If budget is a concern, a second hand iPhone 4S with 32/64GB should suffice.

Now looking at the difference between 5 and 4S. The iPhone 5 is an improvement of the 4S with advertised double performance, CPU and graphics. However, because iOS is so well-made, there will be no noticeable difference in speed except in heavy 3D applications or applications with very large database. Even then, the difference is only a few seconds. Even with 4S's processor, many things can be done normally without feeling lag.

The screen size bump is a welcomed advantage over the 4S. For some apps, it really makes a difference, for others, it's just the same with less scrolling.

Camera-wise, the difference is that the 5 is better at low-light capturing with the expense of adding noise. I'm sure with an app such as Camera+, the 4S's camera is still one of the best. Now made even better with iPhoto on iPhone.

I believe a 4S would suit everyone's needs if they're on a budget. It's a fantastic phone when it was released, and now it's even better with the price lowered. Of course if you have budget, better go to directly to the 5 to future-proof yourself and since the whole is better than the sum of its parts.