Defend Your Dollars: Analyze Your Life Cycle Costs
This post was guest blogged by Alex Shalman, who created Happiness: The Group Writing Project which gives you 2 links (PR 4) for your participation.
Part of what makes a millionaire a millionaire is not just their obscene yearly income, rather it’s their mindset which allows them to play defense with their money.
If you were to take a longitudinal case study, and track two people with very high incomes throughout their lives, you would notice that the one that plays defense wins the net worth race. Race? Defense? Since when is making money a sport?
Let me explain why this is important to you and can be applied to you even if you’re broke. It’s not about how much money you have, or how big your income is, it’s about your out look on life and the steps you take to manage the money that you already have.
Good money management training should begin when you have 1 dollar, not when you’ve got a lot of it and have wasted away a large sum. Today I’ll introduce you to one money management technique used by the millionaires. You can use this technique to defend the money you make online.
First Cost vs. Life Cycle Cost
If you’ve ever bought something because it was the cheaper, more thrifty version, then pay special attention. You might be going about your spending all wrong and not playing proper defense with your cash-money.
Certain purchases like clothes, furniture and home improvements are very much susceptible to errors in life cycle cost analysis. This is where buying cheap turns out to be more expensive, due to future repair and replacement, than if you purchased quality up front.
Many people are discouraged by paying a larger sum up front because they don’t do the math of the life cycle expenses. Dr. Thomas Stanley, who gave us the 13 Success Secrets of Real Millionaires interviewed over 1000 millionaires and came up with some interesting results.
- Furniture purchases. Dr. Stanley’s interviewed showed that real millionaires were likely to purchase an antique dining room table for $10,000 because it could be refinished and repaired. While not modern, this type of table is aesthetically pleasing, can be passed on to your children, and retains it’s value throughout the lifetime.
- Clothing purchases. Wealthy people are likely to buy shoes which one would consider to be too expensive. However, they will wear them often, resole them when needed, and hold on to them for many years. Contrast that with a college student who buys $100 sneakers and switches them up frequently. Who is really paying more money per shoe wear?
- Home improvements. To hire a pro or do it yourself? That is the question. While it may seem cheaper to do a repair yourself you may want to take a couple of factors into consideration. If you’re doing the plumbers job, who is at work doing your job? You’re losing money. If a repair needs to be made, or your faulty installation endangers your family, who is to answer for this?
I’m going to keep this list short in order to give you a feel of what life cycle costs are all about. In the comments section I would like you to share your real life experiences with utilizing this system to defend your dollars.
- Posted in Ramblings
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I always thought that the dollars depreciated value doesn’t concern you at all because you already leave in the states.
Reply to this commentRegardless of where a person lives, if their currency devalues it will affect them. Imports, which make up a considerable portion of American goods, will be more expensive. You can’t isolate yourself from currency problems in today’s global economy.
Reply to this commentYes but it affects John’s internation competitiveness
Reply to this commentHi Alex,
Great post… as usual! I absolutely agree with you that many times it makes sense to pay more for quality than save money upfront.
As you asked for examples, several quickly comes to mind… but here is a simple example. I have owned my home for about 15 years not and the first 5 or so I went through 2 dishwashers. I purchased whichever ones were on sale at Sears. First of all, they did not do that great of a job of cleaning dishes and then they both crapped out before they were even 3 years old.
The next one I bought was a much higher end model and cost about the same as the other 2 combined. The big difference is it does a GREAT job washing dishes (faster, cleaner dishes and less water use) and I have had it over 8 years now and it is still working like a champ. Overall a much better value!
Keep up the great writing
Reply to this commentWow that was some really well thought out stuff! I never thought that a pair of $10 shoes might not last….
this is money management for morons.
come on Chowman!
Reply to this comment2 totally not useful posts. I was surprised today by John
Reply to this commenteven if that guy paid me for these posts … I wouldn’t have accepted.
You may not feel the need for this post but others are in comparison to your views.
Reply to this commentClothing and furniture is huge. Save now and pay later by going cheap!
Reply to this commentCars fall into this category big time. Buying a used car that is past its prime will cost you big time in repairs. Here you need to do your homework and buy a reliable vehicle that has a good track record and affordable replacement parts.
Reply to this commentThis pretty much applies to everything in life. Quality last 10 times longer than cheap and ends up costing 10x less in the grand scheme of things. It’s amazing how so few people seem to understand this….
Reply to this commentSave your money and pay less than you need, that’s the key to have a good self-managed financial.
Reply to this commentHave to agree with the points in this post.. Actually small people think small and spend more, big people think wise and actually save more also maintaining their name and levels
Reply to this commentI thought the home improvement idea was bang on. When you do the work yourself, you’re essentially learning on the job working (and making mistakes on) your own place! When you’re done, you’ll have the skills to help someone else, but at what cost have you acquired that knowledge? Do what you do best and let others do the rest is often a good rule of thumb.
- Dave
Reply to this commentYes, leverage is a powerful tool. Don’t rely on learning things yourself. Learn what you can, but if it requires significant expertise, and your time would be better served focusing on other things, hand the job off to someone else.
Reply to this commentA lot us misunderstand that ,a rich person will have a big house ,big car and all luxury items.In fact ,i saw a lot of Millionaires become “BROKE”within a year because spending is more than saving;To have a sustainable income,we still have to back to basic”Is not how much we earn,but is how much we save”
Reply to this commentThe millionaire next door was one of my favorite books. Not all millionaires live the flashy life.
Reply to this commentI don’t think this article says anything about flashy. Just realizing that quality costs extra. Quality doesn’t necessarily equal flashy
Reply to this commentAgreed: Quality and flashy are not the same.
Reply to this commentYes you are right. Spend the money wisely. dont go for cheap (they might be costly in future
)
Reply to this commentThe one thing thats being overlooked here is how the millionaires got to be millionaires in the first place. They re-invested in their businesses. Imagine how many pairs of shoes and how many sofas you could buy in you skipped some purchases now and bought advertising space on blogs with more traffic than yours. Just a thought.
Reply to this commentThat’s obviously another problem. Millionaires didn’t spend away when they didn’t have money. They invest money and time in a business that grew and ultimately provided them with consistent cash flow. They then use that cash flow to buy all the assets they want.
Reply to this commentYou can save on those clothing and furniture by just buying a second hand. This is just a common thing in our part of the country!
Reply to this commentYou can save money by eating Kraft Dinner 3x a day…or better yet…Mr.Noodles. You might die young, but you you’ll save!
Reply to this comment[quote]When you do the work yourself, you’re essentially learning on the job working (and making mistakes on)[/quote]
Reply to this commentLet the pros do these jobs and they have to guarantee their work
Interesting post. I’ve never been one to just spend my money on expensive things.
Reply to this commentThat’s odd. The majority of people I know who have money (6 figure incomes etc) are relatively cheap bastards.
But then you do get the occasional one (like my CEO) who has 7 vehicles (2 bentleys) all leased though, adding $800,000 worth of renovations to his home bought his wife a $150,000 diamond solitaire ring etc etc.
For me, I love doing my own repairs/renovations. I don’t have the money to pay someone else and I like working with my hands so I do my own repairs and I do a pretty good job at it too!
Reply to this commentCan you fix my sprinklers?
Reply to this commentI will never understand the point of having 7 cars. I can understand having 3, but 7?
Reply to this commentYeah it seems like there are quite a few wealthy people who are very careful about there spending habits. If your rich you really do have to be careful that you don’t just waste your money. People who win the lottery often spend it all. So the ability to maintain wealth is something that only a minority of people can do.
Reply to this commentWith the plumbing example just remember time is money. If you could be making $XXX by working for two or three hours you might be better of getting a professional trade person to do your repair. Problem is finding a good tradesperson but thats another issue.
Reply to this commentGreat post. Becoming wealthy requires thinking like a millionaire. It’s not about whether you spend money. It’s about how you spend it, and what you’re spending it on.
Reply to this commentA prime example from my experience is watches. I’m a clumsy bastard and used to break my watches constantly, having to replace them usually once a year. Then I bought a mid-range Bulova - not too expensive but expensive enough that people thought it was a stupid purchase. That watch has lasted over a decade despite horrendous abuse.
You never realize what crap people suffer with until you’ve gone high quality.
Reply to this commentI know this post may seem very basic to some, but I’ve found that even someone you think is extremely intelligent may have a hang up when it comes to money management. I’ve seen people of meager means accumulate a massive nest egg because they understood the value of a dollar held versus a dollar to be earned. Good post!
Reply to this commentClose to when my wife and I got married 14 years ago we bought a leather couch and love seat for around $3,200. Seems expensive, but it still looks brand new and we will probably own them for the rest of our lives. I think they were a pretty good investment.
Reply to this commentIt’s all about making smart investments and wisely budgeting your money. You can spend your money on expensive things, but you have to know your limits. Many people who are not millionaires may not be smart enough or have the self control to be able to actually hold on to their money.
Reply to this commentClothing purchases … I like the idea of changing shoes frequently. I buy alot of expensive shoes and I am a college student. I don’t change my shoes frequently because I have so many I just wear one monday, so another one the next day. This way the shoes last long.
Reply to this commentI think i need to marry a CA to take care of my finances
Reply to this commentbtw how do u vouch for a quality product? what if big companies just put the same cheap product in a fancy box with hefty price tag? Does buying such product help save?
Frugal living is the way 2 go.
Reply to this commentI doubt if the so called big companies will do such,they are already big so what have they got to gain by reducing the quality of their goods.The author didn’t say that you should not save but was pointing out the obvious.I remember buying clothings on sales on several occasions but ended up not wearing them,how have i saved money in this case.
Reply to this commentI agree with you about buying quality,when we were transfered to Paris for work,the company gave each family about 18,000 euros to buy a car,about 90% bought used cars at a cheaper price to save money.My husband added 6,000 euros to ours to buy a new car of our choice,while others were going for repairs we never had cause to do so in 2yrs.Apart from saving money from repairs,we were able to trade in the car for 18,000 euros that is after 2yrs of driving it around Europe.We were able to do so at the car show room where it was bought,we added another money and was able to buy my dream car which we exported back home when we were leaving Paris.The 90% that bought used cars,were not able to afford a new car when it was time to leave which was there initial plan.The case here was we all had the same amount given to us but we chose to spend it differently.
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