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.

  1. 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.
  2. 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?
  3. 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.

42 thoughts on “Defend Your Dollars: Analyze Your Life Cycle Costs”

  1. Azrael says:

    I always thought that the dollars depreciated value doesn’t concern you at all because you already leave in the states.

    1. Hannah says:

      Regardless 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.

    2. Yes but it affects John’s internation competitiveness πŸ˜‰

  2. Doug says:

    Hi 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 πŸ™‚

  3. pennyblogger says:

    Wow 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!

    1. Sava says:

      2 totally not useful posts. I was surprised today by John
      even if that guy paid me for these posts … I wouldn’t have accepted.

      1. You may not feel the need for this post but others are in comparison to your views.

  4. Clothing and furniture is huge. Save now and pay later by going cheap!

    1. Cars 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.

  5. Jarel says:

    This 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….

  6. Ecko says:

    Save your money and pay less than you need, that’s the key to have a good self-managed financial.

  7. Chetan says:

    Have 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 πŸ™‚

  8. I 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

    1. Robert says:

      Yes, 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.

  9. Felex Tan says:

    A 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”

  10. eBusinessGuy says:

    The millionaire next door was one of my favorite books. Not all millionaires live the flashy life.

    1. Ty Brown says:

      I don’t think this article says anything about flashy. Just realizing that quality costs extra. Quality doesn’t necessarily equal flashy

      1. Agreed: Quality and flashy are not the same.

  11. Fitness Site says:

    Yes you are right. Spend the money wisely. dont go for cheap (they might be costly in future πŸ˜€ )

  12. onemansgoal says:

    The 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.

    1. Robert says:

      That’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.

  13. Azrael says:

    You 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! πŸ™‚

  14. You can save money by eating Kraft Dinner 3x a day…or better yet…Mr.Noodles. You might die young, but you you’ll save!

  15. TOM says:

    [quote]When you do the work yourself, you’re essentially learning on the job working (and making mistakes on)[/quote]
    Let the pros do these jobs and they have to guarantee their work

  16. Sha says:

    Interesting post. I’ve never been one to just spend my money on expensive things.

  17. Tyler Ingram says:

    That’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!

    1. Robert says:

      Can you fix my sprinklers?

    2. Sha says:

      I will never understand the point of having 7 cars. I can understand having 3, but 7?

  18. Mike says:

    Yeah 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.

  19. With 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.

  20. Robert says:

    Great 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.

  21. KNau says:

    A 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.

  22. baldeagle says:

    I 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!

  23. Close 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.

  24. Mike says:

    It’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.

  25. Syed Balkhi says:

    Clothing 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.

  26. Dr. Teeth says:

    I think i need to marry a CA to take care of my finances πŸ˜†

  27. ww says:

    btw 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.

    1. tyna says:

      I 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.

  28. tyna says:

    I 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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