Have you ever bought something only to find the total cost of ownership (TCO) is much greater than you initially thought? Many times a purchaser underestimates the real cost of a purchase by only considering the initial price.
Total cost of ownership is the upfront price plus any ongoing maintenance or spending required. A car’s TCO includes purchase price, insurance, gasoline, and maintenance. A hobby’s TCO is, also, likely to have ongoing expenses. For example, golfing might require the purchase of clubs upfront and ongoing costs for green fees and replacing balls or tees.
My family’s primary hobby is riding horses. My Dad put me on a horse as soon as I could stand and I always wanted to provide that same opportunity for my kids. As my kids have gotten older, I have spent a lot of time thinking about whether horses should be one of our hobbies. Total cost of ownership is the primary reason I often reconsider our investment in horses.
The best way to determine the TCO of a particular hobby is to annualize the upfront costs then sum the annual ongoing costs. Here is my analysis for a horse hobby.
Total cost of ownership is the upfront price plus any ongoing maintenance or spending required. A car’s TCO includes purchase price, insurance, gasoline, and maintenance. A hobby’s TCO is, also, likely to have ongoing expenses. For example, golfing might require the purchase of clubs upfront and ongoing costs for green fees and replacing balls or tees.
My family’s primary hobby is riding horses. My Dad put me on a horse as soon as I could stand and I always wanted to provide that same opportunity for my kids. As my kids have gotten older, I have spent a lot of time thinking about whether horses should be one of our hobbies. Total cost of ownership is the primary reason I often reconsider our investment in horses.
The best way to determine the TCO of a particular hobby is to annualize the upfront costs then sum the annual ongoing costs. Here is my analysis for a horse hobby.
I haven’t included the cost of a vehicle to tow the trailer because we need a vehicle one way or the other. Even when we didn’t have horses (we took a break from horses for ten years) we had a vehicle with the ability to tow a trailer. If we only had our truck for horses, then I would include it in this analysis.
Not all upfront costs can be recouped if you choose to get out of a hobby. Some of these costs become sunk (spent and non-recoverable) as soon as you make the purchase. With horses, much of the upfront expense can be recouped. For example, I could get most of my investment in a horse back if I chose to sell him after a year. I may even be able to make a profit, but would never plan on that as part of a hobby analysis.
Seeing the bigger picture of a purchase, like a five year horse hobby, helps clarify and understand if it is right for you. Most other costs associated with horses are optional, so this gives us a good feel for what we are committing to over a longer period. An exercise like this sure raises big questions when you see five years of horses might pay for one or two years of college. Total cost of ownership analysis makes us far wiser consumers.
Knowing this information before we decided to start our horse hobby helped us decide if it was right for our family. We have three horses, so the annual cost is a big investment. I wouldn’t have wanted to be surprised by the maintenance costs. Our entire family enjoys horses and it brings us together. We could have gotten that from a lot of hobbies, but the ancillary benefits swayed us to having horses. Our oldest son wants to be a veterinarian and animal experience is one of the biggest factors in vet school acceptance. Also, our kids have learned to care for something other than themselves, work for something they enjoy, and have patience and love for an animal. Horses are a good choice for us right now, but the costs are certainly something that keep us asking whether we're getting enough from our investment.
Most of my life I only considered the upfront costs associated with a purchase. TCO analysis has helped us make more informed decisions. It can be used for nearly any purchase or investment including homes, cars, or hobbies. If you are choosing between multiple items you can do the TCO for each then compare the outcomes. Many people use TCO to decide between purchasing or renting a home.
What other tools have you used to decide if a purchase or hobby was right for you and your family?
Not all upfront costs can be recouped if you choose to get out of a hobby. Some of these costs become sunk (spent and non-recoverable) as soon as you make the purchase. With horses, much of the upfront expense can be recouped. For example, I could get most of my investment in a horse back if I chose to sell him after a year. I may even be able to make a profit, but would never plan on that as part of a hobby analysis.
Seeing the bigger picture of a purchase, like a five year horse hobby, helps clarify and understand if it is right for you. Most other costs associated with horses are optional, so this gives us a good feel for what we are committing to over a longer period. An exercise like this sure raises big questions when you see five years of horses might pay for one or two years of college. Total cost of ownership analysis makes us far wiser consumers.
Knowing this information before we decided to start our horse hobby helped us decide if it was right for our family. We have three horses, so the annual cost is a big investment. I wouldn’t have wanted to be surprised by the maintenance costs. Our entire family enjoys horses and it brings us together. We could have gotten that from a lot of hobbies, but the ancillary benefits swayed us to having horses. Our oldest son wants to be a veterinarian and animal experience is one of the biggest factors in vet school acceptance. Also, our kids have learned to care for something other than themselves, work for something they enjoy, and have patience and love for an animal. Horses are a good choice for us right now, but the costs are certainly something that keep us asking whether we're getting enough from our investment.
Most of my life I only considered the upfront costs associated with a purchase. TCO analysis has helped us make more informed decisions. It can be used for nearly any purchase or investment including homes, cars, or hobbies. If you are choosing between multiple items you can do the TCO for each then compare the outcomes. Many people use TCO to decide between purchasing or renting a home.
What other tools have you used to decide if a purchase or hobby was right for you and your family?
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