Total Cost Of Ownership - TCO
Categories: Accounting
The wheel. Fire. The telephone. Plastics.
And now, Uber.
If you don't know what it is, welcome to Earth. We are here in peace (check your Martian ray guns at the door). Uber started in 2011, and gives literally billions of rides at prices usually highly discounted relative to taxi rates. How do they perform this miracle? They have aggregated the driving skills of hundreds of thousands of extra-dough-seekers who download the Uber app, pass a few tests and—voila!—they are your Uber driver. As a user, after loading in your credit card information and usually home address, you click a button to call a driver, track them on your Google map, and 12 minutes and 8 bucks later, you arrive at Grandmama's.
The service has become so popular that many pundits have begun to question the value of owning a car. And if you live in a major city, it's a really good question if you care about the money and enjoy being chauffered around.
Let's make up a year's worth of Uber and do the math:
You go to school or work 200 days a year. It's 8 bucks each way, or $16 a day. Times 200. Or $3,200 for the year to commute to work a la Uber. Then, 100 days a year, you run errands: a weekly grocery store thing, a monthly dentist, doctor or shaman visit. Each of those is $10 each way, for a total of $20...so add $2,000 to your total. There are 50 days a year you just don't drive. That's...$0. And then there are a half dozen days you want to drive far, like...$100 round trip on Uber (that usually gets you like from New York to Paris and back on Uber's super-saver). So we'll call that $600. The grand total from your Uber bill on a pretty heavy usage schedule, then, is $3,200 + $2,000 + $600 = $5,800.
That may seem like a lot of dough, but compared with just the depreciation of owning a car...plus gas, parking, insurance, maintenance, and yeah, the occasional ticket (ahem)...it costs about the same amount as driving yourself around.
Related or Semi-related Video
Finance: What is APR?0 Views
and finance Allah shmoop What is a P R old
Even pirates know nothing worth anything in life is free
But unlike in G olden days of pirate lore where
you'd have to steal to get more money in the
bank well you can actually rent money today For instance
a mortgage a car loan a credit card They're all
forms of renting money taking on debt in exchange for
some interest in you know paying for that debt or
renting it But setting up alone includes other costs Like
you know when you buy a house you have to
pay a closing costs You have to pay to be
sure there's no mold on the wall and you have
to pay to be sure there's a proper title to
the house so no one claims ownership to it in
a whole bunch of other expenses and fees that come
in there Well somebody's got to pay those inspectors the
title Dudes you know the home underwriters That's why we
like a PR I annual percentage rate which takes into
account the interests you'll be paying until the loan is
repaid and all those other costs and fees right so
a PR basically tries to roll in everything so that
you get the gross cost out of your pocket not
just one sliver of some of the costs It's going
to take you to buy whatever it is you want
to buy Well a PR combines all the cost the
borrower of alone will be facing An average is them
over The term of the loan is a percentage right
so it grosses up the percentage to match reality But
when you look at buying a new car house or
a researching credit cards you'll probably notice two rates the
A p R And the interest rate to different things
where the interest rate is the interest you'll be paying
on the loan on Lee will each month You make
payments to pay the loan back with well in the
beginning most of it being interest that you're paying And
gradually you worked down the principal until it you know
goes away and there's nothing really a PR shown will
be higher because it wraps the interest rate in with
all the other fees So you get a better idea
of exactly how much this is really going to cost
you Well the A p R is your best friend
When you want to know Are these guys ripping me
off For what When your comparison price shopping like between
two different credit cards or mortgages while a PR will
tell you which one will actually cost you less Overall
if one company has lower interest rate about hire a
PR than a number well it means there's hidden fees
and charges all the time They're going to hit you
for that money And yes those charges will hurt If
a company keeps pointing to its low interest rates asked
them for the a p r to get the real
measure of that cost comparison right Well with mortgages in
particular you have the option of hey those extra costs
upfront or you can wrap some of them into the
loan itself which means you'd be paying those fees off
just like you're paying off the principal balance Well some
types of loans come with lots of fees like mortgages
like points up front all kinds of their taxi things
and some with fewer like credit cards Like more competitive
They're kind of simpler but whichever type alone you're signing
up for Remember a PR is usually calculated with simple
interest rather than compound interest Simple interest grows linearly over
time little by little Compound interest includes interest on top
of interest It grows a whole lot faster over time
Well this is important to think about since some loans
Yu's compound interest like credit cards and some use simple
interest like mortgages Let's say you get a credit card
with an 18% interest rate and you go hog wild
buying rum and gold and then a tropical island the
size of your bathroom racking up 500 grand in credit
card debt Well that debt will grow in a calm
pounding rate Not only do you owe interest on the
principal amount the amount borrowed but you'll also end up
owing Maur the interest on the interest you just haven't
paid yet Every month your credit card company calculates how
much you owe them in total not based on that
500 grand you initially borrowed But on that 500 grand
principle pull us any unpaid interest to date So let's
just see how big compound interest is compared to simple
interest and we're getting to the whole notion of a
PR here Your 500 grand of credit card debt with
18% interest It would take you over 15 years to
pay off if you paid in aisle 7 800 bucks
and change for months with calm pounding interest you'd end
up paying a 6,688,000 and change Yeah you borrowed half
a mil and ended up going over 6.5 mill If
credit cards were simple interest like mortgages well then in
the same situation you'd only end up paying 1,000,000 9
That just under 2,000,000 for borrowing that half of interest
very expensive There's a reason the bank executives have really
nice jets So you ended up paying six point $5,000,000
total in interest and principal with calm pounding interest and
only one point 9,000,000 with simple interest Well when you're
using a PR is you got to remember that number
is using the simple interest calculation If you get a
credit card and rack up calm pounding debt which you
will if you don't pay it off in full every
month well then you're gonna go a whole lot more
money to your credit card company than the A P
R would have had you believe when you signed up
for it And you know about that island there Give
backs island buying maybe and