The Logic of Up-Front Spending

I tend to be an advocate of spending more up front on a large purchase if that purchase will have lower maintenance costs. For example, if I’m buying a car, I’ll spend more on one that has great gas mileage than an equivalent one with poor mileage (which is part of why we bought a Prius, actually), or if I’m buying a washing machine, I’ll pay more for one that uses less energy and less water. There are two pieces worth discussing here.

First, my biggest motivation when making a major purchase is the total cost of ownership. In other words, in my best estimation, how much money am I going to have to invest in this item over its lifetime, including the initial cost, regular maintenance costs, energy use, water use, and so on.

Here’s an example. I’m looking at two different washing machines. One uses 40 gallons of water per load and has an energy use of 550 watts, with a load time of thirty minutes. Another one uses 20 gallons of water per load and has an energy use of 320 watts, also with a load time of thirty minutes. I turn to Consumer Reports and it indicates that the first machine has average reliability and the second has excellent reliability. But the first washing machine costs $300 and the second one costs $600. Which one do I buy?

Well, what’s the total cost? Let’s say I do five loads of laundry a week and I want the best value over the next fifteen years. The first machine would use a total of 156,000 gallons of water – and with water costing $3 per thousand gallons, that’s a water cost of $468. The second machine would use a total of 78,000 gallons of water – and with that same $3 per thousand gallons, that’s a water cost of $234. On electricity, the first machine would use 1072.5 kilowatt hours of energy, and with electricity at roughly $0.11 per kilowatt hour, that’s a lifetime energy cost of $117.98. The second machine uses 624 kilowatt hours of energy, which would cost $68.64.

Adding these up, the first machine (the less reliable one) has a total cost of $885.98, while the second machine has a total cost of $902.64 – roughly the same. Given that the second machine is more reliable, the choice is easy – I’ll buy the $600 one and leave the $300 one at the store.

There’s another factor at work here, too, though. Once the purchase is made, the more expensive machine has a much lower cost per month of use.

Over a given month, the “cheap” machine would run 20 loads – a water cost of $2.60 and an energy cost of $0.66, totaling $3.26. The “expensive” machine, over those same twenty loads, would cost $1.30 in water and $0.38 in energy, totaling $1.68.

Every single month, without thinking, my bills go down $1.58 – and that fraction will go up as energy prices and water prices rise over time.

It’s a very simple example – and it seems like a small amount. It is a small amount. But it’s a reduction of $1.58 in spending every single month, like clockwork. I simply don’t have as much required spending.

Let’s extend that idea a bit. Let’s say I apply the same philosophy to all of the major appliances in my home. I spend a bit more to get the more efficient air conditioner, the more efficient furnace, the more efficient dishwasher, the more efficient clothes dryer, hot water heater, oven, refrigerator, deep freezer, car(s), lawn mowers, computers, microwaves, windows, doors, and so on. All of those purchases will each contribute a bit to lower my energy bills – and the cumulative effect is quite large.

To me, there’s extra value in that savings beyond mere dollars and cents. To put it simply, it’s very hard to tell what one’s future holds. You may succeed in your endeavors, of course, but our health is always a risk, as is our continued employment. Ensuring a lower monthly cost of living in the future is a bit of insurance against these things. It’s also a hedge against inflation, since over time, energy costs and water costs will rise.

Given these factors, if the total cost of ownership of two items is similar, I will almost always choose to purchase the item that is more expensive up front. It’s a great rule of thumb to apply in any purchase, given the uncertainty of the future.

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