Whenever people go out to purchase something, they almost always focus on the retail price that they will pay for that product. By doing this, however, they may be doing their finances a big disservice. I began thinking about this more after reading an article about Kodak’s entry into the computer printer market.
These Kodak printers will cost more, but the ink will be half the price of other brand name inks (as well as last much longer). The result is that the lifetime costs of buying one of these printers will be much less. This scenario can be played out with a lot of the purchases that we make from the biggest to smallest.
The vast majority of people look at a price that they paid for their house as the cost of the house. The truth is is that there are a large number of extra costs associated with owning a house compared to renting. Over the lifetime of owning the house, these other costs will likely exceed the actual purchase price of the house.
It is similar with purchasing a car. The sticker price is nowhere near the actual lifetime costs of the car. Gas, insurance, repairs and upkeep are just some of the added expenses that come with owning a car and these will likely exceed the car’s sticker price over the lifetime use of the car.
The same is true for your computer (software, Internet connection, add-ons will all end up costing more than the computer itself) razor (it’s the blades that are going to cost the most money and not the razor itself), cameras (the cost of batteries and memory cards will often eclipse the price of the camera itself) and electric toothbrushes (it’s the heads of the electric toothbrushes that will cost the most over the lifetime).
With this in mind, here are three questions that you should ask yourself before making a purchase:
1. How long do I plan to use this product? The length of time you plan to use a product is important to know since it can greatly impact the lifetime cost of the product. The longer that you plan to use something, the higher the lifetime costs will usually be.
2. Will there be added costs after the purchase? Understanding exactly what the added costs of owning a new product will be will help you figure out exactly how much the lifetime cost of that product will be. If you don’t have a good sense of what the added costs for a purchase you’re about to make will be, that is a good indication that you haven’t done enough research on that product.
3. Will a more expensive product end up saving me on these extra costs over the lifetime of the product? Once you know #1 and #2, you can see if purchasing something that is initially more expensive will actually create savings through lower lifetime costs.
Looking at your purchases from the perspective of the products lifetime costs instead of its retail price takes some practice, but it can go long way in helping you reduce your overall costs. Give it a try with the purchases that you make this next week. I think you’ll be surprised at the number of things that we purchase that have additional costs associated with them once they have been purchased.