If you assume the concept of tracking depreciation is only for businesses, then you’d be wrong. I would encourage you to start tracking depreciation for anything valuable that you plan to replace. It’s a super simple process and a great tool to have in your personal finance toolbox. In this quick post, I’ll show you how to create a depreciation worksheet for tracking your personal assets.
Benefits of tracking depreciation in your home
There are at least 3 big benefits of why you should start tracking depreciation in your home:
- Your budgeting will improve. You’ll see a truer picture of your personal finances. Maybe you don’t have £100 left at the end of the month to spend on wine and cupcakes. Once you factor monthly depreciation for your washing machine, boiler, TV, laptop, smartphone, and oven you’re really left with £50.
- You look at ownership differently. Once you start tracking depreciation and see the true cost of ownership, you’ll reconsider whether you need that item with an associated monthly cost.
- You take care of things. You want to optimise resale/salvage value, so you take better care of things and keep the original box/instructions as this extends the lifetime and reduces monthly costs.
The best part about this is it’s simple and only requires a spreadsheet that takes a few minutes to set up.
How to track depreciation with a simple spreadsheet
I have a rental property which makes tracking depreciation twice as important and also means I have twice the amount of things to track. My spreadsheet screen capture below breaks things out into “rental property”, “home” and “personal”. With a few inputs such as purchase date and replacement cost, I can now see how much to save each month and how much I should have saved in my depreciation/replacement fund.
Most of this spreadsheet should be self-explanatory, however, see below a brief explanation of each column:
- Purchase date = when the item was purchased.
- Replacement cost = this can be how much you paid, however, it makes more sense to update this value with current market price (I do this once per year).
- Lifespan = number of years I expect the product to last, this isn’t an exact science (I’m using experience).
- Salvage value = what (if anything) I can sell the item for before replacing.
- Is off the books = whether I’ve saved enough to replace the item (it’s lived its lifespan). This is a boolean value (true/false). When set to 1 (true) then it’s excluded from my monthly depreciation saving total.
- Total depreciation = this is a calculated value and displays how much I should have saved for each item (based on the purchase date and monthly depreciation). I find there’s no harm in having overage (~20%) to cover for items that have shorter than expected lifespan.
- Monthly depreciation = how much I should be saving for each item. When “Is off the books” field is set to 1 (true) then the saving amount is reset to zero.
Excel and Google Sheets make the task of tracking depreciation easier by supporting functions specifically for depreciation. The SLN function used in my spreadsheet is supported by Excel and Google Sheets:
The SLN function calculates the depreciation of an asset for one period using the straight-line method.
Syntax SLN(cost, salvage, life)
– cost: The initial cost of the asset.
– salvage: The value of the asset at the end of depreciation.
– life: The number of periods over which the asset is depreciated.
Now that I track depreciation I can see how much I should be saving each month (£93) and how much I should have saved up (£8220), it also means I don’t get stressed when something breaks. This is a valuable tool for personal financing that gives better visibility and shows you that ownership is an illusion and everything is really leased.
I hope this was useful and glad to hear any questions or suggestions below.