What “True Cost to Own” Means and Why It Matters for Big Purchases

If you’ve ever purchased a new car, you’ve probably come across “true cost to own” calculators, such as this one at Edmunds. These tools help you figure out how much the car will cost you to buy and keep over several years. They factor in costs like gas, maintenance, repairs, insurance, and depreciation – the amount of value the car loses over time. Once you know all this, you can understand the true cost of ownership for that car – not just the sticker price.

However, people don’t often calculate the true cost to own with other kinds of purchases. For instance, when you buy a refrigerator, you don’t always think about how much energy it will use, or how costly it will be to repair it if it breaks. But all these factors can make a big difference. An expensive, inefficient fridge that breaks down often could end up costing you hundreds more than an efficient, inexpensive one that never needs repairs.

Figuring out the true cost to own before you buy is part of being a smart shopper. It helps you look past the number on the price tag and pick the product that will be the best deal for you in the long term.

When the True Cost to Own Is Worth Knowing

Obviously, it’s not worth calculating the true cost of ownership for every single thing you buy. For example, when you go to the grocery store, you know that you’re only going to own that dozen eggs and that head of broccoli for as long as it takes to cook and eat them. The cost of owning these items is essentially the same as the cost of buying them.

However, it’s worth taking the trouble to calculate the true cost of ownership when you buy something if:

1. It’s a Long-Term Purchase. There’s no need to calculate the cost to own something unless you actually plan to own it for a while. For instance, whenever you make a one-time purchase – something you expect to buy only once in your life, such as a big piece of furniture – it’s worth thinking about what it will cost you over the long term. However, it’s also worth doing the math for things you will probably have to replace someday, but not for at least a few years. This category could include a new tool, a TV set, or even a good pair of shoes.
2. It’s a Significant Purchase. You might expect to have a new pair of socks or underwear for a few years, but the cost of these items is usually too small to worry about. It’s only worth doing the math if you’re shelling out a significant sum of money for a purchase. How much money constitutes “a significant sum” varies from person to person. To a billionaire, even a $500 purchase could be too small to worry about. By contrast, if you’re living on minimum wage and counting every dollar, a purchase as small as $20 is worth thinking carefully about.
3. It Has Ongoing Costs. There are some things you buy once and never expect to spend money on again, such as books or decorative knickknacks. For these, the true cost of ownership is the same as the price on the label. However, other items continue to cost money after you’ve bought them. For instance, anything that runs on electricity adds money – if only a small amount – to your monthly electric bill. Other items, such as a bicycle, don’t use any fuel, but they cost money to maintain so they stay in working order.

You only need to do the math on a purchase if it meets all three of these conditions. However, there are probably more items in this category than you think. Consider all the things it’s possible to spend large sums of money on – clothing, electronics, appliances – and you’ll find that most of them are long-term purchases with ongoing costs. That means that doing the math on true cost to own is a worthwhile endeavor nearly every time you make a large purchase.

True Cost to Own for Different Types of Products

True cost of ownership can include a wide variety of factors. For products that use energy, fuel cost is an issue. For other items, you need to think about the cost of maintenance, repairs, and cleaning.

It’s also important to consider how long you’ll be able to use the item. For example, a new mattress that will last you 10 years might cost more than one that will wear out after five. However, the more expensive mattress could be cheaper in the long run because you won’t have to replace it as soon.

A final factor to consider is that some purchases can actually save you money. For instance, if you replace an old, energy-guzzling fridge with a new, efficient one, the lower power use will reduce your utility bills. Likewise, if you buy a new tool and use it for DIY home repairs, you’ll spend less money on contractors. Savings like these help to offset the other costs of ownership and, in a few cases, can even bring your true cost to own down to zero.

1. Cars

The one type of product that’s most widely analyzed in terms of cost to own is a new car. A car’s true cost of ownership includes:

• Depreciation. One of the biggest costs of owning a car, obviously, is the price of the car itself. However, you can get back part of this cost when you trade in the car. The difference between the price you paid for it and the price you can get for it when you sell is called depreciation. A new car depreciates most in its first year and less each year as it gets older. Thus, the longer you keep your car, the less you’ll lose to depreciation, on average, per year. Depreciation costs vary from car to car; sites like Kelley Blue Book (KBB) and Edmunds can help you figure out the cost of depreciation for a specific model.
• Financing. If you take out a new car loan, the amount you pay for the car will also include finance costs. To figure out what you’ll spend on this, you need to know three things: how much money you’ll borrow to buy the car, the length of the loan, and the interest rate. You can punch these numbers into a loan interest calculator like the one at Bankrate to find the total interest cost. Of course, if you’re buying your car with cash, you can skip this step.
• Taxes and Fees. The final part of a car’s sale price is sales tax, which varies from state to state. On top of this tax, each state charges certain yearly fees for car owners, such as driver’s license and registration fees. On the other hand, there are certain types of cars, such as electric cars and plug-in hybrids, that can get you a credit of up to $7,500 on your federal income taxes. This credit partly offsets the cost of the car, lowering your true cost to own. You can see which cars qualify for this credit at FuelEconomy.gov.
• Gas Costs. Obviously, some cars use a lot more gas than others. If you buy a big SUV, you’ll spend a lot more money keeping it fueled up than you will if you choose a little hatchback. To figure out how many gallons of fuel a given car will use per year, you need to take the number of miles you drive in a year and divide it by the car’s economy rating in miles per gallon, which you can find at FuelEconomy.gov. Multiply that total by the cost of a gallon of gas in your area to get the car’s annual fuel cost.
• Electricity Costs. If you’re considering an electric car, such as the Nissan Leaf or Chevrolet Bolt, you need to look at the cost of electricity rather than gas. You can find the car’s energy consumption rate in kilowatt-hours (kWh) per 100 miles on FuelEconomy.gov. Multiply that by your home electricity rate to determine the cost per 100 miles. Then divide your yearly mileage by 100 and multiply this number by the cost per 100 miles to find your energy cost per year.
• Maintenance and Repairs. All cars have some maintenance costs, such as oil changes and new tires. However, some cars have more expensive parts than others, and some are more likely to break down and need extra repairs. KBB and Edmunds estimate repair costs by looking at how much it would cost to buy an extended car warranty that covers all repairs for a particular model.
• Insurance. The cost of car insurance depends on a lot of different factors. The type of car matters, but so does your age, location, and how much coverage you get. The KBB and Edmunds cost-to-own calculators estimate your insurance cost by looking at the average for your state, but you can get a more accurate estimate by using the insurance estimator at CarInsurance.com.

The cost-to-own calculators at KBB and Edmunds can show you at a glance how all these costs add up for a particular model of car. If you’re considering several different models, you can run the numbers separately on each model to see which vehicle would be the most expensive over its first five years.

2. Appliances

In some ways, appliances are a lot like cars. A large appliance is a major purchase – it uses energy, and it occasionally needs repairs. Thus, a lot of the costs of owning an appliance are similar to the costs of owning a car. They include:

• Purchase Price. As with a car, the biggest factor in an appliance’s true cost of ownership is the actual price tag. However, one key difference is that you don’t usually trade in an appliance when it gets old; you just dispose of it. This means that you don’t need to bother working out the cost of depreciation. Instead, estimate how many years you plan to own the appliance, and divide the purchase price by that number.
• Energy Cost. Appliances vary widely in the amount of energy they use. For instance, a 30-cubic-foot French-door refrigerator can use over $100 worth of electricity per year. By contrast, a 20-cubic-foot top-freezer fridge with the Energy Star label could use only $50. Choosing the smaller, more efficient fridge is an easy way to save energy at home. When you shop, check the yellow “Energy Guide” labels on the appliances you look at to get an estimate of how much they’ll cost per year to run.
• Repair Costs. There’s no way to predict how often your new fridge or washer is going to break down. However, you get a rough idea of how reliable it’s going to be by checking the reliability ratings in Consumer Reports. The magazine surveys owners of various appliances and finds out what percentage of them have needed repairs within the first five years. It compiles this information to show which brands are most and least reliable overall. Choosing a more reliable brand reduces your risk of having to pay for an expensive repair.
• Savings From Use. In some cases, a new appliance can actually save you money. For instance, Consumer Reports has found that front-loading washing machines are gentler on clothing than top-loading models. That means replacing your old top-loader with a new front-loader can make your clothing last longer, reducing your costs for new clothes. Unfortunately, the exact value of this savings is hard to estimate. However, if you’re shopping for a washer, knowing about this difference between top-loaders and front-loaders could help you decide which type to buy.

Adding up all these costs is the best way to get a realistic picture when comparing different appliances. It can also be useful for deciding whether you want to buy a new appliance in the first place. By calculating how much an old appliance costs each year for electricity and repairs, you can see how a new model would compare to your old one over the long term. Then you can make an informed choice about whether or not to repair or replace the old one.

3. Computers

When buying a computer, you have to consider not only the cost of the machine itself, but also the cost of the “ecosystem” that surrounds it. For instance, if you choose a Macintosh computer, you know it will work well with other Apple products, such as the iPhone, iTunes software, and the Siri digital assistant. Choosing a PC makes it easier to work with competing products, such as an Android phone, Spotify, and Amazon’s Alexa.

Here are some of the costs involved in owning a computer:

• Purchase Price. The more you want your computer to do, the more you’ll have to pay for it. A top-of-the-line computer that can handle advanced computer games will run you $1,000 or more. By contrast, a mini desktop computer that’s good for Web surfing, composing documents, and streaming audio could cost as little as $225.
• How Long It Will Last. Just knowing a computer’s purchase price doesn’t tell you how much it will cost to own per year. You also need to figure out how many years of use you’ll get out of it. The typical lifespan of a desktop computer is around five years. However, your machine could last longer if you choose one that’s easier to upgrade. When you buy the machine, look at how easy it is to add extra memory or replace the hard drive and graphics card. Being able to do simple hardware upgrades like this will increase the lifespan of your machine and lower its true cost to own.
• Software Costs. Another big difference between computers is what kind of software they use. Switching to a new computer with a different operating system – from a PC to a Mac, or to a new version of Windows – could “break” your existing software. You could end up having to buy lots of new software to go with your new machine, adding to its cost. Worse still, your new machine could lock you in to using a new, more expensive suite of software than what you have now. For instance, a standard suite of Microsoft Office software costs $40 more for a Mac than for a PC. That means if you buy a Mac, you’ll have to buy this pricier version of Office every time it gets upgraded. When you shop for a computer, look at what software comes with it, and what new software you might have to add. Then factor the cost of that software – and future upgrades – into the purchase price.
• Peripherals. Along with software programs, certain types of peripherals – printers, monitors, keyboards, and so on – don’t work with every computer. For example, if you have a fairly old printer, your new computer may not know how to communicate with it. That means you’ll have to tack the price of a new printer on to what you just spent on the computer. While you’re computer shopping, check to see whether the computer you’re considering can work with all your old peripherals. If it can’t, you’ll know you need to factor the cost of new ones into the total price.

4. Tools

With cars, appliances, and computers, it makes sense to think about the true cost of ownership in terms of dollars per year. After all, these are things you’ll use all the time – at least once a week, if not every day.

Power tools are a different story. You could spend hundreds of dollars on a shiny new tool and then only pull it out once or twice a year. So, when you’re shopping for a power tool, it makes more sense to focus on the cost per use, not the cost per year.

Here’s what that cost includes:

• Purchase Price. First, look at the actual price of the tool itself. If there are any extra parts it needs to make it usable, such as a battery and charger, make sure to include those in the price.
• How Often You’ll Use It. Next, you need to estimate how many times you’ll actually use your new tool. Try to be honest with yourself about this. It’s easy to rationalize that it’s worth dropping $400 on a gorgeous new miter saw because you’ll use it all the time for home improvement projects, such as cutting molding. But if there’s only one room in your house that actually needs new molding, that’s $400 for a single use.
• Energy Costs. Every power tool uses some kind of fuel – electricity, gasoline, or propane – and that fuel costs money. Unfortunately, unlike appliances, tools don’t come with a label that shows you their expected energy cost. However, you can compare the wattage for different electric tools to get a general sense of which one will cost more to run. For tools that run on gasoline or propane, you can look at reviews to get an idea of how fuel-efficient each model is. If you have the choice between a tool that runs on either electricity or gasoline, electricity will generally cost less. Propane-powered tools, by contrast, usually cost more to run, unless gas prices are very high in your state.
• Maintenance. Fuel isn’t the only thing a tool needs to run. Most tools require at least some maintenance: oil, filters, batteries, or replacement blades. These parts and accessories cost more for some tools than for others, so factor these costs into the price as well.
• Repair. Like appliances, tools can break, and the cost of repairing them varies. You can’t predict whether your new tool is going to break, but you can look at what reviews say about the reliability of a particular brand or model. You can also look at the warranty to see which repair costs it will and won’t cover.
• Potential Savings. In some cases, it can be worth buying a new tool, even if you only plan to use it once. If buying that tool allows you to DIY a home repair instead of hiring a contractor, you could save more money on the job than you end up spending on the tool. For instance, the cost of tiling a bathroom is about $25 per square foot, according to Improvenet. That means if you have more than four square feet of tile to install, it’s cheaper to buy a $100 wet saw and do it yourself. Even if one DIY job doesn’t pay for the tool completely, it could be enough to bring its cost per use down to a reasonable amount.

5. Clothing

Clothes, like tools, don’t get used every day. However, some get a lot more use than others. For example, you could wear the same winter coat every day throughout the winter – say, around 100 days out of the year. By contrast, a fancy evening dress might only get pulled out once or twice a year.

That’s why fashion experts talk about the true cost of ownership for clothes in terms of “cost per wear.” The cost per wear, or CPW, is simply the cost of the garment divided by the number of times you wear it. Using this formula, you can plainly see that a $100 pair of dress pants you wear 100 times – say, once a week for two years – is a much better buy than a $20 pair of flip-flops you only wear twice. Thinking about clothing this way encourages you to spend more on “investment” pieces – well-made classics you’ll wear for years – and less on cheap, trendy clothes that lose their appeal quickly.

Here’s how to calculate the cost per wear for a garment you’ve got your eye on:

• Purchase Price. Start with the price tag on the garment. A high price doesn’t have to be a deal-breaker if it’s a piece you’ll wear often – but there’s no reason to spend a fortune if you don’t have to. At thrift stores, consignment stores, and discount stores like Marshall’s, you can often find high-quality clothes without the high price tag.
• Practicality. Next, you have to figure out how often you’ll actually wear the garment. The items you’re most likely to wear often are ones that fit your everyday lifestyle. For instance, if you work in an office, you need business or business casual garb for every day. Casual clothes, such as jeans, might be useful only on the weekends, and a dressy outfit is likely to get the least use of all. Similarly, a heavy winter coat is a practical choice if you live in a cold climate, but not if you live in an area with only two or three really cold days per year.
• Versatility. Some pieces can be worn for lots of different occasions. For example, you can wear a tweed jacket to the office or to a football game and it will look appropriate either way. The more versatile a clothing item is, the more likely it is to get lots of wear.
• Durability. To figure out how many times you’ll wear a garment, you need to think not only about how often you’ll wear it but also how long it will last. This is where buying quality clothing can really pay off. A well-made piece constructed with heavier fabric, secure seams, and sturdy zippers is likely to cost more up front, but its longer lifespan can make it cheaper in the long run.
• Repairability. Even the sturdiest clothing will wear out eventually. However, some pieces can be repaired when they start to show signs of wear, extending their lifespan. For instance, on a pair of shoes, the sole is usually the part that wears out first. This often leaves you with no choice but to throw out the entire shoe, even if the uppers are still good. However, with some types of shoes, you can replace the worn-out soles with new ones and get more use out of the shoes. This process isn’t cheap – usually around $50 for a full sole – but it’s often cheaper than buying a whole new pair of shoes. This means that any shoe that can be resoled – in other words, one on which the sole is a separate, detachable piece – has a longer expected lifespan than a shoe with a molded rubber sole.
• Fashion. Some clothing pieces quickly become useless, not because they’re worn out, but because they’re out of style. A trendy item that’s at the height of fashion this season will look dated before six months have gone by. That gives these high-fashion clothes a higher CPW, because their lifespan is inherently limited. By contrast, timeless pieces, such as plain white shirts, blue jeans, and trench coats, can be worn year after year, lowering their CPW.
• Cleaning Costs. As with cars or tools, clothing has a maintenance cost. A garment that needs to be dry-cleaned will cost you an extra $5 or so, on top of its purchase price, for every time you take it to the cleaner. True, most pieces don’t need to be cleaned every time you wear them, but dry-cleaning costs can still add as much as a dollar to the CPW.
• Potential Savings. In a few rare cases, buying a garment is an investment that saves you money. For example, you might be a man who often goes to formal parties and have to rent a tuxedo each time, at about $100 a pop. This makes buying a tux for $700 start to look like a pretty good deal. Each time you wear it, you save about $85 ($100 you don’t have to spend on a rental, minus about $15 to have the suit dry-cleaned). At that rate, it will only take nine uses to bring your CPW to less than zero. However, this strategy only works if you’re sure you’ll stay the same size. If the next nine formal parties you go to are spaced so far apart that you gain or lose a lot of weight in the interim, your $700 tux won’t fit, and you’ll have to rent after all.

Final Word

Most of the time, it isn’t possible to figure out the true cost to own for a product exactly. There are just too many variables that are hard to calculate, such as repair costs or expected lifespan. You can get a rough idea of whether one product has a higher cost to own than another, but you can’t get a precise dollar amount.

But that’s okay, because a rough idea is all you really need. Even if you can only estimate the true cost to own in general terms, it still gives you a more accurate idea of a product’s cost than simply the number on the price tag. Whether you’re shopping for a car, a tool, or a computer, the true cost to own helps you compare different models accurately and get a clearer sense of which one is really the best buy.

On top of that, calculating the true cost to own can help you decide whether it’s a good idea to buy a new item at all. When you take a clear-eyed look at how much a new car will cost you and compare that to how much your old one is costing you right now, you might end up deciding that the car you already have offers the best value after all. That’s a decision that can save you really big money.

Can you think of any other products for which a “true cost to own” calculation would be useful?