Personal Finance Apprentice

Buy Cost vs. Maintenance Cost

Buy Cost vs. Maintenance Cost. Sometimes an item costs more than what its price tag says. Even if it's discounted or on sale. But sometimes an item costs much less than it's price tag- even if you paid full price for it.



Buy Cost vs. Maintenance Cost

Sometimes
an item costs more than what its price tag says. Even if it’s
discounted or on sale. But sometimes an item costs much less than it’s
price tag- even if you paid full price for it.

Take
a car, for example. Like most people, I would also like to have my own
car someday. And lucky for me, for the past couple of years I’ve been
fortunate enough to have the means to buy one.

Two
years ago, I had enough saved up to be able make a substantial down
payment on a modest, brand new car. But I didn’t buy one.

And
last year, even though I paid for my wedding and honeymoon, I’m pretty
sure I would have been able to qualify for a car loan. But I still
didn’t buy one.

This year, I might be able to save up
enough again to make a down payment or at least qualify for a car loan.
However, I’m still not going to buy.

I really do want a car. But when I think about it, once I buy a car I will be:

  • making monthly loan payments,
  • buying gas,
  • and paying for parking.

And when I consider all of those things, I realize I can afford to buy a car but I just can’t afford to maintain ownership of one.

Sure,
I could use it just on weekends or on special occasions to cut costs.
But why spend so much money to buy something I’ll rarely use?

I really would buy it if i could afford it.

I could buy second hand and –
if I’m lucky, or really discerning – cut even more costs by having a
smaller monthly loan payment and not spend too much on repairs. But gas
and parking expenses would still be much larger compared to what I pay
for public transport.

I might be able to balance my
budget and live with those payments. But if I spend more, then there’s
less money for me to save and invest. Which means there’s less
opportunity for me to grow my money. So there’s an opportunity cost as
well.

This concept doesn’t just apply to cars, though.
If I buy a new phone for example, it’s the same thing. I have a first
generation smartphone (think iPhone1 contemporaries). If I save up some
more, I could afford to buy a decent new smartphone with cash.

But
most of the new features that are lacking in my phone need an internet
connection. So aside from the cost of buying a phone, I now have to pay
more per month for a data plan. Sure I could avoid using my new phone
for facebook, twitter, downloading apps, or surfing the net to cut
costs. But why pay for new features I won’t use?

On the
flip-side, maintenance cost can also be my friend. New models of
air-conditioners, refrigerators, and light bulbs use much less
electricity than older models. So in the end, they end up saving me
money instead of costing more. (Which means more savings – and more
opportunities to grow my money and one day afford those big-ticket items
I want.)

The same can be true for other appliances. A
cheaper electric fan might cost less and not use more electricity, but
if it needs to be repaired often a costlier but higher-quality fan might
save money over time.

So when I buy an item, I make sure to check not just the price tag but the maintenance cost as well.

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photo credit: ultracase via photopin cc

photo credit: Bryce Womeldurf via photopin cc

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