We recently replaced the furnace/air conditioning system in our home. It was not the most enjoyable way to spend a big chunk of money. However, having the money set aside in savings made it far less painful than it might have been.
If you own a home or a car, I hate to break it to you but you have some big-ticket expenses in your future. Do you know how you’ll cover the cost when you need to replace them? Here are my suggestions.
Anticipate the expenses
When we bought our home in 2012, I knew the heating/cooling system wasn’t long for this world, so we’ve been setting aside some money on a regular basis ever since. As the system has needed more repairs in recent years, we finally decided now was the time.
The equipment was 19 years old. Could we have kept it running longer? Probably, but I didn’t want to take the chance. In our last home, the air conditioner failed on a Saturday in the middle of a hot summer. Oh, and we had just brought one of our kids home from the hospital after an asthma attack. That’s the worst possible, gun-to-the-head circumstance for making an expensive decision.
What expensive ticking time bombs do you have in your life? How old are the shingles on your roof? What kind of shape are your washer and dryer in? The next big-ticket item we’re planning to replace is our van, a 2004 Toyota Sienna. We’re targeting the fall of 2020 for its replacement and are setting money aside on a regular basis.
(Here’s some guidance for how long certain pieces and parts of your home should last).
Keep and maintain
The best overarching philosophy when it comes to expensive items is to keep them a long time and keep them maintained. We try to keep vehicles about 15 years.
I’ve always taken our vehicles to the dealer for maintenance and repairs. That’s certainly not the cheapest option, but I want the mechanics that work on our vehicles to be specialists in working on the brands we own.
Over the years, as I’ve reviewed lots of people’s budgets, items that are commonly missing are maintenance and repair allocations for vehicles and homes. I recommend about $75 per month per vehicle and about $200 per month for a home. You won’t spend that much every month, but some months you’ll spend a lot more, so let the unspent money build up.
With our furnace and air conditioner, I’ve always opted for the seasonal maintenance in the spring and fall.
Save in separate accounts
If you have no emergency fund, my recommendation is to automatically transfer 10%-15% of monthly gross income into a dedicated savings account. Once you have three-six months’ worth of essential living expenses saved, you can redirect most—but not all—of that money toward investing.
If you were saving 15%, you might redirect 12% toward investing while you keep putting 3% into another dedicated savings account (not your emergency fund) for the replacement of big-ticket items. If you were savings 10%, you might redirect 7-8% toward investing while you keep putting 2-3% into savings.
I like the idea of separate savings accounts for specific purposes because what I’ve found is that mingled money leaks. It gets used for other things.
You’ll probably always have some expensive item that’ll need to be replaced, so save for their replacement regularly.
How have you paid for the replacement of big-ticket items?