Hidden Costs: Don't Forget the Total Cost of Ownership

Posted by Maneesh Sethi :: October 12, 2007 @ 9:33 am

"This new rent totally fits within my budget." It seems so simple, right? If the rent for your new place is $500 more than for your last place, then you need to make sure that you have at least $500 extra to pay for it, right?

But wait a minute. Moving to the new place costs a lot. You have to actually get your stuff over there.

And then you need to furnish the new place.

And the only nearby grocery store is a fancy organic place instead of your usual Albertson’s. And you have to drive a little farther to get to work, which means more gas. And good luck if you are one of the people who is always trying to keep up with the Joneses, because the people in your new community probably have nicer things, too.

The problem with upgrading your rent, your car, your cell phone, and anything else is the set of often-hidden costs that you won't notice until your bank balance suddenly gets low. When you are buying something, you aren't just paying for the sticker price, but also for the responsibilities that come with the item. Keep this in mind when requesting a P2P loan on Lending Club to cover the purchase of a particular item. Better yet, include a budget in your loan description showing the related costs of the item you are purchasing, so that you won’t need another loan to cover the cost of using it!

Moving is the most drastic version of an upgrade. Moving to a more affluent area is much more expensive than it might first appear. While the rent might seem within reach, the total cost of ownership is much, much more than the simple sticker price might suggest.

Another example of this is upgrading your cell phone. Mint.com wrote an analysis of the true cost of an iPhone. What seems to be a $600 investment actually comes out to well over $2,000.

When making a purchase, do you take into account the total cost of owning the item? The results are sometimes staggering. Even non-financial costs can be strongly affected. Owning a pet, for example, certainly costs a lot of money, but it also requires a huge time commitment. One study even found the true environmental cost of drinking bottled water.