As we approach the holiday season many of us are preparing to buy gifts for our loved ones. We are constantly enticed by zero interest deals and Black Friday jump starts our buying season. Emotions run high and many people escape reality by experiencing the joy associated with a nice shopping spree. Before making snap decisions it is very important to evaluate the actual cost of an item when it is finally paid in full. Marketing campaigns are meant to create enough desire and value to motivate us to purchase a product or service. What we often consider a “good deal” may not be as good as we think once we take a closer look at it. I often advise clients to look at the total cost of ownership (TCO) when buying goods and services. TCO represents the actual amount that will be paid at the tail end of a purchase or finance term. Let’s look at the purchase of a $2,000 projection TV as an example.
Cost of the TV : $2000
Annual Interest Rate: 18%
Minimum Payment: $40 monthly
Interest Payments: $1724
Number of payments: 94
Number of years to payoff: 7.83
Total Coat of Ownership: $3724
By making a minimum monthly payment of $40, the TV actually has a total cost of ownership of $3,724. I think many of us would reconsider whether or not this is a wise purchase if the TCO was known prior to signing on the dotted line. Be sure to do your homework prior to making a purchase.
Shawn Smith is president of SDS Enterprises which offers real estate services including home buying and selling, mortgage loans and home security systems. She can be reached at (512) 789-6035 or sdsenterprises@suddenlink.net for more information. _________________________________________________________________________
