Things break down.
Your car breaks down. Your washing machine starts making a loud “clunking” noise. Your air conditioning fails and the heat starts rising in your home.
For the large majority of Americans walking the “paycheck to paycheck” tightrope, such events are incredibly unwelcome. Suddenly, you have a huge expense dropped on your lap that you’re going to have to deal with and, likely, you don’t have the spare cash to make it work.
The solution many people use is to just throw it on the credit card, but doing that is effectively just “kicking the can down the road.” You’re still going to face that bill, but now it’s going to be higher than before thanks to all of that credit card interest you’re going to be paying.
This is not a recipe for financial success. This is a recipe for, at best, staying in place.
Of course, there’s a much better approach to this problem. It starts with anticipating these kinds of unexpected expenses and, when you know they’re coming, preparing for them in advance.
Why do it that way? It’s simple. It is going to cost you far less money to save $200 a month for a big bill starting today than to put $200 a month toward a credit card bill after the fact. Saving now means that interest is going to work in your favor – you’re actually going to earn a little bit on your money in your savings account. Using a credit card later? Interest is going to work against you big time, adding quite a lot to your overall expense.
Take a $2,000 expense, for example. If you know it’s coming about ten months from now, you can save $200 a month and you’ll have that $2,000 when the time comes (plus a little bit extra in interest). On the other hand, you can throw it all on your 19.9% APR credit card and start making $200 a month payments… and in that case, you’ll have to make an additional extra payment just to cover the interest. Yep, $200 down the drain for nothing.
This strategy has two key parts, of course: anticipation and preparation.
Anticipation: Five Strategies for Identifying Upcoming Expenses
The first part of the strategy involves taking steps to clearly identify big upcoming expenses before they happen. Here are five specific things you can do to help identify those expenses.
Note the end of warranties. Here’s the reality: most manufacturers are primarily concerned with ensuring that your device lasts just beyond the end of your warranty. Beyond that, they don’t mind a bit if your appliance fails, though they’d prefer it lasted just long enough so that the brand doesn’t leave a negative picture in your mind.
Thus, for many products, the end of the warranty period (including any extended warranties you might be able to purchase) is the point at which you might want to consider the idea that a replacement may be coming up around the bend.
Practice “careful maintenance.” “Careful maintenance” simply means that you follow the exact maintenance schedule for your item that’s described in the owner’s manual and you pay attention when you’re doing it to any problems with or changes in the item.
Have you ever read your automobile manual? How about your washer or dryer manual? Your air conditioner manual? People invest thousands of dollars in these things, but many people never bother to crack open the manual to learn how they’re supposed to take care of their valuable equipment.
The first thing you should do once you have a new major appliance in your home is learn how to maintain it. Most appliances require some form of maintenance that’s usually overlooked by homeowners, things like vacuuming the dust off of the back of the appliance or regularly cleaning out the ductwork or running a load with a particular cleansing agent.
Whatever the manual tells you to do, follow it, and follow the schedule it suggests.
Along the way, practice three tenets of “careful maintenance” that center around paying attention to what you’re doing.
Listen for sound changes. Listen carefully when the device is running. Does it sound different than it used to? Louder? Is there a new repeating noise?
One thing I often do is record brief sound clips on my phone of the sound of an appliance running when I’m standing close to it. That way, I have a source with which to compare the sound of the appliance running right now versus the sound it had several months ago. I do the same with our automobiles.
I’ve also found that if I pay attention to the sounds of our appliances and automobiles every once in a while, I usually notice any changes in the sound. Often, a change in sound is an indication that a part is starting to wear out, which means that repair or replacement may be on the horizon.
Look for visual changes. At the same time, when I’m performing the maintenance described in the manual, I look for visual changes to the appliance or the car. Does it look different than before? Are there any markings related to wear and tear?
I look for rust, for scratches, and for obvious wear. I also look for continuous marks on anything that spins, which might indicate that a bearing is failing.
Again, taking photographs can be a good idea. Take pictures of all of the places where you practice maintenance and then use them as a comparison point in the future to see whether or not wear and rust are increasing over time and at what rate.
Watch for functional changes. Pay attention when you’re actually using the appliance or the automobile, too. Is it functioning differently than before? Are clothes taking longer to dry? Does the house not cool down as quickly? Does the car steer correctly? Does it vibrate in an unusual way?
If you notice the functionality of any expensive appliance or automobile beginning to change, pay attention. It’s very likely a sign that some sort of repair is going to be required in the near future, which means an upcoming expense.
Preparation: Four Strategies for Handling Upcoming Expenses Now to Save a Lot of Money
Obviously, the best strategy for handling appliance and vehicle replacement is to always be saving for it. If you have a paid off car and start saving half of a car payment each month, you’re going to have plenty of resources in hand to replace that vehicle when the time comes. The same is true for every major appliance in your house – putting $20 or $40 away each month for an appliance replacement can completely take care of the cost.
Even if you don’t follow that strategy, however, there are other things you can do to avoid having to go into debt to cover appliance and vehicle replacements.
Start saving for the replacement immediately and set a target date. As soon as you have any real indication that you may need to repair or replace an appliance in the future, start saving in earnest for that replacement immediately. Don’t wait around – start right away. Figure out how much you’re going to need plus how much you can sock away each month and you’ll have a good idea as to how quickly you can get to the amount of savings you’ll need.
Do your homework on reliability and necessary features. While you’re savings, start researching. Hit the library and look at back issues of Consumer Reports to see what they say about various appliances and automobiles. Ignore the “gee whiz” features you probably won’t use very often – instead, focus on core functions that you really need and, above all else, reliability going forward. Which brands build things that are reliable? Consumer Reports is a great place to start.
Start shopping in advance once you know what you’re looking for. Once you’ve identified several models that work well for your needs, start shopping for those items now. Look at local car sellers and appliance retailers and see what kind of prices they have on those items. Visit lots of places to shop around – after all, you have some time, so take advantage of it.
Strike early if you find a huge bargain. Sometimes, during this process, you’ll stumble upon a huge bargain. Maybe a business is going out of sale. Maybe a company is discontinuing a line for some reason or another. Whatever the reason, you might just stumble upon a huge deal that you were able to find because you were patient with shopping around and gave it plenty of time. If that means striking early before the old appliance or automobile fails, so be it. If you’re saving 75% by buying now, then it’s well worth it.
Appliance and car replacement is a perfect example of how performing maintenance and paying attention can save you tons of money. The maintenance will extend the life of the item; paying attention to the maintenance will alert you to problems before they turn into crises.
The earlier you’re aware of such problems, the more time you have to prepare by saving money, doing research, and shopping around, all of which will reduce the financial impact of an appliance or car failure and all of which will conclude with more money in your pocket than if you weren’t paying attention at all.