Economic Life,Sinking Funds,Amortization and RDs
April 22, 2011 6 Comments
Having an abundance of material resources and never having to hustle round in the last-minute to find the funds to do what we want to do is a good indicator of wealth.
I first came across the concepts of economic life,sinking fund and amortization as an engineering student.Adapted to our personal finances and business these concepts help us to always have enough money at the right time.
Economic life , a.k.a useful life is the period of actual usefulness of an asset.Beyond this period it is cheaper to replace or scrap the asset than to continue maintaining it.
A sinking fund is a reserve created by periodically setting aside certain sums in an account to replace an asset in future or to repay a liability.
Amortization refers to spreading an asset’s replacement cost over it’s economic/useful life. Read more of this post
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