Whether you’re having issues with your HVAC unit, your fridge, your pool pump, or your roof, chances are you are wondering the same thing:
Should I repair it or replace it?
Knowing when to replace an aging unit isn’t as hard as it might seem. It takes some math, a careful evaluation of your options, and a bit of decisiveness.
For the sake of the exercise, let’s imagine you’re having issues with your refrigerator. By asking and answering a few questions we’ll be able to decide whether you should repair the fridge or just replace it.
How Much Did You Pay For Your Refrigerator?
Let’s say that you purchased your fridge new for $1000. It came with the manufacturer’s warranty and all the bells and whistles. And it worked perfectly–for a while.
What’s The Useful Life Of Your Refrigerator?
Standard refrigerators last anywhere from 10 to 18 years. So, the average life expectancy of your refrigerator should be around 14 years.
Perfect! Now we’ve got some numbers to work with! Using these two numbers ($1000 and 14 years) we can calculate the depreciation of your fridge. Depreciation refers to the reduction of the value of an item over time. The equation to factor depreciation is:
Initial Purchase Price / Useful Life of Item = Annual Equipment Depreciation
So, for this proverbial fridge, the annual equipment depreciation would be $1000 / 14 Years or $71.43. Essentially, for every year that passes, your fridge’s value is reduced by $71.43.
That begs another question.
How Long Have You Owned This Fridge?
Let’s assume that the answer is 8 years. That means that the value of your refrigerator has been reduced by $571.44. Your eight-year-old fridge is now worth $428.56.
So, Should You Repair Or Replace Your Unit?
The answer might not be immediately obvious, but knowing that your fridge is worth $428.56 makes it a bit easier. Normally, if the repair cost is less than the value of your equipment, it’s best to repair it. If the repair cost is greater than what your refrigerator is worth, it’s better to replace it.
This same principle applies to appliances, roofs, cars, and any number of other items. Thinking through the situation can make a tough decision a bit easier.