How to determine the true cost of an item
by Jeffrey Strain
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When you purchase something, most people believe that they have paid for the item. Rarely do they think ahead and consider if that item will cost them more money in the future. These are hidden costs that come back to bite people's budget because the true cost of the item purchased was never considered. There are a surprising number of these hidden costs and a lot of the products we purchase have them. Even worse, we rarely consider this when we make the purchase.
House: When I hear most people giving a rationalization on why they should purchase a house, the argument is usually that rent and a mortgage payment are about the same. Why rent when you can spend the same amount and begin earning equity? The problem here is that a house ends up having a lot more expenses than an apartment does. A house is bigger meaning more stuff needs to be purchased, a yard needs to be taken care of, and property taxes need to be paid. Also, if the hot water heater blows, you are responsible and not the apartment manager. That is not to say a house isn't a good financial move, just that a lot of people buy more house than they can afford because they look only at the mortgage payment and not all the extra costs that come along with home ownership.
Car: Most people purchase a car on the style they like and what they can afford. While the cost of the actual car is a huge upfront cost, there are a whole range of costs down the road that the purchase puts into motion. The amount spent on gas, repairs and insurance will all depend on the make and model of the car purchased, but rarely are all these "hidden costs" taken into consideration when a car is purchased.
Video Game Systems: While you often hear the complaints about the cost of new video game consoles, the console will likely be a minor cost over the entire life of the gaming system. With video games costing more than $50 apiece, the real money spent on these video game systems is on the games themselves. Think about it. What use is the game console if you don't have a bunch of cool games to play?
Big Screen TV: When people shell out over $1000 for the newest flat screen TV, they fail to consider all the other costs that will go with it. Is anyone really going to get a huge TV like that and not get cable service? In all likelihood, it is going to be full service with lots of premium channels. Of course, the DVD player also will need to be added with all DVDs that need to be purchased to watch and it's not long before other add on equipment and entertainment passes the cost of the TV itself.
Cell Phones: If you look strictly at the cost of a cell phone, it seems the deal of the century. In fact, you can get a cell phone for free from some carriers. It isn't the cell phone itself that will cost a lot of money, but the talk, text and data plans you will need to sign up for to use the phone. This is where the money is made by the businesses. Even if you choose an inexpensive calling plan, you'll likely get hit with huge overage charges. Then there is the need to download ringtones and other accessories to keep the phone in style.
Digital Music: Here's another example where the hardware (for most a cell phone) will only be a fraction of the true cost over the life of the product. When you purchase that music player or phone that holds 10,000 songs, you are thinking about the money you have to spend for the player at that moment, not the hundreds it will cost to fill all the space on the player with your favorite songs. While that money may leave your pocket $1 at a time, it will still leave your bank account.
Printer Ink: Every wonder how printers can be so inexpensive? It's because the company that makes the printer won't make any money on the printer itself (in fact, they will likely lose money), but on all the ink you'll have to buy to keep the printer running. Most people don't realize that the $100 they lay out for a printer will cost them an additional $1500 over the next four years for ink to make the printer work. So the printer ends up not being quite as inexpensive as most people first believe.
Razor Cartridges: Razors are the same as the printers in the above example with their cartridges the same as the printer ink. There is a reason that razors have their own unique system and only their cartridge blades will fit their particular razor and that is so you have to purchase them. In fact, you can often find that a razor with a starter cartridge set is less expensive than buying the cartridges themselves and many new razor models are given away for free.
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Electric Toothbrush Heads: While this isn't going to cost you a huge amount each year, it goes to show that the concept of hidden product costs can apply to all areas of your purchasing. This is another example where the replacement brush head for the electric toothbrush will over time eclipse the cost of the electric toothbrush itself. They now make this replacement activity more often by including systems indicating when the brush head should be replaced.
Credit Card: While this isn't a typical example when compared to the others mentioned above, credit cards can have huge hidden costs for any person who doesn't know how to use them correctly, which ends up being a large portion of the population. It may appear to be free money (free with gift included many times), but it can cost you tens of thousands in interest charges and fees if the balance isn't paid off in full each month. Most people don't realize how much paying the minimum on their credit card is really costing them.
This just goes to show that being able to think through what other costs come with your purchases can go a long way to keeping your budget healthy. If you aren't able to spot these hidden costs, you may find your finances in a lot worse shape than you ever expected.
Reviewed September 2017
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