Calculate depreciation for all your items

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Calculate depreciation for all your items

Post by henders » Fri Mar 03, 2017 1:13 am

Calculate depreciation for all your items - is one of those things recommended in the book. Does anyone do it? I'm thinking of doing it in Excel.

I think it will be too much of a hassle to list every single item. So I intend to include items that cost over $100 each.

It will be an effort to get all the information in there, but once it's there it should be pretty easy to maintain?

Please share your experience - why you do it, how you do it and what value you get out of it.


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Re: Calculate depreciation for all your items

Post by ebast » Fri Mar 03, 2017 2:59 am

A year ago I performed an inventory and calculated quarterly straight-line depreciation for all clothing and have been maintaining it since then. So much fun I even extended it retroactively to cover the past couple years! I've since been expanding this to tools and some capital goods when I'm bored.

I like excel, and in fact just spent the evening on a non-excel spreadsheet of some complexity, but in this case I used a ledger-style graph-paper notebook and a pencil. (I enjoy designing non-excelling solutions to things obviously better solved with a spreadsheet as I find the constraints on granularity, computational complexity, and editing force you to think through and prioritize the essential elements of the problem. Also it'll continue to work when this whole "computing" fad washes over.) I can tell you from that experience it gets a little messy though. A spreadsheet would be nice.

Whatever, but point being to answer your question: maintenance is a breeze. purchases are infrequent enough it's no chore, and I'm even updating the depreciation quarterly by hand, which takes a few minutes/quarter, and even that's hardly onerous.

Expected & Unexpected benefits:
  • You make more economically-informed decisions. I better avoid decisions based around sticker shock and am willing to spend more for durable, frequently-used, maintainable items, as well as items with resale value, which should save money long-term. E.g. Expensive boots costing $300 dollars work out to cost way less than cheap running shoes that wear out fast and resist repair, and don't even mention fancy shoes you wear three times a year.
  • You model your spending better: Depreciation expense is a better indication of typical spending than jumpy cash flow figures (no more of these jerky $300 expenses, instead a nice smooth $1.25/month). I discovered at this point in my life I now spend less on clothing than on laundering it(!)
  • You have a comprehensive, exhaustive, and cost-weighted inventory. I mean, I could write a minimalist blog, now. (in terms of actual utility to the world, however, I consulted this on a recent move to help in packing). I could also tell you what I spend too much on.
  • It may encourage you to accumulate less. In my case I'm not buying another damn thing till I get rid of one since I ran out of lines (the joys of paper). Additionally, the knowledge that I'd have to go depreciate it makes me think twice.
  • You get a personal history to review at leisure. Some keep journals, others photo streams, but you, you have your depreciation schedule.
  • 'Mint'? 'Envelope method'??? Pssh! Please. You're depreciating your socks!

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Re: Calculate depreciation for all your items

Post by IlliniDave » Fri Mar 03, 2017 5:46 am

I don't do it because other than my house and cabin, I don't count the value of anything I own. Once I buy something, I consider the money gone. I just find it simpler that way. All my non-real estate physical possessions together might comprise 1% of my net worth so it's hard to motivate myself to dedicate too much time to them.

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Re: Calculate depreciation for all your items

Post by Dragline » Tue Mar 07, 2017 6:36 am

IlliniDave wrote:I don't do it because other than my house and cabin, I don't count the value of anything I own. Once I buy something, I consider the money gone. I just find it simpler that way. .
Yeah, that's how I look at it too. I still own way too much crap, but now most of it is over 12 years old when I really just stopped accumulating it. You might say I'm largely "fully depreciated."

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Re: Calculate depreciation for all your items

Post by George the original one » Tue Mar 07, 2017 1:35 pm

LOL, Dragline... me too!

Another way to put it: whether I have $1k or $5k of accumulated crap is irrelevant when liquid net worth is over $500k. The point of Jacob's depreciation calculation is to show you that accumulating crap is devasting one's goal of increasing net worth in order to retire early.

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Re: Calculate depreciation for all your items

Post by henders » Thu Mar 09, 2017 2:37 pm

Interesting conversation. I guess I'm in the boat of don't-do-it only because like others my possessions at <3% of my net worth. And it's not worth worrying about. The only benefit for me that I can see would be to calculate how much I spend in buying gadgets. Like, if I buy a phone for $1k and used it for 4 years and now I can sell it for $300 so my depreciation is (1k-300)/4 = $175 per year. Should I really spend $175 every year on a phone or any other gadget? Could I use this money on something else? But this calculation doesn't tell the whole story - I could be using the phone for multiple times every day which improves my life etc. In which case the expense might be justified.

In the end I am leaning on not doing it (I don't have to deal with yet another administrative overhead.) as the benefits are so few.

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Re: Calculate depreciation for all your items

Post by ebast » Sat Mar 25, 2017 3:42 pm

Well, since I and the ghost-of-Jacob-past are the only ones coming out pro on this one, I guess I'll throw in a little final color, not to disagree with the decisions above which I think are all quite correct but to answer the OP's question on effort for anybody still thinking about trying it..

But first I to note a suspicious phenomenon that all self-selecting respondents above (present company not excepted) are a bunch of old farts and you know that means:
  • We do not like new tricks
  • We have lots of junk in the, uh, garage
I suspect it's a little like if you asked me to clean, oil, & sharpen all my tools. I'd take a look at the unorganized mess, say that's a grand idea & wait for the unpaid intern to do it. When I got one. On the other hand, I'm passably good at cleaning-up/caring for whatever I use in a session and it's even an enjoyable endcap when packing it in for a day.

So doing depreciations explicitly, I spent all of five minutes on it last month.

It's a good question whether you need to do it explicitly.. I think most ERE-types have internalized the logic so instinctively you probably get most the benefit anyway because you think about how long something will last, BIFL purchases, etc.. that's probably the big benefit there already in making your purchasing decisions..

and on that, I don't consider the measure percentage of my net worth, although it would be <1% (so I'm ridiculously rich or cheap, I'll pretend it's not obvious) but following Thoreau I care in the cost of time spent. I think it takes me about 30 seconds to enter something and a good chunk of that is deciding the lifespan to use. (which is fresh in your ERE mind anyway, no?)

If you're at all handy with spreadsheets, a purchase would take all of two entries (price/lifespan) and the rest would be automatic. Not much more than if you're tracking expenses with a spreadsheet now.

So if you are the type of person to: track spending data electronically, view more than 3 amazon/tomsguide/youtube review, monitor craigslist/ebay, or physically transport yourself to some sort of store before buying something, in terms of time spent, calculating depreciation is rounding error.

the only unanticipated benefit: spreadsheets of numbers are remarkably convincing to other people. if you have anyone you'd like to convince of the great deal another phone or three would be...

tl;dr - depreciation effort scales linearly with the # of purchases. and is orders of magnitude less than most capital goods purchasing decisions, and, hey, what are you doing still purchasing things?

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Re: Calculate depreciation for all your items

Post by Fish » Sun Mar 26, 2017 12:19 pm

@ebast I enjoyed reading about your depreciation extravaganza. :D

An easier way to get started and receive most of the benefit is to simply track and depreciate new things as they are acquired. Treat the pre-existing inventory as a sunk cost.

More of a concern in my mind is the time cost of maintaining things. I might spend a total of 5 hours/year on car maintenance and refueling (great deal for the utility) but about 50-100x that keeping the interior and exterior of the house tidy and functional (not so much a great deal?). Keeping a time log would bring greater awareness to the true cost of things.

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Re: Calculate depreciation for all your items

Post by chicago81 » Mon Mar 27, 2017 8:31 am

Yeah, I don't consider personal items toward my net worth. It would be more trouble/effort to try to sell the stuff than my time is worth, so I assume the net liquidating value of it is $0.

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Re: Calculate depreciation for all your items

Post by Spartan_Warrior » Mon Mar 27, 2017 9:14 am

Yes, I keep a page called "Asset Inventory" in the Excel spreadsheet I use for budgeting and financial planning. It tallies the current estimated sale value of every asset including real estate, investments, and yes, most personal possessions. Rounding out this spreadsheet is my current liabilities/debts, thus arriving at my "total net worth" figure.

The personal property part is a rough inventory. I didn't stick to any particular rules, I simply went to the granularity that is most convenient to me. For instance, I made individual lines for PS3 games as well as my handful of Blu-Ray disks, but I lumped all my old DVDs and less sellable PC games in as single line items (e.g. "DVD collection" quantity "35" X value ".20" = "$7.00"). Same thing with "30 dress shirts" (wow I should go to Good Will), or of course "LARGE LOT OF BOOKS"--there's no value to me personally in separating those categories out further. (If I had a valuable book I was thinking about reselling in the future, I might give it its own line item.) I don't list disposable/consumable products like toiletries or food at all.

All told the personal property part of the inventory is less than 175 items long and accounts for a little over $4000. I think it took me a few hours to compile, mostly off the top of my head, and it takes barely any time at all to maintain--mostly when adding or removing items, otherwise I occasionally skim it and update any estimates that feel wrong. It's definitely worth noting that I had just started to form my own household at that point and didn't have a huge haul of stuff to begin with. I also don't calculate anything, I just estimate what I think the current resale value is (occasionally with reference to eBay, Kelly Blue Book, etc).

I don't recall if the ERE book was the impetus of the idea for me--maybe it was. At the time it helped me see where all the money I had earned thus far had gone. It's good from a minimalist perspective as it puts a number on your possessions; from the ERE perspective, it forces you to be mindful of all the baggage you're carrying and considerate of whether it fits your "web of goals". It may help rein in frivolous acquisition of stuff and reinforce good spending habits--not just having to update the spreadsheet, but the act of updating itself, entering that retail item you just paid $20 for and then putting in a realistic estimate of its resale value at, say, $5.

It could possibly expedite the inventorying of possessions in the event of your death.

Curious what present-day Jacob has to say about this practice. Seems like it might be a Wheaton level too low for him? I think it may be so for me; it was valuable once and it serves its purposes, but I don't really need it anymore, nor do I take care to keep it updated (I can think of a few things looking over it now that I should add, and a few to remove). Many parts of my budgeting spreadsheet are similarly vestigial. YMMV. If it seems like it could be useful, go for it. It's no harder than you make it.

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Re: Calculate depreciation for all your items

Post by jacob » Mon Mar 27, 2017 4:47 pm

@SW - I've internalized it as with most other things. When I look at items, I don't see anything in terms of outlay or even present (N)W, ever. I estimate how much it's going to add to my footprint rate (another way of seeing depreciation ... and yet another way of seeing it is lifestyle-to-nature friction: the higher the expense, the less one is living according to nature, maybe?). I carry a bunch of different metrics for that so not just $$$ but also weight, resource type, ... liquidity is also a concern.

And +10 to ebast's observation that spreadsheets are much more useful for convincing other people than yourself. That's because spreadsheets (and lists) are Dreyfus1. Hence, if you want to reach out, they're very powerful. However, for Dreyfus4+, I'm not sure they're that useful---you're probably more likely to be annoyed by the nuances they don't capture.

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Re: Calculate depreciation for all your items

Post by OTCW » Mon Mar 27, 2017 7:39 pm

I have a list of possessions in progress. I don't plan on using it for depreciation, but will keep it current as I add and drop items. I enjoy list making for whatever strange reason. The goal is to get it done this year. Pretty detailed list - I try not to group items.

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Re: Calculate depreciation for all your items

Post by henders » Sat May 20, 2017 12:22 am

I've now done this for a limited number of items; a total of 14 cells. The biggest culprit is apple: iphone and macbook. It's been a revelation. The theme is that electronic gadgets cost a lot of money and they won't last anywhere near as non-electronic items.

I've excluded clothes, furniture etc.

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Re: Calculate depreciation for all your items

Post by henders » Sat May 20, 2017 2:56 pm

I did the calculation wrong: purchase price / years in use.
It should be: (purchase price-current market price)/ years in use - based on this calculation, my figures are looking pretty good; some items have actually gone up in price.

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