Watch Out for These Hidden Expenses Before You Buy
More Americans than ever are behind on their car payments.
The number of loans at least 90 days late exceeded 7 million at the end of last year, the highest delinquency rate since 2012, according to the Federal Reserve Bank of New York.
Consumers paid on average a little more than $36,000 for a new car, up roughly 3%, according to Kelley Blue Book. And if you’re a savvy shopper, you know very well the cost of buying a car doesn’t end at the sticker price in the showroom.
Unfortunately, there are a lot of people finding this out the hard way.
The “true cost to own” a car factors in costs beyond the final sticker price, like gas, maintenance, repairs, insurance and depreciation. In order to have an accurate cost of ownership, you need to calculate all these numbers in addition to the final sticker price.
Lucky for us, websites like Edmunds and Kelley Blue Book offer tools to help figure out how much the “true cost to own” will be for a particular make and model. But beyond cars, what else should you be considering the true cost to own?
I’ve noticed a lot people don’t consider the “true cost to own” for things like appliances, lawn mowers, leaf blowers, laptops and other electronics. All these relatively large purchases should be looked at beyond their shelf price.
Figuring out the true cost to own before you buy is part of being a smart shopper. It helps you see past the sticker price and choose the product that will best serve you in the long run.
So, how do you do it?
You might have read that last paragraph and started wondering if you should be calculating the cost to own a dozen eggs or 24 rolls of toilet paper? No. Most purchases you make will not require any calculation beyond the store price tag.
But it’s worth taking the time to calculate the true cost of ownership when you buy items that meet the following criteria:
- If It’s a Long-Term Purchase
Anything that is considered a one-time buy, like big pieces of furniture, a new tool, really nice pair of shoes. Stuff you plan to keep for many years before replacing.
- If It’s a Significant Purchase
You’ll probably keep a new pair of underwear for a few years, but the cost of a 3-pack of boxers is too small to worry about. Do the math when you’re shelling out significant sums of money.
- If It Has Recurring Expenses
There are some things you buy once and never expect to spend money on again, like books or decorations. The true cost of ownership for these items is the sticker price. But other items you buy will continue to cost money after you’ve bought them.
Almost anything that runs on electricity adds cost and things that require upkeep like, a bicycle, have hidden costs.
Only do the math on a purchase if it meets all three of these conditions.
So what are the hidden costs to owning appliances, electronics, tools etc? Let’s look at a few category examples:
In a lot of ways, appliances are like cars. A large appliance is a big purchase – it uses energy, and it occasionally needs repairs. Therefore a lot of the costs are similar to the costs of owning a car. These include:
- Purchase Price. Like a car, the biggest factor in an appliance’s true cost of ownership is the actual price tag. But, one main difference is you don’t usually trade in an appliance when it gets old. This means you don’t need to calculate the cost of depreciation. Instead, estimate how many years you plan to own the appliance, and divide the purchase price by that number.
- Energy Cost. Appliances vary in the amount of energy they use. For example, a 30 cu.ft. French-door refrigerator may use over $100 worth of electricity per year. In contrast, a 20 cu.ft. top-freezer fridge that’s Energy Star rated may only use $50. When you shop, check the yellow “Energy Guide” labels on the appliance to get an estimate of how much it will cost to run per year.
- Repair Costs. You can’t predict how often your fridge or dryer is going to break down. But you get a rough idea of how reliable it’s going to be by checking reliability ratings in Consumer Reports. Choosing a more reliable brand reduces your risk of having to pay for expensive repairs.
- Savings From Use. In some cases, newer appliances can save you money with added features. For instance, Consumer Reports has found that front-loading washing machines are gentler on clothing than top-loading models. Which means you’ll likely replace clothes less often by reducing wear ‘n tear.
When you add up these costs you get a better idea of the true cost to owning an appliance. It’s also helpful to run these numbers if you’re deciding whether you want to repair an old appliance or replace it with a new one.
Sometimes seeing the savings from just one of these categories will make the decision a no-brainer.
Here are some of the costs involved in owning a computer:
- Purchase Price. The more you want your computer to do, the more you’ll have to pay. If you need your computer to handle playing graphics-heavy video games, you’re looking at $1,000 or more. If you just need a computer to surf the web, send some emails, and stream music, you can get away with less than $300.
- How Long It Will Last. The typical lifespan of a desktop computer is around five years. But your computer could last longer if you pick one that’s easy to upgrade. When you shop, look at how easy it is to add extra memory or replace the hard drive and graphics card. Simple hardware upgrades can increase the lifespan of your machine by a few years.
- Software Costs. Switching to a new computer with a different operating system – from a PC to a Mac, or to a new version of Windows – could render your existing software useless. Or you might end up having to pay more for similar software. For instance, the standard suite of Microsoft Office costs $40 more for a Mac than for a PC.
- Peripherals. Along with software, certain types of peripherals – printers, monitors, keyboards, and so on – don’t work with every computer. For example, if you have a fairly old printer, your new computer may not connect with it. That means you’ll have to tack the price of a new printer on to what you just spent on the computer.
With cars, appliances, and computers, it makes sense to think about the true cost of ownership in terms of dollars per year. Since these are things you’ll use all the time – at least once a week, if not every day.
Power tools are different. You could spend hundreds of dollars on a new tool and then only pull it out once or twice a year. So, when you’re shopping for a power tool, focus on the cost per use, not the cost per year.
Here’s what to look for:
- Purchase Price. What’s the actual price of the tool? Are there any extra necessary parts you should include in the purchase price?
- How Often You’ll Use It. Next, estimate how many times you’ll actually use your new tool. Try to be honest. It’s easy to rationalize dropping $300 on a new miter saw because you’ll use it for home improvement projects, like cutting molding. But if there’s only one room in your house that actually needs new molding, that’s $300 for a single use.
- Energy Costs. All power tool use some kind of fuel – electricity, gasoline, or propane – and that fuel costs money. And unlike appliances, tools don’t come with labels telling you the expected energy cost. But you can compare the wattage for different electric tools to get a general sense of which one will cost more to run.
- Maintenance. Most tools require at least some maintenance: oil, filters, batteries, or replacement blades. These will cost more or less depending on the tool and brand.
- Repair. Like appliances, tools can break, and the cost of repairing them varies. Again, look at what reviews say about the reliability of a particular make or model. Also look at the warranty to see which repair costs are covered.
- Potential Savings. Sometimes it can be worth buying a new tool, even if you only plan to use it once. If buying a tool allows you to DIY instead of hiring a contractor, you could save more money on the job than you end up spending on the tool.
A lot of time, it’s going to be impossible to figure out the true cost to own a product. There are just too many variables you need to consider.
But, you can still get a pretty good rough idea of how much an item will cost you beyond the sticker price, which is often enough to steer your decision the right way.
To a richer life,
— Nilus Mattive
Editor, The Rich Life Roadmap