Lifetime Cost

We’ve finally done it. We’ve worked hard, saved our money, searched beneath the couch cushions, and now here we are with twenty thousand dollars. We’ve got our eye on a new car that costs $19,995, so we figure that, with what we’ve saved, we should be able to buy the car and have enough left over for a cup of coffee. Right?

Wrong. We’ve committed a common consumer error: we focused only on the sticker price and weren’t thinking about the car’s lifetime cost. The “lifetime cost” is how much it really costs to own something, from the moment we buy it until the moment we sell it (or junk it). Lifetime costs include the price of the item (let’s say $20,000 for the car), any insurance costs (maybe $150/month), operational costs (gas at roughly $40 per tankful, that sweet Sirius radio subscription, etc.), maintenance (don’t forget those oil changes, tire rotations, and tune-ups), repairs, upgrades, fees, taxes, and on and on. Pretty much any and every cost associated with owning something goes into calculating its lifetime cost.

So does this mean we should just never buy anything because it’s going to cost more than we think it will? No, of course not. If we need to own a car, we need to own a car. But it does mean that we need to think through what that ownership is actually going to entail, and in some cases, we might decide it makes more sense to rent, or find another alternative to buying.