What's the ROI on an iPhone?

Recently I read a post about the iPhone over at the Budgets Are Sexy blog by J.Money. He made a case to justify why the $2000 they spend each year is worth having an iPhone; because A) he is inspired more, B) connected more, and C) he takes better pictures.

J.Money’s post and the comments left by others left me thinking about how we justify any expense. 

Expenses can be broadly categorized in two ways; they are either necessary or discretionary. For most of us, our decisions to spend our discretionary money are primarily driven by emotion. We are trying to keep up with the Jones’ or maybe we are infatuated with a brand or particular product.

My consideration of this topic led me to think about how I justify purchases personally and how my thought process differs when I am considering a business expense.

In business, life tends to be less emotional and more analytical. Most of us, as employees, do not have an open company checkbook to do with what we please. Even the self-employed often consider the impact of any expense much more than most individuals. Traditionally, in business when we want to spend money we must justify the expense by calculating what the return on investment (ROI) will be.

Business is all about profitability and growth of the company. If money spent does not help achieve these goals than a business owner’s preference will be to spend the money on something more practical and productive.

Why not do the same thing personally? Most people don’t seem to think about their personal financial performance. But you should recognize you are in the “business of you“. Each year you are working for income and have expenses, which once paid should leave you with a profit (savings) at the end of the year. Being in the business of you, your objective is to increase your profits. So how would we calculate the ROI of a purchase?

In its most basic form, the calculation for ROI is:

ROI = ((Payback – Investment)/Investment)*100

To use the iPhone as an example, I understand the typical monthly charge is roughly $100. That is $1200 per year that otherwise could have gone into your savings.

What is your payback? Is it possible to put a figure on this? Having an iPhone for personal use may be a convenient, fun and very cool but in most cases it does not actually provide any payback.

To the contrary, just having it will probably mean you spend even more money. Every month there are new apps coming out at just a few dollars each. Having an iPhone will also expose you to buying more music or videos and possibly entice you to spend more on the internet with eBay or your favorite retailer.

J.Money says you can use it to get discounts while shopping in stores. I would be curious to hear how many iPhone users have actually done this, probably few. But we will give iPhone fans the benefit of the doubt. Just so we have some return to plug into the calculation, lets guess that the average iPhone user can save $200 per year by checking prices on-line while at the store. If so…

ROI = ((200-1200)/1200)*100

The return on investment is -83.3%. It’s a negative return because you cannot even cover the monthly cost with your found savings.

From a financial perspective we must conclude that we cannot justify the expense of an iPhone. In fact we cannot justify the expense of any cell phone. Is this realistic? It may not be for many.

J.Money claims that the use of an iPhone saves him money because he can use down time (waiting at a dentist for example) to be productive thereby giving him more time to work on his blog or other revenue generating activities. There may be a few people that can actually profit from use of their downtime but based on my observations of many people with iPhones while traveling it seems most use their down time to play games or watch videos.

While it could be used during down time, my observations suggest this is simply a false justification. Prior to iPhones we already had an opportunity to make these periods productive learning from a non-fiction book, studying for tests, paying bills as examples; but few of us ever did.

The reality is for discretionary expenses we will always be able to come up with emotional excuses to justify the purchase. From a financial perspective we will likely never justify these kinds of luxuries.

My conclusion of this thought experiment is that we should use a business perspective to create transparency with ourselves and our purchases. Let’s not kid ourselves when we are blowing our savings or mortgaging our future. In most cases this should be enough to convince us that a want is not a necessity and help ourselves to be better stewards of our money.

While there are potentially dozens of discretionary purchases we would like to make each year, we simply cannot afford to indulge in all these luxuries.

If we make good decisions most of the time, if our savings and investments are on the rise, if your “business of you” is profiting and growing, every once in a while, you could easily afford to go out and celebrate your successes; buy yourself an iPhone… if you deserve it!

 

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