Comments on: On minimizing depreciation expenses http://earlyretirementextreme.com/on-minimizing-depreciation-expenses.html Becoming debt-free is the first step to building a better world. Financial independence is the second. Doing what YOU want is the third. Thu, 09 Feb 2012 00:07:08 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: TX http://earlyretirementextreme.com/on-minimizing-depreciation-expenses.html/comment-page-1#comment-25809 TX Fri, 16 Sep 2011 19:49:34 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-25809 @Jacob I'd like to add that in addition to the physical life of an asset one should consider its economic life. In some cases NPV is optimal when an asset is sold before being fully depreciated. In other cases it pays to maintain the old depreciated asset. Other things to consider are the option to expand and the option to abandon using the real options approach in addition to NPV. @Jacob
I’d like to add that in addition to the physical life of an asset one should consider its economic life. In some cases NPV is optimal when an asset is sold before being fully depreciated. In other cases it pays to maintain the old depreciated asset.
Other things to consider are the option to expand and the option to abandon using the real options approach in addition to NPV.

]]> By: Gus http://earlyretirementextreme.com/on-minimizing-depreciation-expenses.html/comment-page-1#comment-25806 Gus Fri, 16 Sep 2011 18:32:13 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-25806 As you pointed out, for some things, it does not make sense to buy better quality (i.e., more performance). Computers are a good example: As another poster pointed out, you can buy a pretty good computer for 1,000$. It makes no sense to buy a computer that is only 10-20% faster for triple the price since a few years down the line, both will be obsolete and pretty much worthless. Same with cars. Do not buy a luxury car with the idea that you will recuperate your premium when you sell it. Eventually your depreciation cost will be the cost of your vehicle. As you pointed out, for some things, it does not make sense to buy better quality (i.e., more performance).

Computers are a good example: As another poster pointed out, you can buy a pretty good computer for 1,000$. It makes no sense to buy a computer that is only 10-20% faster for triple the price since a few years down the line, both will be obsolete and pretty much worthless.

Same with cars. Do not buy a luxury car with the idea that you will recuperate your premium when you sell it. Eventually your depreciation cost will be the cost of your vehicle.

]]> By: FreeUrChains http://earlyretirementextreme.com/on-minimizing-depreciation-expenses.html/comment-page-1#comment-25799 FreeUrChains Fri, 16 Sep 2011 16:25:02 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-25799 Computers were overpriced in the late 90s when sold by overcharging greedy companies as a "popular" model. (ex, $5000 for a pentium 1 Gateway, with 64mb of Ram and Windows 98) It is so easy to build your own customized computer, with very cheap but high quality parts. For the things that matter, you can buy at slightly higher prices. I built my AMD computer for under $1000, 23" LED Screen, mid tower case with 4 Blue LED fans and black mesh, 450GT Graphics Card ($136, best part of a PC), and a Phenon II quad core 4.0GHZ(for $60) with 8GB of ram and two more slots for another 8 GB (Now at $27), etc. I decided to buy one and only for the rest of my life :) (Though will buy into the SDD this Black November, i heard it boosts start up time by 4x, which will save me on electricity long term, because i will turn it off more often. Computers were overpriced in the late 90s when sold by overcharging greedy companies as a “popular” model. (ex, $5000 for a pentium 1 Gateway, with 64mb of Ram and Windows 98)

It is so easy to build your own customized computer, with very cheap but high quality parts. For the things that matter, you can buy at slightly higher prices. I built my AMD computer for under $1000, 23″ LED Screen, mid tower case with 4 Blue LED fans and black mesh, 450GT Graphics Card ($136, best part of a PC), and a Phenon II quad core 4.0GHZ(for $60) with 8GB of ram and two more slots for another 8 GB (Now at $27), etc.

I decided to buy one and only for the rest of my life :) (Though will buy into the SDD this Black November, i heard it boosts start up time by 4x, which will save me on electricity long term, because i will turn it off more often.

]]> By: Nisha http://earlyretirementextreme.com/on-minimizing-depreciation-expenses.html/comment-page-1#comment-14282 Nisha Tue, 03 Aug 2010 02:53:07 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-14282 There are auctions you can attend to bid on off lease vehicles. You get to go visit the lot the day before, start the car and check it out but you cant drive it around. You usually save around 30-40% off the regular used price. You have to really research you car and should know a bit about cars. Its pretty easy to avoid lemons if you brush up on basic auto mechanics. Car is not an asset, just at tool. There are auctions you can attend to bid on off lease vehicles. You get to go visit the lot the day before, start the car and check it out but you cant drive it around. You usually save around 30-40% off the regular used price.

You have to really research you car and should know a bit about cars. Its pretty easy to avoid lemons if you brush up on basic auto mechanics.

Car is not an asset, just at tool.

]]> By: Jacob http://earlyretirementextreme.com/on-minimizing-depreciation-expenses.html/comment-page-1#comment-14269 Jacob Mon, 02 Aug 2010 23:08:20 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-14269 @Nisha - What kind of auctions? @Nisha – What kind of auctions?

]]> By: Nisha http://earlyretirementextreme.com/on-minimizing-depreciation-expenses.html/comment-page-1#comment-14267 Nisha Mon, 02 Aug 2010 22:56:03 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-14267 This is a great post. This is the principle I follow for owning cars. I dont actually pay for the cars. I buy 6-7 year old high end cars at auctions and then drive it for 3-4 years and then sell them at my purchase price. I have to pay for maintenance, insurance and gas but it works out to be cheaper than public transit cost. This is a great post. This is the principle I follow for owning cars. I dont actually pay for the cars. I buy 6-7 year old high end cars at auctions and then drive it for 3-4 years and then sell them at my purchase price. I have to pay for maintenance, insurance and gas but it works out to be cheaper than public transit cost.

]]> By: Andrew Hallam http://earlyretirementextreme.com/on-minimizing-depreciation-expenses.html/comment-page-1#comment-14247 Andrew Hallam Mon, 02 Aug 2010 04:47:03 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-14247 This is a hard core frugal group. But I love it. I thought I was frugal, but I'm a relative spendthrift, based on what I've read here. It's informative stuff though (and entertaining) Cheers, Andrew This is a hard core frugal group. But I love it. I thought I was frugal, but I’m a relative spendthrift, based on what I’ve read here.

It’s informative stuff though (and entertaining)

Cheers,

Andrew

]]> By: frugalscholar http://earlyretirementextreme.com/on-minimizing-depreciation-expenses.html/comment-page-1#comment-14239 frugalscholar Mon, 02 Aug 2010 01:05:21 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-14239 The biggest gap between new and used prices is in clothing, especially baby clothing, anything for children (cribs, strollers, toys), and books, which cost 25 cents at my Goodwill. The biggest gap between new and used prices is in clothing, especially baby clothing, anything for children (cribs, strollers, toys), and books, which cost 25 cents at my Goodwill.

]]> By: Jacob http://earlyretirementextreme.com/on-minimizing-depreciation-expenses.html/comment-page-1#comment-640 Jacob Wed, 05 Mar 2008 15:41:56 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-640 @fubek & steve - So the real question is whether your business is in buying and selling furniture in which case the salvage costs (sales price would be more apt) should be discounted as part of the NPV analysis or whether your business is in eating on the furniture in which case the use of the furniture should be expensed through depreciation with no discounting. @fubek & steve – So the real question is whether your business is in buying and selling furniture in which case the salvage costs (sales price would be more apt) should be discounted as part of the NPV analysis or whether your business is in eating on the furniture in which case the use of the furniture should be expensed through depreciation with no discounting.

]]> By: Fubek http://earlyretirementextreme.com/on-minimizing-depreciation-expenses.html/comment-page-1#comment-639 Fubek Wed, 05 Mar 2008 15:26:42 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-639 Steve, heh, tough question. Hmm.. if you have no alternative, then there is also no opportunity that you miss. Thus, no opportunity cost ;-) That's my take! Steve,

heh, tough question. Hmm.. if you have no alternative, then there is also no opportunity that you miss. Thus, no opportunity cost ;-)

That’s my take!

]]> By: Steve Austin http://earlyretirementextreme.com/on-minimizing-depreciation-expenses.html/comment-page-1#comment-636 Steve Austin Wed, 05 Mar 2008 14:56:41 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-636 Fubek, I may have failed to clearly make my point: if keeping the $75 in a deposit account is not a viable alternative to having a dining room set to eat on, then has opportunity cost really been forgotten? I won't argue whether no-dining-room-set is a viable dining alternative. That's for the diners to argue. ;-\ Fubek, I may have failed to clearly make my point: if keeping the $75 in a deposit account is not a viable alternative to having a dining room set to eat on, then has opportunity cost really been forgotten? I won’t argue whether no-dining-room-set is a viable dining alternative. That’s for the diners to argue. ;-\

]]> By: Fubek http://earlyretirementextreme.com/on-minimizing-depreciation-expenses.html/comment-page-1#comment-635 Fubek Wed, 05 Mar 2008 13:09:01 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-635 Steve, if you can rent it for less than $5.89 a year (which is the average of loss plus opportunity cost), you should rent it, of course. Thus, opportunity cost always applies. Now for the question IF you can rent the furniture of the example for that amount of money: that is basically irrelevant for my point. If you cannot, you should buy, if you can, rent. My point is to just never forget to include opportunity cost. :-) Steve,

if you can rent it for less than $5.89 a year (which is the average of loss plus opportunity cost), you should rent it, of course.

Thus, opportunity cost always applies.

Now for the question IF you can rent the furniture of the example for that amount of money: that is basically irrelevant for my point. If you cannot, you should buy, if you can, rent.

My point is to just never forget to include opportunity cost. :-)

]]> By: Steve Austin http://earlyretirementextreme.com/on-minimizing-depreciation-expenses.html/comment-page-1#comment-621 Steve Austin Tue, 04 Mar 2008 17:01:09 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-621 re: good value for computers, I've had great luck with IBM/Lenovo refurbished Thinkpad R-series. Got an R40 for $400. Thinkpads are rugged, reliable units. re: good value for computers, I’ve had great luck with IBM/Lenovo refurbished Thinkpad R-series. Got an R40 for $400. Thinkpads are rugged, reliable units.

]]> By: Steve Austin http://earlyretirementextreme.com/on-minimizing-depreciation-expenses.html/comment-page-1#comment-620 Steve Austin Tue, 04 Mar 2008 16:57:31 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-620 Fubek, is opportunity cost relevant when the alternative (a $75 deposit account yielding 5% APR) cannot replace the original non-discretionary requirement? Maybe a dining room set is discretionary, but can one be rented for less than $9.73 for 2.5 years? Fubek, is opportunity cost relevant when the alternative (a $75 deposit account yielding 5% APR) cannot replace the original non-discretionary requirement? Maybe a dining room set is discretionary, but can one be rented for less than $9.73 for 2.5 years?

]]> By: Fubek http://earlyretirementextreme.com/on-minimizing-depreciation-expenses.html/comment-page-1#comment-617 Fubek Tue, 04 Mar 2008 16:06:07 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-617 You forgot to factor in the opportunity costs. $75 at 5% would have earned you $75*(1.05^2.5-1) = $9.73, so add that to the $5 loss and you have an average yearly cost of $14.73/2.5 = $5.89. As you can see, opportunity cost makes the bunch of the total cost, especially if you sell near the buying price. Never forget it! You forgot to factor in the opportunity costs.

$75 at 5% would have earned you $75*(1.05^2.5-1) = $9.73, so add that to the $5 loss and you have an average yearly cost of $14.73/2.5 = $5.89.

As you can see, opportunity cost makes the bunch of the total cost, especially if you sell near the buying price. Never forget it!

]]> By: Jacob http://earlyretirementextreme.com/on-minimizing-depreciation-expenses.html/comment-page-1#comment-381 Jacob Tue, 12 Feb 2008 01:33:07 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-381 @ dawn - When my powerbook dies, I'm probably going to get an Asus Eee. This is a $300 computer - not entirely free, but if it lasts 3-4 years, it's still less than 100 bucks a year. The trick to doing this is really in finding the balance between the three components, the price you pay, the price you get and the time it lasts. Often high quality used items provide the biggest bang for the buck. For instance, in terms of buying watches check out http://www.artoftime.com (I'm not affiliated) or similar stores. Then learn which watches make good movements and which are more fashionable and buy something conservative. Later the watch can be sold for almost the same that you paid for it. @ chris - around here people are literally giving entertainment centers and exercise equipemtn away. I'm figuring, if I just had the space to store them, I could gather them. Drive them to a less wasteful city/state and sell them. @ dawn – When my powerbook dies, I’m probably going to get an Asus Eee. This is a $300 computer – not entirely free, but if it lasts 3-4 years, it’s still less than 100 bucks a year. The trick to doing this is really in finding the balance between the three components, the price you pay, the price you get and the time it lasts. Often high quality used items provide the biggest bang for the buck. For instance, in terms of buying watches check out http://www.artoftime.com (I’m not affiliated) or similar stores. Then learn which watches make good movements and which are more fashionable and buy something conservative. Later the watch can be sold for almost the same that you paid for it.

@ chris – around here people are literally giving entertainment centers and exercise equipemtn away. I’m figuring, if I just had the space to store them, I could gather them. Drive them to a less wasteful city/state and sell them.

]]> By: Chris Hynes http://earlyretirementextreme.com/on-minimizing-depreciation-expenses.html/comment-page-1#comment-379 Chris Hynes Mon, 11 Feb 2008 20:55:11 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-379 This is very good advice, especially for furniture. If you can drive a hard bargain when you make the initial purchase, you could actually make money on the deal. For example, I bought a pool table with related apparatus used for $500, and was able to sell everything individually a couple years later for over $1000! This is very good advice, especially for furniture. If you can drive a hard bargain when you make the initial purchase, you could actually make money on the deal. For example, I bought a pool table with related apparatus used for $500, and was able to sell everything individually a couple years later for over $1000!

]]> By: Dawn http://earlyretirementextreme.com/on-minimizing-depreciation-expenses.html/comment-page-1#comment-378 Dawn Mon, 11 Feb 2008 20:01:13 +0000 http://earlyretirementextreme.com/2008/02/on-minimizing-depreciation-expenses.html#comment-378 How are you going to 'not buy' a computer? Would love more details on how you did this... very interesting. How are you going to ‘not buy’ a computer?
Would love more details on how you did this… very interesting.

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