if you live in Tennessee, where the sales tax is at a lovely 9.4%, it’ll cost you about $2,218.
Wait a minute, two thousand and two hundred dollars, for a cell phone? How did that happen?
Welcome to the concept of expenses tracking. Like with so many things in life, owning the iPhone doesn’t just end with a single purchase — it stretches on with service plans, taxes and more. By the end of the two years required contract, you’re talking real money. Let’s take a look at the math:
$599 iPhone x 8% sales tax ($47.92) = $646.92
$60 required cellular plan + $5 (taxes & fees) x 24 months = $1560
Total cost: $2,206.92.
Note: Engadget has a great compare and contrast on the iPhone vs. other smartphones.
Again, this is just for owning the phone for two years. What else can we dig up to show their true value? More than you know.
The Total Cost of Pet Ownership ~ $12,000
“All right,” you say, “what about this pet number you have going on here. Surely my dog won’t cost me $12,000?”
You may be right there, as your pet can easily cost more if you have a larger breed, or if you live in a costlier area.
Here are the budget planning numbers to owning a 50 pound dog (living in the Midwest)1:
$1,977 first year cost
$807 yearly cost x 14 years
Total cost: $12,468.00
According to the Wall Street Journal2, the average cost of ownership for a small dog that lives 15 years will cost almost $12,000 — and more than $23,000 for a larger breed that lives for 12 years. These are averages, mind you.
The Total Cost of Car Ownership ~ $42,000
Let’s take one of the best selling cars of 2007, a Toyota Camry LE (Automatic transmission, because who drives manual in America?), and punch some numbers3.
For a five year ownership, this is the cost break down:
Total depreciation cost: $11,482
Financing: $4,580
Insurance: $10,026
Taxes & Fees: $2,318
Fuel: $8,653
Maintenance: $4,310
Repairs: $689 (whew, thank goodness it’s a Toyota)
Total: $42,058
Once again, these are average numbers. They’re based on 15,000 miles per year, in a region that isn’t terribly expensive. Insurance can fluctuate from low prices to high prices depending on your situation. If you live in a costlier city, or drive more miles per year, many of these numbers can easily increase.
The Cost of Raising a Child Over 17 Years ~ $170,460
In this example, the numbers are based on a survey by the U.S. Department of Agriculture along with data from the U.S. Department of Labor4. They are numbers for a dual-parent family with medium household before-tax income of $39,100 to $65,800.
The cost of raising a child over 17 years:
Housing: $57,360
Food: $29,550
Transportation: $24,510
Clothing: $10,470
Health: $12,180
Child care/Education: $17,430
Miscellaneous (the occasional iPhone and pet): $12,720
Total cost: $170,460
Here’s a kicker. These numbers are updated with 2001 numbers using the Consumer Price Index. So yes, raising a child these days will most likely cost you more money.
The Costs of Buying a Home Over 30 Years ~ $1,073,000
Here are some numbers from a recent Wall Street Journal Article5, based on the average mortgage-interest rate in 2006. The national median home price was $222,000 during the time.
Purchase Price (typical single-family home): $290,000
Down payment: $58,000
Principal: $232,000
Interest @ 6.41%; total = $291,000 (after tax: 33% bracket): $195,000
Taxes & Insurance ($6,000 / year): $180,000
Maintenance ($300 / month): $108,000
Major Repairs & Improvements: $300,000
Total Cost: $1,073,000
Average numbers? You bet. If you live in a more expensive area and have subpar credit, expect to add quite a bit more to the price tag above.
Okay, So… Don’t Ever Buy or Do Anything?
Obviously, we can take any expenses we have, figure out its cost of ownership or its total opportunity cost in the long term, and make a big fuss.
When you see the numbers in a big picture, things will always seem a bit intimidating — and that’s kind of the point. In the world of personal finance (as in, your money), it’s common adage to focus on the long-term cost of your financial choices and expenses tracking so you can make better financial decisions today.
No one really sits down and breaks out the calculator before they buy a cup of coffee and donut (unless you happen to be a glasses-wearing blogger working at a start-up called Mint.com); most people also don’t input their night-out expenses into the spreadsheet before they pick up their date.
The point of seeing the numbers in a bigger picture is so that you understand the financial commitment you may face when you make a decision to buy an iPhone, Pet, or even a car.
Consider this: let’s say for whatever reason you have financial trouble in the future. You’re living paycheck to paycheck, and suddenly one month becomes extremely difficult.
Would you wish you’d had $2,200 so you can provide food for your family? Would you wish there’s an extra $12,000 laying around so you can take another step towards that down payment for a home? Would you wish you had an extra $42,000 so you wouldn’t have to worry about how you’ll pay your bill next month?
Wait, that’s not fair, you say.
“I love my dog and I don’t care how much he’ll cost me.”
You have a point there.
Whether you got to make your calls with a “frigging sweet iPhone,” let your child experience the joy of pet ownership, or just have a car so you can get to work — sometimes we just have to spend some extra money.
And that’s how it should be.
Money is for living. It’s a tool that we use to better our own lives and those of our loved ones.
It is, however, a tool you need to use wisely. You certainly don’t want to buy a gadget — or another financial responsibility such as a pet — if you’re between a rock and a hard place with the bank.
Even if you can afford the current monthly payment, if a purchase will hurt you financially in the long term, you may not be making a responsible financial decision.
Remember, reaching financial independence isn’t about spending all day long wondering how much money you could have or should have saved. A sensible financial lifestyle also isn’t about hoarding all your money for that rainy day.
Being smart with your money is about fully understanding the financial choices you make and seeing the entire picture – the true cost and total cost of ownership when you commit to a device, transportation, pet, or even a child.
In the end, it’s a careful balancing act — a pretty important one that you’ll need to think about occasionally, so that you can live well today and live even better tomorrow.
More to Read So You Can Make Smart Money Decisions
- 30 Free e-Books to Learn Everything You Want to Know About Your Money
- How To: Tackle Your Debt in Five Simple Steps
- How To: Stash Your Cash at the Right Places
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References:
- Cost of Owning a Dog from PetEducation.com
- Calculating the True Cost of a Pet from the Wall Street Journal
- True Cost to Own Ratings at Edmunds.com
- The cost of raising children at MSN Money Central
- Why Your Home Isn’t the Investment You Think It Is from the Wall Street Journal
Further Reading on the Topic:
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32 Comments so far
leave a commentI’d like to comment, as other people have done elsewhere, that this type of analysis of the “true cost” is inherently flawed in that it inspects a purchase in a vacuum. To say that the “true cost” of an iPhone is $2200 is a bit of an alarmist tactic, in my opinion. I prefer to look at a purchase like that (which, for almost anyone considering the purchase of an iPhone) is an upgrade replacement for an existing device and service. In my own situation:
Phone: $100 + 8% tax = $108
Service: $50 / mo + 5 tax / fees = $1320
True Cost for 2 years: $1428
Incremental Cost to upgrade to iPhone: $779
And I don’t currently have any kind of data plan, so I’m looking at $779 incremental cost to get a data plan and an iPhone.
Sounds to me like the “true cost” of the iPhone (for me) is right about the $650 for the phone + tax.
Sorry for using the iPhone as an example as it reeks of fanboyism (no, I don’t own an iPhone) but I was hoping to see more a more complete financial assessment here on Mint.
What I really like is the emphasis on money as a tool for living, and not simply a cold net worth number.
Ultimately, money is about being able to do more, and have more time for things that really matter (children, family, pets, and even iPhones
At Mint we’re all about showing you do more with your money, but ultimately, it’s about optimizing for living a (long-term) happy, abundant life.
Hmmm… this is a good post, it made me reconsider my current situation, but I think it’s missing an important factor.
Let’s say I choose to put off buying a pet (let’s say it’s a small dog… maybe a Pomeranian… yes, I’ve been thinking about this a lot, heh) for the next 15 years… that means in 15 years I’ll have that extra $12,000! Um, wait… where exactly IS the $12,000? Oh right, it got mixed in with the rest of my cash and forgotten about. That $12,000 is LONG GONE. BUT, if I took the time to calculate and realize that $12,000 over the course of 15 years equals ~$66.67/mo, I could have taken ~$66.67 each month and wisely invested it or at least socked it away somewhere (probably somewhere other than a piggy bank) so that come 15 years later when I’m still petless (and severely depressed because I don’t have a dog) I would actually physically have that $12,000 and probably MORE with interest.
I think this is a key factor in calculating the total cost of ownership, ESPECIALLY if you’re like me and REALLY REALLY WANT A DOG! Start putting away whatever that total cost of ownership breaks down to monthly each month and you’ll at least be prepared to tackle that $12,000 Pomeranian or that $41,600 iced latte (that’s approximately 5 a week for the next 40 years.).
Brian, you made a great point that it can be a bit too much of an alarmist approach. There definitely could have been a lot more compare and contrast with the number and against common phone and phone plans.
You should note that the iPhone does require you to get the specific $60 plan that comes with a data plan — and that’s the lowest priced plan on the special iPhone phone rates.
Engadget has a great post on how the iPhone stacks up against other smartphones in its category, and how the specific iPhone plans compare in terms of price with other phone/data plans available.
I will update the post promptly with what you’ve mentioned so that there is a more complete picture to compare and contrast.
Brian Crescimanno is right. You should look at is as the upgrade costs. In making the switch you incur new costs, and remove some. The decision should be based on the difference, or increase.
Brian
Elissa has a great point – if you want to purchase something that will add to your monthly bills, try “paying” that bill for a few months before making the actual purchase. In her case, putting the $66.67/month in a bank account to represent the cost of a dog. If the money is missed, then you might not be ready to make the purchase. While you’re figuring it out, though, you’re saving cash!
This is how my fiance and I figured out if we were ready to take on a mortgage. Our rent was $1150/month, while we figured our mortgage would be about $2150/month. For 8 months we paid our rent and stuck $1000/month in an ING account to feel what it would be like to live without that extra cash. We realized we could do it, and in the meantime saved enough for most of our closing costs.
Rich
You maybe paying about $3K for that iPhone, if you paid for it on a credit card with a high interest rate. Combine that with making minimun payments. No Thanks
The iPhone is so beautiful…
And what really sucks is that the current iPhone is probably going to be considered outdated in a few months…Kind of like how the average child is boring and outdated after only a few years…
Cap, thanks for updating the post and your prompt response. I really hated using the iPhone as an example, but I’ve seen this same type of analysis done on it so many times that it was starting to make my head spin.
That said, I’d also like to add that the analysis of the cost of home ownership is a very candid look at home ownership that I wish I’d had before I made the decision to purchase a home about a year ago. I really had no concept the level of increased expenses I would have as a result of my purchase and part of me kicks myself over and over for buying a house that, while I can afford it, stretches my money more than I’d like (or more disheartening, more than I’d prepared for).
Part of me kicks myself for having bought a home, I have a 4 bedroom, 2.5 bathroom 2-story house for me, my girlfriend, and our 2 cats. Far more space than we need (I converted one of the bedrooms into a home theater, and the traditional formal living room was converted into our office downstairs. That said, we still have 2 bedrooms that get absolutely no use, a dining room that could seat 10, and a living room with a sofa, fireplace, and TV that we use about once a month. Not to mention–to afford this house (and the wonderful dose of yard work that comes with it) I now commute 55 minutes each way to work instead of 10.
Not that there aren’t advantages, apartments are annoying when you have noisy neighbors. Still, I have to wonder if I’ve really made the right decision.
Ok, let me get this straight. You are comparing the cost of a piece of silver hardware that if I don’t touch it becomes a paper weight to…
1) A dog who wags their tail to greet you. Makes you feel like your number 1 on those bad day days
2) Or to a living breathing child that will say on multiple times, “Dad, I love you, you’re the greatest”, or “Mom, I love you, you’re the greatest.”
That’s the comparison, right?
Oh I have no doubt in my mind on what is wasting my money… Do you?
I think your home price analysis is very flawed.
(1) Unless you want to live on the street, renting a family-sized space (you’re talking about a $290,000 house, afterall, which at least in Austin is a big house in a reasonably good neighborhood) for 30 years is not going to free. You would still need to pay utilities. And in practice, you would have to pay to move ever 5 years because who can stand their apartment for longer than that. I’ll conservatively assume $1200 a month to knock off $432,000 from your “total cost”.
(2) Your home is an asset and can be sold. If you rent for 30 years, you have nothing. If you buy the home, you can sell it. If, as your figures suggest, you are spending $13,600 per year repairing, improving, and maintaining it, it should certainly gain value over this time. But lets say it merely keeps its value. Then you can knock off another $290,000 from your total cost figure.
So even without assuming someone is disciplined enough to pay less interest than you predict by making bigger payments, I think your figure of $1,073,000 is at least $722,000 too high, which is almost 70%.
There is a little inaccuracy here. For example, if you have a child, for tax purposes that counts a dependent. That amount should be deducted from the TCO of the child.
Those iPhone’s are so popular!
I don’t entirely agree with any of this article. A purchaser of a cell phone pays a monthly fee for service. Adding the numerical value of these payments over the life of the contract is not an accurate way to describe cost of ownership IN TODAY’s MONEY.
What should be done is this: Each future payment should be discounted based on prevailing interest rates and market data to determine what is the PRESENT VALUE of a payment in the future. For example I’d rather you give me $100 today rather than $100 in 10 years. Today’s $100 is worth more, or equivalently $100 in 10 years is worth less today.
ghettoimp:
Your home is an asset that can be sold–but it hinges on a serious assumption:
That you pay off the house during the full duration of the mortgage (30 years)
As you put well above, under most circumstances, you’re not going to ever finish paying off that mortgage. After 5 years on a $232,000 mortgage, you will have paid less than $10,000 in principal while you’ve paid a total of nearly $100,000 in mortgage, taxes, and insurance. So to say you could take off $290,000 when even you admit that 5 years is more likely than 30 is quite a folly.
I do agree with your concept, as I pointed out above, that these total cost analyses are flawed–as it is never an “incremental” cost. As with the iPhone example I mentioned above, if you’re not buying a $290,000 home, you are buying a smaller home, or renting–regardless of the option, there is still an expense that you will have to incur regardless.
As someone who took on a mortgage a year ago and is starting to wonder if it was the right decision, I can definitely vouch that it is far more expensive to own a home than to rent–and even after 5 years, the principal I will have paid and “get back” is not going to make up for the difference.
Um, I drive a manual in America. Always have, always will. They cost less and get better gas mileage, it’s one of those “DUH” situations.
Also don’t forget the deductions you can take in taxes for owning a home. We are about to move into our first home and the amount that I will end up spending extra every month will be approx. $500 for the home compared to the apt. Of course you do have other expenses involved when owning a home ie maintainance, but of course you trade this for the increased space and enjoyment of owning your own home. If you compare the price of actually renting a house versus paying a mortgage, i am sure the monthly expenses will almost be equal once you include the tax savings.
Hmmm….I think kids are actually more expensive than the figures quoted. I read somewhere that a child can cost up to $1 million over a lifetime.
Owning a home:
Most people forget to factor in the cost of financing the home over xx number of years. For example, my fiancee and I are looking at a home in Thailand (base price = 1.98 million baht). Financing the home over 30 years would equate to 3.4 million baht, or approximately 1.5 million baht more than the purchase price.
While many people point to equity in the home, this can actually be erased by other factors (currency fluctuation, inflation,etc.) that will actually lead to a minor increase in “true equity”. If possible, I would recommend that folks pay their homes off as fast as possible to reap real financial benefits. I also think the benefits are somewhat less in areas that are more expensive than others (property taxes, etc.)
At Mint we’re all about showing you do more with your money, but ultimately, it’s about optimizing for living a (long-term) happy, abundant life.
Yes, this what I’ve been preaching on my blog and with friends and family for years
It’s not about dying with the most money in the bank, it’s about making informed decision so that you can enjoy every day and not have to stress out about money.
I like this type of article b/c I can name too many people who make decisions (like buying a home or car) without any idea of the “whole” picture involved. However a lot of this actually seems to be founded in two different places:
1. Understanding true costs (addressed here)
2. Understanding alternate places to put money (to invest).
I find that people tend to buy things like houses & cars & expensive lifestyle accouterments b/c they don’t really have any other plans for the money, so these are the default decisions.
It’s nice to say that owning a home will cost you a cool million, but if you don’t have any other plans for the million (traveling, writing a book on work sabbatical, taking up goldsmithing, …), then you just end up ignoring costs and making the “default” decisions, i.e.: what everything seems to think will make them happy. Of course, sometimes you’re fully aware of the costs, but owning a beautiful home is actually the goal you have with you first million, it’s not always easy to tell the difference though…
This is a great article. If we think about how much things are going to cost in the long run before rushing out and getting the latest gadget, getting into a home before we’re truely ready, or having another child when money is tight then we’ll be able to make a more realistic decision. I think it’s great to look at your current income vs. expenses and see what will happen if you add on another expense.
So if I don’t have kids I don’t have to pay for housing? My house will cost money and it doesn’t matter if I have kids or not. What a stupid add-on to drive the amount up over having a kid. If you have two kids, do you now have to pay $114,000+?
Good article. It seems that we all operate with a limited time window when we count the cost of things. See also http://tubalcainsworkshop.blogspot.com/2007/07/counting-psychic-cost-of-crap.html
for a look at the cost of ‘free’ things.
The true cost of the iphone is nuts. Thats something that I think a lot of people fail to remember.
If you are going to account for future costs, you should adjust for the time value of money. $5 – 5 years from now is worth less than $5 today.
Tim McCormack
iRent2u.com – the Online Rental Marketplace
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The iPhone cost breakdown is entirely valid if you’re a hermit like me who’s already decided that it’s not worth it to have a cell phone, and is therefore not currently paying anything towards mobile communication.
And that is why I don’t own an iPhone. Even though Mint’s new app makes me want one oh so badly. You guys, you know I can’t afford that. Like, you really know… you have access to my bank accounts.