SIMON BROWN: Understanding the hidden costs of ownership

I have written before about the cost of use of something you buy. Before getting a fancy giant gas braai, for example, you should consider the number of times you expect to use it — over, say, five years. If you expect to use it 100 times in total (20 times a year over five years of its useful life), dividing the price you paid by 100 gives you an idea of the cost per use and is a better indication of the actual cost of the item. Assuming the braai costs R10,000, using it 100 times would end up costing you about R100 a use — not bad for a fun braai with family and friends. But using it only 10 times would mean R1,000 per use, and that seems excessive.

This week I want to focus on the cost of ownership.

Now, the gas braai in the above example probably has little extra cost over its initial expense other than some gas. So the cost of ownership is pretty much zero.

This is true for many things, where the direct cost of ownership is little or nothing. But some items do cost money to own. And understanding the real cost of ownership matters, because we need to budget for it. 

For example, my fancy Apple iPhone has a cost of ownership in that I insure it. So it wasn’t just the initial eye-watering price I had to pay for it, there’s also a monthly cost.

Cars have a large cost of ownership. When buying a car we tend to consider mainly the finance cost, and certainly that’s the number the lender and car dealership will focus on. But it’s not the whole story. Aside from the monthly payment, there are many other costs — insurance, servicing, new tyres, licence renewal every year … and the list goes on. It quickly adds up.

We see the same in the case of owning a home. Again, there is the price of insurance for the building, the cost of keeping the garden (and pool) clean and what you pay for maintenance, which should be about 2% a year of the value of the house.

There are lots of other little costs related to the things we own that we incur without really realising it.

For example, my wife used to own a horse, which in itself was expensive. But it also needed regular shoeing, and it ate more carrots than you could imagine. Both were costs we hadn’t foreseen and hence hadn’t made space for in the budget.

Some of these extra expenses are easy to spot (petrol for the car), but we still have to be careful that we’re not lying to ourselves about the actual cost.

Other expenses are harder to spot, and here we need to do our homework. That is, we have to do proper research, not about the product we’re buying but about maintaining it. Does it need servicing? What about insurance?

Asking the salesperson may help, but finding other people who own the same product would get you a better answer.

We really need to understand these ongoing costs, or our budgets could take unexpected strain. Ultimately it’s up to us to be honest with ourselves about this.