Purchase cost vs TCO, and how we forget to apply things to ourselves

You are buying a car. After 5 years and 200 000 km, you will buy a new car. You’ve got a choice between Car A that costs 10 000€ and car B that costs 8 000€.

Which one do you buy?

You don’t know. That’s right, you don’t have enough information.

How much the maintenance, insurance, or gas represent? (assuming gas costs 1,5€/liter)

Car A :

  • Purchase cost: 10000€
  • Maintenance cost per year: 500€
  • Insurance cost: 800€ / year
  • Fuel consumption: 5 liters/100 km
  • Total cost = 10000 + 5 x (500 + 800 + 40000*1,5*5/100)
  • Total cost = 10000 + 18500 = 28000€
  • Purchase cost / Total cost = 36%

Car A :

  • Purchase cost: 8000€
  • Maintenance cost per year: 1000€
  • Insurance cost: 1200€ / year
  • Fuel consumption: 4 liters/100 km
  • Total cost = 8000 + 5 x (1000 + 1200 + 40000*1,5*4/100)
  • Total cost = 8000 + 23000 = 30000€
  • Purchase cost / Total cost = 26%

In fact it appears that the total cost of owning Car A is much lower than Car B. And the cost purchase represents between a firth and a third(!) of the total cost of owning the vehicule.

Now you tell me that it’s a trivial example.

But when it gets complicated, do you still apply this reasoning? When talking about a complex project or purchase?

Did you calculate a total cost of ownership (TCO) for the house you bought?

Did you include the redoing of the roof in 20 years, or the total cost of heating and electricity? The cost of the kitchen and tiles on the floor that will be out of fashion in 10 years? Or the leak that will appear in the bathroom at some point?

Sometimes, we are excellent at calculating the TCO at work, but forget to consider it when doing major purchases for ourselves.

More generally, we know many things about various subjects. We even have a talent to explain them to our friends and family. But when comes the time to use our knowledge and rules, we forget to apply them to ourselves.

A little slap in the face, back to reality, to a conscious state that tells us that we missed something important. And we can go on doing it properly this time.

Knowing that it will happen, the important question is: how do you snap back into the proper way of doing things?

Does that phenomenon happen to you? How do you realize that you forgot to apply simple principles to yourself, and snap back into reality? Please share your story in a comment below.

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