My Story: Surprised? Not Any Longer!
contributed by Thrifty in Tampa Bay
This is my plan for avoiding credit card debt when the inevitable home maintenance/repair expenses arise. I wonder if there is a flaw in this plan I have missed. I am assuming that, on average, these items can be expected to last 20 years.
Step 1: Make a list of all major appliances, roof, water heater, etc. List their age and subtract that from 20. This is how long I have to save up money for replacement.
Step 2: Use catalogs, websites, and newspaper ads to estimate replacement costs for each appliance.
Step 3: Divide each replacement cost by that item's remaining life expectancy.
Step 4: Add up the total annual savings required to pay for replacing all those things when they die.
Step 5: Divide the annual savings amount by 12 for a monthly budget.
Step 6: Set up a plan to buy savings bonds either monthly or quarterly to save up that monthly amount, maybe with an automatic electronic plan.
Step 7: When the refrigerator stops refrigerating or the water heater stops heating, cash a savings bond to cover the needed amount.
It seems like, statistically, this should work out over the long haul. For instance, if the roof goes first (really big ticket), I will have to take out a loan or use a low rate credit card to cover the amount that my accumulated savings bonds don't cover. I can then use my monthly "household replacement" budget to pay off the amount of the loan. When that is paid off, I go back to buying bonds in preparation for the next big ticket item.
This seems like a proactive approach that recognizes that everything is in entropy and plans ahead rather than trying to catch up.
I chose U.S. I-Bonds because they are guaranteed, offer higher rates than any CDs or money markets right now, and are easily cashed out after 12 months. I keep the savings bond certificates in an envelope marked for that purpose. They really should go into a fire safe or safety deposit box.
Debt from my past is preventing me from saving for my future! Tell us: Yes, debt is hindering my ability to save! or No, debt is not a problem but I am trying to get ahead financially!
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