26 March 2011

Buyer Beware: Before You Buy, Consider the Total Cost

That's not my money. Image Credit goes to Stevendepolo on Flikr
Before you make your next big purchase.. consider the total cost of ownership. Something that is a good deal in the beginning could end up costing you substantially more longterm.

We bought an aluminum fishing boat at a garage sale. It wasn't totally impulsive; we'd discussed the idea for at least a year. When we found one for $500, it seemed like a great deal. Then, we replaced something in the motor, bought a new battery for the motor, and a charger for the battery... and some oars incase the motor died in the middle of the lake.

**Cha-ching, cha-ching** 

We paid property taxes on the boat, the motor and the trailer every year. (Welcome to Arkansas - land of taxes.) We register it so we can take it on our local lakes which means we must purchase an activity card in addition to paying our POA dues. It would have been less expensive to rent a bass boat every time we wanted to go out rather than maintain this one.. not to mention the nuisance of storing it. That initial $500 is now.. well.. significantly more than $500.

Maybe a boat isn't the best example. I mean, it is a luxury item, we should expect to pay more.. but what about other not-so-luxury expenses.

Buying a home? Sure, mortgage interest is tax deducible and you can probably get more house for your money paying a mortgage than you can paying rent... but, along with ownership comes maintenance, lawn work, taxes, compliance to new laws (we got stuck for $5500 to switch our perfectly good septic system over to the city's fancy new sewer).

Before you buy, think about downsizing to reduce your utility bills and your overall environmental footprint. Plus, it'll take less furnishings to make it feel like home.

Looking at a new car? My first advice is to consider a used one. Right away, you let someone else take the hit for depreciation. Before you buy any car, find out how much insurance will cost. It can be dramatically different for a truck vs a sportscar. Do you really need an SUV for your once a year vacation, or would it be better to go with a smaller car for around town and rent a car to go visit your inlaws?

Also consider fuel costs. A few mpg multiplied by 15,000 miles a year can be a significant factor when gas is $3+ a gallon. Just do the math before you buy.

Have you been saving for a college education? If you're smart enough to get into an Ivy league school and you plan to be a lawyer, I say, go for it. If you're on the liberal arts path, opt for an education more in line with your future salary. It could take a lifetime of teaching fifth grade to pay for that Harvard elementary ed degree. If that's your dream, consider a state university. There's a time in life to follow your friends, college is not that time.

Okay, so these are big ticket examples, but before you make any purchase, you should consider the total cost. Don't forget to include interest if you're paying with plastic or taking out a loan. Those shoes may be tempting at 50% off, but unless you pay with cash (or pay your balance each month), you're not really getting the price on the sticker. That beautiful silk blouse is a steal at the outlet mall, but the dry cleaning bill will make up for it over the life of the trend. 

TVs were on sale during Superbowl season, so after 7 years of living TV-free, we finally broke down and joined America with a big flatscreen... and we added a cable tv bill to our monthly budget. Wise? probably not, but hey, we're selling the boat. ~ Plain & Simple As That

What about you? Ever experience buyer's remorse? 
What'd you buy that ended up owning you in the end?

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