SIMON BROWN: Be a stickler when it comes to extra costs

When we buy something, we normally focus on the sticker price. Fair enough. But in many cases there are other costs that are as important; we tend to ignore them but they add up.

The most obvious is when we buy a home for R1m at, say, an 11% interest rate over 20 years. The monthly repayment is R10,322 and we focus on the R1m price and the monthly instalment. But over those 20 years we actually pay almost R2.5m. And this ignores the transfer costs upfront and agent fees when selling, insurance, maintenance and general upkeep. In short, your R1m home needs to sell for more than R2.5m for you to break even. And you’d probably lose money because of inflation.

Buying a car is similar. Interest, insurance, services, tyres, petrol — these are all costs to bear in mind.

Most of us understand this yet we still tend to focus on that sticker price — which is just one part of the overall cost of ownership.

We are often caught by other smaller fees. A store card may be free, but there’s a monthly admin fee, or maybe a club fee. So your store card is not free. Credit cards have an annual fee and banks charge an admin fee for an overdraft on top of your monthly account fee. Again, small, but it all adds up.

There’s another one we need to watch out for. At the beginning of the school year my sister was offered a 5% discount if she paid upfront. Seemed like a great idea, saving 5%. But here we need to do some math.

She was fortunate to have the money, but if she’d put it into a 30-day fixed deposit earning 7% interest, she’d actually be slightly better off than taking the discount offer. Of course she would need to manage the calling of the money every month and she’d have a tax issue on the interest earned, so she’d need an Excel spreadsheet to determine the better option.

Another example is a friend who drove 40 minutes to get a special on dog food. But, after factoring in the cost of petrol to and from the store, the special wasn’t so special.

So, the secret? Think beyond just the sticker price. What’s the total cost of ownership? In some cases, it’s huge, such as a home loan, but it’s also unavoidable to a degree if you want to own your own home.

The bigger secret is, perhaps, that spreadsheet. Track the extra fees and keep an eye on those admin fees and the like.

Then be ruthless when you understand the real price. Is what you’re buying worth the total cost you’ll end up paying?