My friend Kosmo over at The Soap Boxers wrote an article that reminded me to write of something that I’ve been meaning to write about for some time. Many consumers focus too much on the cost of something now, and rarely take the long term financial considerations into account. The Total Cost of Ownership (TCO), is a business term for analyzing all the ramifications of purchase decision. Microsoft has used this for years to keep customers from defecting to Linux, a free operating system.
[Note to Regular Readers: I know you may already know this. However there are still millions of consumers who don’t. If you know someone who this could help, please spread the word.]
The Total Cost of Ownership of a LightBulb
Let’s start with Kosmo’s article: Is a $50 Light Bulb Affordable? The article shows the math of why spending $50 for an LED lightbulb will end up saving you around $75 over the life of the bulb. It doesn’t sound like much, but if you are as Lazy as I am, you like not having to buy and store a bunch of incandescent bulbs and changing them, while saving money.
This is a no-brainer to me. The only question is whether you prefer to save even more money by going with Compact Fluorescent Lightbulbs (CFLs), which have mercury and require special handling.
I suppose there’s the small percentage of people out there who can tell the difference between the types of light. I would imagine that most of those people would adapt to it. Chances are if CFLs came first, incandescent bulbs would seem odd.
The Total Cost of Ownership of a Mobile Phone Service
Like the lightbulb, people focus too much on the cost of the phone itself. They ignore the more expensive component, the cost of the service. When the iPhone came out, I thought it was pretty cool, but I already had a smart phone that did email better (physical keyboard) had music, the web, and a bunch of other stuff. It was the Palm Treo 600 (or 650). The data plan cost me $30 a month. The iPhone evolved (even learning how to SMS photos), but the plan jumped up to around $80 for most people. That’s a large chunk of change.
For awhile I jumped on board the expensive cellphone plan with Sprint. For around $70 a month, I could use a Palm Pre. It was good for awhile, but finally, I saw the light and went to Virgin Mobile’s $25 unlimited data plan (it’ll cost you $35 now). I’ve got an Android phone in the Motorola Triumph. While I think it is a large step back from the Palm Pre, the mass market has spoken and they like Android slab phones. So instead of spending $840 a month on service ($70 times 12), I’m spending $300. Each year I save around $540.
The difference in the price of the phone is miniscule compared to the $540 I’ll save every year.
The Total Cost of Ownership of Landline Phone Service
Let’s take the mobile of the above example. I used to pay around $40 a month for plain old telephone service (POTS in industry jargon). When Vonage came out, I switched to their $15 plan saving me $25 a month. It was a simple subscription change, I didn’t have to buy anything upfront.
However, a year ago, I switched to Ooma Telo free home phone service, and it has been awesome. I paid around $150 upfront (I got a deal) and now only pay about $3 in taxes and regulatory fees a month for home service. Since I had to pay those with Vonage, I have saved the full $15 a month that I paid with Vonage. In ten months, I broke even. The last two months have been savings. Each year I stick with Ooma, I’ll save $180.
The Total Cost of Ownership of Fresh Water
Okay ownership of water is a weird one. I know a number of people who don’t own a Brita water pitcher. I see these same people buying bottled water. I don’t understand it at all. A one-time investment for a Brita pitcher is under $20 and the filters last months working to give you many, many gallons of water.
I get that there’s a convenience factor to bottled water. However, with just a little planning ahead, you can save your $1 very easily, and get a better product. What? A better product? Yep. Bottled water isn’t necessarily filtered or as pure as Brita. In fact, it is about the same as tap water. In addition, with the Brita solution you can avoid that whole BPA nastiness.
The Total Cost of Ownership of Website Hosting
I know most of you probably won’t care about this one, but it home for me recently. I had be running this website using Amazon Web Services, a service that is very economical if you happen to have some Linux technical skills. I didn’t choose Amazon Web Services just to save a couple of dollars, I did it because I wanted to brush up on some technical skills that had gotten a little rusty. It all went smoothly until my website was attacked. Then it started to take too much of my time to defend the attackers.
The solution was to move the site to WP Engine, a hosting provider that fights the attackers for you. This site is much faster now than it was before the attack. I pay $100 a month, where Amazon was costing me around $60, but it is worth it, because I don’t have to deal with any attacks. If something goes wrong, they are on it right away. In the past, when something went wrong, I would put on my Linux system administrator and spend time fixing it. Now I can use that time to write articles like this one. Focusing on my business gives me a greater return than the cost of the more expensive hosting.
Unlike the other examples, this web hosting one is more about me spending money to save time and using that time to make more money. Still, I felt compelled to include it as it is just the most recent reminder of spending more to save.
These changes don’t seem like much, but they add up to save you probably a $1000 a year or more. Do you have more tips on how to spend a little money to save more in the future?