Amortization

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What is “Amortization”?

“Before every action, ask yourself: will this bring more monkeys on my back? Will the result of my action be a blessing or a heavy burden?” — Alfred A. Montapert, author of The Supreme Philosophy of Man: The Laws of Life

Key Points:

• Amortization is the process of spreading the cost of a resource investment over its estimated useful life.
• Amortization can help you realize if a certain investment is worth it.
• Amortization is a prediction, it depends on an accurate assessment of useful life, and it doesn’t work well if you sell less than you thought you would, or if the equipment wears out faster than you thought. If you’re wrong in your assessment, your investment may cost more than expected.
• Using Amortization is smart, but remember it’s a prediction, so act accordingly.

Questions for Consideration:

• Does your business require expensive investments?
• By making this investment, can you do things you otherwise couldn’t?
• Assuming your estimates are accurate, what’s the per-unit amortized cost of the investment?

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