Website owner: James Miller
How much does a thing cost you over the period of a year? How
much is your house costing you per year? How about your car?
There is a single formula that covers all cases. It is:
Cost = Lost Return + Expenses + Depreciation
where:
Cost --- Cost for the year
Lost Return --- the return you could get in the
marketplace on an amount of money equal to
your current equity in the item
Expenses --- all operating and other expenses
for the year (including any interest you paid
over the year on borrowed money for the item)
Depreciation --- depreciation for the year (i.e.
value of item at beginning of year minus value
at end of the year)
EXAMPLE. Compute the cost of your housing for a year.
Formula for computing the cost of housing:
Cost = Lost Return + Expenses + Depreciation
where:
Cost --- cost of housing for the year
Lost Return --- the return you could get in the
marketplace on an amount of money equal to
your current equity in the house
Expenses --- expenses incurred during the year
(interest paid out on mortgage + property
tax + insurance costs + maintenance costs)
Depreciation --- amount of depreciation for
the year (negative if the house appreciates)
June 1994
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