Lifetime Cost

What Is Lifetime Cost?

Lifetime cost is the total of all other expenses relating to a good, like a car or a home, over the expected life of the product. The sum of the lifetime cost includes the amount paid to purchase the item.

Understanding Lifetime Cost

Businesses will frequently calculate the lifetime cost before making large expenditures, upgrades, and renovations. On the other hand, most individuals rarely estimate this cost before buying a home, boat, automobile, or other expensive items. Besides the base purchase price, lifetime costs include:

Another charge that could add to the lifetime cost is the alternative use of funds. In other words, there is an impact on a consumer's resources, if instead of purchasing the item the individual spent the sum differently.

Special Considerations

As an example, if a person bought a fur coat, lifetime cost would include the purchase price as well as the price to clean, store, insure, and otherwise maintain the coat. Alternatively, the individual could have invested that sum into a secure mutual fund or other security.

Often, the lifetime cost of an item may be more than the original purchase price. Perhaps, it is the origin of the saying that the definition of a boat is a hole in the water into which you throw money.

The lifetime cost of credit card debt is more than most people realize. According to Credit.com, the average borrower will pay over $279,000 in interest charges on their credit card purchases during their lifetime.

Lifetime Cost of Holding Debt

Lifetime cost may also apply to debts. For example, the lifetime cost of debt held on a line of credit (LOC) will be much more than the amount spent on goods had they been purchased with cash or other ready funds. The use of a credit card or other loan will incur interest and fees, adding to the lifetime cost of the object.

The average amount it costs to own and operate a car per year, according to the American Automobile Association's latest survey; the number includes the cost of gasoline, maintenance, insurance, license and registration, loan finance charges, and depreciation costs.

Real-World Example of Lifetime Cost

The primary reason to buy a car for most people is for transportation. They will often compare price, desired features, and different offers between dealers before buying. However, the cost of the vehicle does not end at the car lot.

Consider the costs involved with weekly gas fill-ups, periodic oil changes, insurance, licensing, and vehicle inspection fees. Still, other charges may include roadside assistance, car washes, and parking or garage rent. One can easily spend considerably more than the car's purchase value. A consumer is wise to examine the impact of incurring the annual portion of the lifetime cost of purchase before committing to buying.