WHOLE COSTS and Depreciating Value Purchases

The price of something is not really the cost of something: 
There is a difference between price and Whole Costs.

We buy many things, and those things have a life.  Some things are bought, and disappear, like food.  Some things maintain value after being owned for quite some time.  Some things require a lot of maintenance cost, whether the item retains value or not.

rainbow lambo(Image from: needcars.net)

What we buy has value: what we buy also presents us with windows of opportunity loss.  Considering that cutting small corners in purchases can lead to a full bloom Early Retirement account, being aware of Whole Costs is the ultimate factor in cost savings…

New cars are a go-to example, because of depreciating value.
Rent is an example, because it is money lost…
Yet, Home ownership has enormous Whole Costs, like maintenance and bank interest, and property taxes that rival the Whole Cost of rent for many years of home ownership.
Buying the ‘newest and freshest’ items like electronic gadgets presents many Whole Costs.
Buying overpowered computers yields a high Whole Cost.
Buying anything that will need repaired over a lifetime, or that has little resale value: all Whole Costs.  The price tag does not disclose the true cost of owning such things.

For many people, just buttoning up bad Whole Cost decisions could be the difference between having $500,000 in the bank at retirement, or having nothing at all.  Here are some examples of Whole Cost decisions that can crush your retirement:

Some huge home renovations that don’t add value, or renovations that will be aged, dated, or deep into maintenance/repair/replacement lifespan by the time the house will be sold.
Buying a different house, when you have been paying a mortgage all along.
Buying a new car, instead of a car with some miles on it.
Buying the best smart phone or computer: a combo that could lead to spending an extra few thousand dollars every few years.
Paying for education in a field you don’t already know you love, which can lead to a total loss.
Every purchase that had a substantially cheaper option for purchase
Ignoring re-sale value curves: there are windows of time when your items have peak resale value, and if you wait longer to sell, the values jump to extreme lows (Digital cameras and smartphones are a good example)

Everything we buy ultimately criss-crosses through the range of costs and values, and we either hit a home run on Whole Costs, or simply bomb another portion of our bank account, which can translate to monumental hits on our Early Retirement Saga, since it will sap our Compound Interest trajectories, big time.

There are living examples all around you that display the fallout from Whole Costs.  Right now, People are working for DECADES longer than they would otherwise have to, if only they…

bought a smaller house
bought the gadgets that were a little bit behind the newest and greatest
made smart car buying choices
basically, if the were aware of how their purchases affect their future

For every person that sails through life with one outstanding financial decision after the next, there are many who took serious hits along the way.  An expectation of the future commonly doesn’t match with the purchasing that occurred in the past.

Their job didn’t last forever as planned.
The pay raise never showed up.
New management imploded, and made the job unlivable, escape became eminent.
The markets crashed and broke their sector, losing jobs altogether.
Some issue happened that insurance didn’t cover.
Their health waned, or repetitive stress injuries at work forced a change of job.

These are real futures; they happen all the time.

The Good Times Money Wagon is not guaranteed.  The goal of financial freedom and early retirement requires that mindset with the purchases we make, purchases that all deeply affect our financial longevity.

Consider this simple example: Ted spent too much on a house, then decided to move, and lost years of mortgage interest payments that equal $40,000.  Ted also bought a new car, which he barely drove, and he spent $8,000 too much on it.  He also bought the best smart phones, and computers that were way too powerful for simply surfing the internet: He was also too lazy to resell them, and just kept buying new computers and smartphones every few years  (another $3,000 lost every 4 years).  His total loss at this point is around $51,000…

$51,000 saved in Compound Interest for 30 years = $292,918
That lump sum would pay you 6% every year = $17,575 per year = $527,250 next 30 years
Total loss for even ONE ROUND of these bad decisions equals $820,168

That’s a breathtaking loss number from just a FEW bad Whole Cost choices. Some people make 1, 2, or 3 rounds of these decisions, and just keep going…

Making tailored decisions ahead of time to prevent massive Whole Cost losses is an edge that smart savers insist on!  Avoiding deep losses by making purchases based on principles that emphasis the FUTURE of money is very different compared to treating cash like it’s something already possessed.  Our expenditure today are truly promising away labor performed in the future.  Spending that money truly translates to DECADES of work in the future…

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