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15 Little Life Hacks

Total costs of ownership and why Indians hate dry cleaning

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A while ago, I wrote about a different way of looking at spending called TCO, or total cost of ownership. TCO tries to factor in the total cost of buying something, not just the sticker price. Companies do this because they are smart and have lots of people that can do mind-numbing math all day. Unfortunately, most individual people don’t, so we just look at the price tag, not the real and full costs of an item.

As I wrote earlier:

I went on a cruise with my family a few months ago…Within ten minutes of boarding, we were presented the Coke Deal by 5 separate cruise employees. The “deal” was that you would get unlimited Coke for $27 (per person) for the 7-day cruise. Without it, though, you’d have to pay about $2.50/drink for the cruise…

I found it interesting because it showed how the total cost of something is often WAY higher than the sticker price.

Buy a new house and you have to shop at a more expensive grocery store. Buy nice pants and you’ll have to get them hemmed. And on and on.

After my talk in Detroit a few weeks ago, I met up with friends in Ann Arbor and went out. There’s still smoking in bars there, so my clothes smelled disgusting afterwards and I took them to get dry cleaned.

cleaner-receipt

Look how much it cost. I almost fainted.

First let me say that Indians hate two things more than anything: Paying for dry cleaning and, inexplicably, paying for shipping by postal service. I think dry cleaning is pretty self-explanatory with the ‘I-already-paid-for-this-damn-coat-now-why-should-I-have-to-pay-more- I’ll-just-stick-a-Bounce-sheet-in-the-pocket-and-let-it-sit-outside’ mentality. But for shipping, I really have no idea. I swear to god, I have asked my parents to ship me a t-shirt I needed, or some set of papers, and they turn into the most relucant people on earth. They will cook me 25 full meals or drive hours to attend some random event of mine, but they HATE paying for shipping. After 24 years, I still do not understand why.

Anyway, when I bought those clothes, I never factored in having to dry clean them. I just said, ‘Oh, it costs $50 for this shirt!” That was me just looking at the sticker price, not TCO. When you buy your car, are you honest about factoring in emergency repairs that you’ll have to make? (The ones that are, coincidentally, really expensive?) What about for your house? Or even for costs of the new neighborhood you’re moving into?

It’s not just about direct financial costs to you, either. For example, shipping bottled water has unseen costs to the environment. “Just supplying Americans with plastic water bottles for one year consumes more than 47 million gallons of oil, enough to take 100,000 cars off the road and 1 billion pounds of carbon dioxide out of the atmosphere,” the Chronicle wrote. (More fascinating analysis on the true costs of bottled water here, and my previous rant about bottled water here.)

Total cost of ownership is really hard and I usually fail at doing it. But when you try to factor in unexpected costs of your new purchase from day 1, you can be more accurate about how much something really costs.

Do you have any other examples of TCO?

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64 Comments

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  1. I actually have to put dry cleaning as a line item in my budget…it’s miserable. Women have that 3 wardrobe condundrum – business formal, business casual, weekend wear…men can usally get away with shirt tie and blazer – remove blazer and tie – you have business casual – women on the other hand – $75/mo in dry cleaning!! 🙁

  2. TCO is something most people can understand pretty easily so, for me, your example about the true cost of bottled water is more interesting.

  3. outwiththejive Link to this comment

    I think people (including myself) often fail to recognize what they are giving up in order to purchase something–the consideration of opportunity costs, which can be painfully high. Benjamin Franklin wrote something excellent about this: “And again, pride is as loud a beggar as want, and a great deal more saucy. When you have bought one fine thing you must buy ten more, that your appearance maybe all of a piece; but Poor Dick says, ’tis easier to suppress the first desire than to satisfy all that follow it.”

    I have found this to be true in my life. One purchase of a new-fangled widget must be followed by the purchase of every widget accessory and upgrade that is available. For example: I bought a Canon camcorder recently for an excellent price. But then came the follow-up purchases: an extra battery, a firewire cable, a padded carrying case, and a wrist strap, to name a few. And what about those darn maintenance costs should it (heaven forbid) break?

    Now, I don’t advocate taking this line of thinking to extremes: otherwise we might never purchase anything and sit on a pile of money instead (opportunity cost: devaluation of your money). In the end, it is simply wise to approach any purchase with a little caveat emptor–think through your purchases, determine which are truly necessary for survival/happiness, and never buy on impulse.

  4. I think this is an excellent post. Another example is on this is cars. A lot of people justify buying a car like a BMW saying it will last 10+ years if you take care of it, even though the cost up front is significantly higher than say, a Ford. However, think about how much it costs to FIX a BMW if something does go wrong or you get in an accident. A small fortune. Especially if you do something to your front bumper. Your insurance costs are also significantly more because the replacement and repair costs are higher. When you add all this up and think about TCO, it gets really hard to justify those kinds of cars after all. That’s probably why in The Millionaire Next Door, most millionaires actually drive American cars. Maybe they don’t last as long, but the TCO is still less.

  5. The news story making the rounds on how a GM Hummer is more environmental sound than a Toyota Prius.

    I don’t think most people factor in the total cost of ownership of their pets. They see signs for Free Kitten! or Free Puppy! and they don’t see the sign that says $22/10 lbs of food, lack of time because of clean up duties, vet bills, registration fee in the city/town they live in and so on.

  6. When we were broke, I used to say that all I wanted was to have enough money for season tickets to see my favorite team.

    Now we spend about $3500 a year on our season tickets. I love baseball and it’s a luxury I enjoy a great deal, but the first time I saw how much of our food budget was going for hot dogs, nachos and beer? Yikes. It came to almost another thousand bucks. That doesn’t even count the wear and tear on my body from eating junk food. A little planning reduced the cost (we bring our own food to the ball park), but I didn’t even think about it before we bought the tickets the first time.

    And I hate paying for shipping too. I’m not Indian, though. I’m Mexican. I’m frugal, not cheap, but something about paying somebody to drive my possessions across town (or fly them across the country) just p*sses me off.

  7. outwiththejive Link to this comment

    I concur with Cymru: even cute little kittens have hidden expenses. Heck, at my apartment complex we have to pay $35/month for PET RENT! Ridiculous, IMHO. (That’s $420/year, BTW) That cat had better be able to do taxes and mow the lawn.

  8. What about the total cost of home ownership?

    I went to visit my mother a few weeks ago and there was a list of things to fix at home – the bathroom plumbing, the kitchen sink was clogged, the sliding door latch broke and the yard needed sprucing up. I didn’t realize owning a home was more than just living in it. There’s also making sure the roof doesn’t leak and when that does, you can count on sinking a few thousand into that. While you get a lot of tax benefits, the house requires regular maintenance and upkeep, costing more money.

  9. You are missing one important thing that companies also do, which is ROI- Return On Investment. If the ROI is higher than the TCO, then things are rosy. ROI doesn’t need to be striaght cash directly related to the original purchase. In your dry cleaning example, I dry clean my clothes (maybe three/four times a year – most people wash their clothes way too frequently) because it a) frees up time for me to do other things b) keeps me from running up my water bill at home c) keeps me from ruining my shirts after wearing them and washing them once due to terrible, unpredictable home ironing and d) preserves the original color of the fabric thus extending the life of the original purchase further than if I machine washed.

    Now, most of those things can be translated into ROI that can out-weigh TCO involved in dry cleaning. The time I save can be spent earning more money, or earning more friends/love, or better managing my investments. The other things speak for themselves – longer life of product, less utility cost to my home, less aggravation.

    What I’m trying to say is that knee jerking a response to a decision that may have many factors seems to go against most of the things you try to preach here.

  10. So, what was all included in this bill of $69.25? And how much is the itemized bill?

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