Equifax

Finance Blog

Budget and Money Management: Total Cost of Ownership

Written by Miranda Marquit on July 9, 2012 in Family Money  |   No comments

Many of us, when we make purchases, look at the price only. We consider the sticker price of an item or service and then make a judgment based on how expensive or cheap it is. However, the upfront cost should not be the only consideration….

budget money managementMany of us, when we make purchases, look at the price only. We consider the sticker price of an item or service and then make a judgment based on how expensive or cheap it is. However, the upfront cost should not be the only consideration. Your calculations should consider an item’s total cost of ownership. The total cost will affect your budget and your money management decisions.

What is “total cost of ownership”?

The idea behind total cost of ownership is that you need to consider the costs you are likely to incur over the life of the item. When you buy a car, the cost of owning your vehicle is beyond what you pay to the dealership. You need to figure in the cost of maintenance and repairs, insurance, fuel, and interest charges (if you financed), which all contribute to the total cost of ownership.

Many purchases come with additional costs, from appliances to clothing—yes, even clothing comes with a total cost of ownership. Consider what you have to pay for its upkeep. Buying dry-clean only clothes will cost you more over time than something that you can wash at home.

Don’t forget to factor in what buying more stuff could mean for your overall living situation. Buying a second or third car might necessitate the cost involved in building another garage to house it. Filling your home with things means that you might eventually have to buy a bigger house—or pay a monthly fee for a storage unit. And, of course, some items come with depreciation costs that should be figured into the total cost of ownership as well.

Debt adds to total cost of ownership

When making a purchase with debt, few of us consider how that purchase can add to the total cost of ownership. Indeed, debt can add quite a bit to your total cost due to interest charges. Whether you are buying a home or paying for takeout with your credit card because your checking account is drained, the interest charges you incur add to the total cost of whatever you are buying.

If you want true value for your money, and if you expect to live within your means, you need to always consider the cost of interest. Think about how much carrying a balance on your credit card will add to the cost of that brand-new barbecue grill, that expensive premium cable TV package, or the $100 a month smartphone plan. Putting these items on credit cards, and carrying balances month after month, reduces your wealth and increases your total cost of ownership. Before getting into debt to buy something, consider the long-term impact on your finances.

What about time?

Often, we discount our time. However, when you think of the total cost of something, you should also consider the value of your time. A good example is that of waiting in line for a free ice cream cone. When a special like this is offered, people line up to get it. Should you stand in line for what could be half an hour to save $1.50 on an ice cream cone? That’s basically the equivalent of working for $3 an hour—and it doesn’t include the money you spent on gas to get to the ice cream shop in the first place.

Life is full of these types of decisions. If you buy something that requires a great deal of care and attention, you need to consider whether or not the time you spend is worth it. What else could you be doing with that time? Playing with your children? Starting a side hustle to earn more money? How you spend your time is just as important as how you spend your money.

In the end, the smart spender thinks about a spending decision in context of the long-term benefits and drawbacks. Get better value for your money by considering the total cost of ownership before you buy.

Miranda Marquit is a freelance writer and professional blogger specializing in personal finance, family finance and business topics. She writes for several online and offline publications. Miranda is the co-author of Community 101: How to Grow an Online Community, and the writer behind PlantingMoneySeeds.com.

No comments yet


Leave a Comment


Name :


Commenting guidelines

We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.

Some other factors to consider when commenting:
  1. Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
  2. All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
  3. We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
  4. Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
  5. Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
  6. Stay on topic. Your comment should be concise and pertain to the specific post in question.
  7. Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
  8. Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.

Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.


Stay Informed Sign up for our FREE Equifax email Newsletter