How Much is that REALLY Costing You?

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Too often, we take things at face value.

We look at a price, and then assume that there are no more costs associated with the item.

The reality, though, is that everything you buy comes with an additional cost.

And that cost may not be immediately evident.

Before you make a purchase, stop a moment and consider how much the item really costs.

Do You Buy With Credit?

The first consideration is whether or not you are making your purchases with credit. No matter what you are buying, the cost to own anything when you use credit goes up.

The interest that you pay when you use your credit card can double, triple, or even quadruple the true cost of your item, depending on the interest rate and how long it takes you to pay it off.

Before you buy something with credit, ask yourself why you are willing to spend extra, boosting the cost of an item. You might decide that you are better off waiting until you can save up the money, rather than buying now and paying a higher total cost.

How Much is Maintenance?

Another consideration should be how much you will end up paying in maintenance. There are some items that you pay to maintain. Cars are good examples. Chances are that you need a car. But as you decide what type of car to purchase, consider how much you will pay to maintain it, and possibly repair it. A reliable car, or one that is inexpensive to maintain, will cost you less over time.

Don’t forget to consider other realities of some items. You might need to buy additional parts or accessories for some purchases. Plus, if you fill your home with stuff, there is a very good chance that you will soon begin running out of room. Part of the cost of buying lots of stuff is buying shelves to store it on, or even, eventually, getting a storage unit or dealing with all the costs that come with a bigger house.

Keeping up with stuff can get costly on a number of levels. When you spend money on experiences, you don’t have all the same issues (although there are some other costs that come with those spending choices).

What Could You Do with the Money Instead?

Even if you factor in the cost of paying with credit, and consider how much you will pay for maintenance, you might still be neglecting a cost associated with your purchases: Opportunity cost.

Once you spend the money, it’s gone. You can get more money, but you will have trade in your time and do work for additional funds. Before you spend your money, think about the opportunity that it will cost you. That’s money that you can’t use on something else, like a vacation, or to boost your retirement account. What are you missing out on when you spend that money? What’s the opportunity cost?

Use a money saving calculator to get an idea of what you could accomplish if you put that money to another use. Whether it’s saving up for a down payment on a home, going on a great family vacation, or just shoring up your nest egg, that money might be put to a better use.

Bottom Line

There’s nothing wrong with spending money – provided that you spend it on something that is important to you. Before you spend, stop and think about whether or not your purchase is really worthwhile to you. Think about what it will really cost you in terms of money, time, and missed opportunities. Only after you have truly considered the options will you be able to determine whether or not a purchase is worth the cost.

Miranda is a freelance writer and professional blogger. She writes for numerous financial web sites and blogs, as well as for offline publications. Her blog is Planting Money Seeds.