Have you seen the $18,000 iPhone?
No? Think again. Hold up your smartphone. Are you looking at it? So not only have you seen the $18,000 phone, you bought one. Yup. That sucker you’re holding cost you $18,000.
If the latest iPhone is on sale for $500, how much does it cost? What is the real cost of anything?
Instead of looking at the price tag and assuming that is what it costs, ask yourself how much you had to earn to buy it. What do I mean?
If you hand over five crisp $100 bills, what did it take for you to earn $500?
Well, it wasn’t $500. Remember that little thing called tax? For you to pocket $500, you really had to make over $800. Why? You may start with $800, but after federal income tax, state income tax, and payroll taxes totaling $300, you actually only get to keep $500.
So already that $500 iPhone cost a whole lot more than $500. At this point, it cost $800 or more. Okay, I know what you’re thinking: $800 is a lot for a phone, but it’s not $18,000.
Fair enough. Let’s keep going. What would happen if instead of buying the phone, you invested in your company’s 401(k) account? Something interesting. Because the money you invest in a 401(k) is not taxed, you could take that $800 you earned and invest it. Over time, that $800 could grow and grow and grow until it reached, yup, you guessed it, $18,000.
I’m not saying you shouldn’t buy a phone, but I do want you to start thinking of these two things:
1. What did I really have to earn to buy this?
2. If I didn’t buy this, what could this money grow to if I invested it?
Sometimes we think we want something, but if you can pause a moment and think about what you could do if you didn’t buy it, you may, even once in a while, decide that whatever you thought you wanted is not worth it. And if you do that just a few more times a week or month, it can really make a huge difference.
So if you’re going to be buying $18,000 cell phones, wouldn’t it be nice to learn a simple strategy to cut your expenses? And wouldn’t you know it, that’s coming up next!
The proceeding blog post is an excerpt from Get Money Smart: Simple Lessons to Kickstart Your Financial Confidence & Grow Your Wealth, available now on Amazon.
About the Independent Financial Advisor
Robert Pagliarini, PhD, CFP® has helped clients across the United States manage, grow, and preserve their wealth for nearly three decades. His goal is to provide comprehensive financial, investment, and tax advice in a way that is honest and ethical. In addition, he is a CFP® Board Ambassador, one of only 50 in the country, and a fiduciary. In his spare time, he writes personal finance books. With decades of experience as a financial advisor, the media often calls on him for his expertise. Contact Robert today to learn more about his financial planning services.
