Include the Depreciation Cost While Budgeting

I was watching a Reddit story video late at night just to spend time and came across a concept
that blew my mind and made me question why we haven't yet been taught this concept in our
schools.
Since when I started planning for my personal finance, I was confused about how to provide for
hefty one-time costs for the vital tools, devices & furniture we use in our lives. For example, my
phone, refrigerator, laptop, fan, cooker etc. If my phone breaks down or gets lost today, there's no
way, I would wait 6 months to save enough money before buying another phone.
Without much consideration, I decided that I would keep 10% of my income in cash always to
provide for such costs.
But yesterday, I had been introduced to a new idea. The idea is, if you possess any furniture or
asset whose value depreciates with time, then while making a budget for your monthly or yearly
expenses, you have to include the depreciating cost of your assets into your budget. I learnt the
term "depreciating cost" in the previous semester in our "Accounting" course. The simplest
model of depreciation, the "linear" one was taught. But what our course instructor didn't teach is
to consider this while making personal budgets as well.
I want to clarify with an example. Let's say I have bought a chair in exchange of 10 thousand
taka and I will use it for 5 years. (So, the depreciation cost of the chair is 2 thousand taka per
year, if considered the linear model) But after 5 years, when my chair will break down or I will
be listening the "Katch-Katch" noise of the chair for 2-3 months and will be thinking about
buying another one, then I will not have 10 thousand taka readily available to spare for buying
another chair. But it is also not possible to go without any chair. In this case, I will buy a chair
with loan money or EMI.
Even though it sounds far-fetched to buy a chair with loan or EMI, it is very common
phenomena regarding mobile phones, microwave ovens, washing machines, refrigerators or
television as well.

So, including the depreciating cost into the budget means, that if a chair bought by me with 10
thousand takas is supposed to last 5 years, then each year while making my personal budget, I
will add 2 thousand taka more with my expenses and keep that money aside until I need a new
chair. I would treat this money as my expense of 'sitting at home'.
Thus, if I keep on saving the depreciation cost of 2 thousand takas each year for 5 years
regarding my asset (the chair), then when I will be needing a new chair I will already have
5*2=10 thousand takas available at hand to spend for my new chair.
Now, the main issue regarding this idea is correctly estimating the lifecycle and depreciation cost
of any asset.
It is difficult to estimate for chair, fan, oven etc. But most of us have roughly some idea of how
long we want to use our current phones before buying a new one and what would be our budget
for the new phone. Same goes for ear-phone/head-phone, keyboard or mouse. Even for our
clothes and footwear, we can easily guess how long we would use them and what will be our
budget while buying new ones.
For these expenses, we can consider the depreciation cost in our budgeting and lessen the
pressure of sudden hefty costs on our personal finances to a significant amount.

Author Bio:
Md. Fazle Rabbi Spondon
Student
Islamic University of Technology
fazlerabbispondon2020@gmail.com