This free online budgeting tool will calculate the monthly amount you need to set aside to pay cash to replace those assets that wear out or become obsolete.
Plus, to make you fully aware of what you are giving up in exchange for owning assets that wear out, the calculator also estimates the opportunity costs created by depreciation expenses.
Being fully aware of an asset's opportunity costs in advance of actually purchasing it can also help you avoid making purchases that leave you with buyer's remorse.
But remember, depreciation expense is just one of the many costs of ownership. Others include: insurance, energy, storage, licensing, repairs, maintenance, and so on. To calculate the combined opportunity cost of all ownership expenses, check out the Time Value of Money Calculator.
Depreciable assets are things you purchase that ...
Specific types of depreciable assets include things like ...
To see a list of depreciating assets common to most homes, along with their estimated life expectancies, see the the National Association of Certified Home Inspectors Standard Life Expectancy Chart for Homes.
I would love to provide a direct link to the study done in 2006 by the National Association of Home Builders (sponsored by Bank of America Home Equity) entitled, "Study of Life Expectancy of Home Components", but the study has mysteriously been removed from the NAHB site.
Since I could find no explanation as to why the report is gone, I can only speculate NAHB and the banking sponsor no longer consider the report to be in their best interests.
That's easy. If you fail to budget for the replacement of your depreciable assets, each time an asset needs replacing you will be left with one of three choices:
This explains why failing to budget for the replacement of your personal assets eventually leads to a mountain of bills, a diminished lifestyle, and a deteriorated home.
Want to get off the increasing debt treadmill? Want to fix your finances? Start setting aside cash to replace critical assets as they wear out.
Easier said than done, right?
That's because the amounts you are setting aside are on top of the payments you are making on all of your past purchases.
Can't afford to set aside cash to replace assets as they wear out? Then do what business owners do to turn their businesses around ...
Trade your essential assets for less expensive alternatives and sell off your non-essential assets for cash. Then apply the freed-up cash to your rapid debt reduction plan.
Later, once you've become debt free, you will be able to replace your non-essential assets using the money that is now going to pay interest on your debts.
While downsizing is not easy, it is likely the best chance you have to get out of debt and stay out.
And sure, you will face budget setbacks on your journey to paying cash for asset replacement, but you will eventually turn the corner -- as long as you don't give up.
With that, let's use the Asset Depreciation Expense Calculator to help you fix your budget and eventually eliminate your debts.
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Start month and year: Select the month and year you would like to begin your asset replacement preparation plan.
Real hourly wage: Enter your Real Hourly Wage, which is your after-tax, after work-related expense, hourly wage. Clicking on the link will open the Real Hourly Wage Calculator in a new window.
Interest rate you expect to earn on your investments: Enter the average annual interest rate you would expect to earn on your investments. The calculator will use this rate to determine the potential future value of the funds that are being used to purchase depreciating assets instead of appreciating investments. Also keep in mind that funds diverted from depreciating assets can be used to pay off high interest debt -- thereby increasing the opportunity cost of buying and maintaining depreciable assets.
Number of years to calculate opportunity costs for: Enter the number of years you would like the personal asset depreciation calculator to calculate opportunity costs for.
Calculate/Enter/Change Asset Column: This column is for calculating stats (expenses and opportunity costs) for an asset (before or after purchase) and for adding an asset to your combined list of assets (optional). You can also make changes to a selected asset's stats. Click New at any time to clear the fields for entering a new asset.
Assets List & Useful Life Estimates Column: Selecting Entered Assets from the dropdown menu will display the alphabetically sorted list of assets you have entered. Clicking on the button next to an asset will allow you to change the asset variables or delete the asset from the list. Selecting other options in the dropdown menu will display a list of assets in the selected category, along with their estimated life expectancies. These are just estimates based on numerous sources, so please use your own best judgement when entering years left in useful life estimates.
Asset name: Enter the name of the asset in 20 characters or less. The asset list will be sorted alphabetically, so if you want the list to sort by location, for example, begin the name with an abbreviation (LR Television, LR Ceiling Fan, etc., for Living Room Assets). If you want to sort by numbers, be sure to include leading zeros (001, 002, 003, etc.).
Current resale value: Enter the dollar amount you think you could sell the asset for right now. You can get a good idea by referring to classified ads or by visiting second-hand stores that sell the asset.
Balance owed on asset: If you are making payments on the asset, enter the current principal balance of the loan.
Future replacement cost: Enter your best estimate of how much it will cost to replace this asset at the end of its useful life. You can get a good idea by looking up the prices on online stores, and then adding amounts for inflation, taxes, shipping fees, delivery charges, extended warranties, etc.. It is always best to estimate expenses high and have money left over than the other way around.
Current age of asset: Enter the current age of the asset in number of years. Enter zero if the asset is brand new or if it has not yet been purchased.
Years left in useful life: Enter the number of years you expect the asset to last. The total of the current age of the asset and the remaining useful life should add up to the life expectancy of the asset if purchased new. Note that the end of an asset's useful life is typically when the repair costs add up to more than the salvage value (cost more to repair than the asset is worth). If you are not sure how long a type of asset typically lasts, select the asset category from dropdown menu in the upper, far right-hand column.
Estimated salvage value: Enter the amount you believe you could sell the asset for at the end of its useful life (expected trade-in value, scrap value, junk dealer value, etc.
Monthly depreciation expense: This is how much you will need to set aside each month in order to replace the asset using cash instead of credit. Keep in mind that this expense is on top of any monthly payment you are currently making on the asset.
Required work-hours/purchase: This is how many work hours you will be exchanging for the asset each time you need to replace it.
Current net cash value: This is the difference between the current cash value and any balance owed on the asset.
Work-hour value: This amount represents how many hours you could take off from work (discretionary time) if you sold the asset and used the proceeds to purchase essential goods and services instead of allocating that time to working in order to pay for them.
Potential future value: This amount represents the future value of the savings that would occur if you sold the asset and never replaced it. In other words, if you invested the proceeds of the sale, along with the monthly depreciation savings, this is how much your investment would be worth based on the interest rate and length of time entered in the top portion of the calculator.
Potential future work hours: This amount is the potential future value divided by your net-hourly wage. In other words, if you sold the asset and never replace it, and then invested all saved amounts, at the end of your entered investment term you can use your investment to purchase essential goods and services instead of having to work this number of hours to pay for those goods and services.