No. of Recommendations: 10
hocus wrote,

Mental Exercise Nine: Determine the "Lifetime Cost" of Each Budget Item

Not surprisingly, even Warren Buffett does this.

The book Buffettology contains an interesting anecdote on Buffett's car buying habits. It goes something like this (I loaned my copy of the book to somebody, so I can't quote the exact figures):

Warren Buffett buys used Mercedes sedans and keep them about 10 years. Someone asked, "Why don't you buy a new one, you can easily afford it?" To which Buffett responded, "I don't want to pay $200,000 for a $50,000 car."

The analysis goes something like this:

New Mercedes = $50,000

Used Mercedes = $30,000

Savings = $20,000

Warren earns a long term 25% return on his investments, so $20,000 x 1.25^10 = $186,265

The 10-Year opportunuty cost for buying a new Mercedes is close to $200,000.

Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.