I'm good at tracking costs, gauging income, figuring out future values, and making decisions regarding our money and personal finances. However, I've never been too keen about gauging depreciation. It's just not one of those things that I've tended to take into account throughout the years. I guess that since it's not an investment that's making us money, or something that I really look at as a regular expense, depreciation is one of those things that just kind of gets pushed to the side in our general financial planning. As some personal finance bloggers might say, depreciation just isn't "sexy" to me.
Lately however, I'm beginning to reevaluate my perspective on depreciation and am starting to focus on it more when it comes to certain aspects of our personal finances. I'm realizing that depreciation might play more of a role in our finances and in determining our personal worth than I initially gave it credit for.
For years, I've never counted our automobiles as a part of our personal assets. To me, they've always seemed like more of a liability. Since we've never had to make a payment on any of our vehicles, preferring to own them outright, we never really considered a vehicle any more of an asset than say a television or a computer. However, I think that this outlook is wrong, and as our vehicle ages, and we begin to contemplate having to buy a new or at least newer vehicle, I've started considering the depreciation value of it as an asset.
While it's often difficult to come up with a true resale value for a vehicle, I have used the Kelley Blue Book website to help me with determining this value. And while our vehicle is now ten years old, and it's a little late to be worrying about depreciation, since I've now listed it as an asset, it's something I will consider moving forward. I hope that this helps me give it a more realistic actual cash valuation as an addition to our personal finances and also helps me make better decisions when it comes to our vehicle usage and budgeting for related expenses.
Around the Home
While a home itself will hopefully appreciate over a significant period of time, it's all the rest of the stuff that goes with the home that may be suffering from depreciation. As I began considering the depreciation of our vehicle, I began to think about other major purchases that we've made or will have to make at some point in our home. Items such as our stove, our dishwasher, the hot water heater, the washer and dryer, our HVAC unit, the roof, the windows, and similar items all depreciate - although maybe in miniscule amounts - each time we use them or as each day passes.
Recognizing depreciation of home related items has made a significant impact upon the way we budget. Not factoring in depreciation, and the eventual demise of or at least need to repair certain larger ticket household items can skew budget numbers and leave us scrambling to fill the budget gaps when such costs arise. Therefore, we track and gauge our repair and maintenance costs over time, enabling us to get a better idea of how much we'll need to set aside each month and year in order to cover the costs relating to our constantly aging home.
Just about Everything Else in our Lives
There are all sorts of great calculators out there to help determine depreciation whether it's based upon uses, age, unit of production, or whatever. Really, when it comes down to it, just about everything in our lives succumbs to some sort of depreciation. From shirts and skirts to light bulbs and box fans, whether it's in dollars or fractions of a cent per use, most things we own and use on a regular basis tend to depreciate each time we use them.
While most of us never take time to determine what the depreciation of the shirt we're wearing is each time we wear or wash it, having a general understanding of depreciation and how it affects our lives and our finances can be important. From calculating the depreciation of business supplies such as a computer, printer or phone for tax purposes, to just getting a better understanding of how the things I use degrade in value over time, understanding depreciation has given me a better appreciation of the items around me and how I utilize and care for them.
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