Updated on 01.29.12

Start an Automatic Appliance Replacement Fund (28/365)

Trent Hamm

Just a few days ago, Connie wrote in:

It’s been a real challenge turning our financial situation around. My husband seems supportive but he’s having a really hard time breaking his old spending habits and with our reduced income it is really a challenge every month.

I finally was able to get about $300 together for an emergency fund and I was really happy with my progress when our hot water heater died. We had to replace it and it not only ate all of our emergency fund but put us a few hundred deeper in debt.

It feels like every time we start to get ahead we end up further behind.

Connie nailed it. One of the most common reasons for the failure of short term financial plans is a key appliance failure. I’ve seen it happen in my own life, when our own hot water heater failed a couple of years ago and our washing machine failed about three years ago.

The appliances in your house are not infinitely reliable. An appliance failure is going to happen in the future.

There’s never a good time for an appliance to fail. It will always cause difficulties that eat up our time and energy and add to our stress level. However, it doesn’t have to add to our financial stress.

Start an Automatic Appliance Replacement Fund (28/365)

Our solution to this challenge is really simple. We simply automatically save $10 a week for appliance replacement.

That $10 a week turns into roughly $525 per year. That’s enough to replace a washing machine or a dryer with an economical model. Over multiple years, that money will grow to enough to replace even major appliances, like a central air conditioning unit or a furnace.

We started this fund after our hot water heater failure depleted a piece of our emergency fund. We’ve put in $10 a week as well as a bit of extra “found money” along the way. It has just shy of $1,000 in it.

What will happen the next time an appliance fails? We just go replace it, then take the money out of that account to cover it. It’s as easy as pie – no financial stress, no mess.

Appliances will fail. It may be an emergency, but it’s not something you don’t know about in advance and can’t plan for. You can plan for this, and it doesn’t take a whole lot of money each week to plan for it.

$10 a week is a few beers or a few morning coffees. It’s one dinner you make yourself instead of getting a pizza.

What does it transform into? It becomes not having to stress out if an appliance fails. It becomes not having a sick feeling in your gut if your washing machine begins to make a bad noise. It becomes not having to go into debt if your air conditioning unit bites the dust.

It becomes freedom, in other words.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. Images courtesy of Brittany Lynne Photography, the proprietor of which is my “photography intern” for this project.

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  1. AnnJo says:

    Even better than having the funds on hand to buy a new appliance is postponing the death of an existing appliance as long as possible. The last time I had a water heater fail, I learned that the leaking water heater was most likely caused by the failure of the expansion tank. When the expansion tank fails, it can no longer relieve pressure on the walls of the water heater itself, eventually causing it to crack. A new expansion tank is about a quarter or less of the cost of a new water heater.

    Expansion tanks have a significantly shorter life span than the water heater itself. To test if it has failed, tap on the expansion tank along one side, going from the bottom to the top. If it’s OK, there should be a noticeable change in the sound – the bottom of the expansion tank should have water in it while the top should have air. If it sounds the same all the way up, then it is full of water and there’s no room for expansion.

    Save yourself the cost of a new water heater by checking your expansion tank from time to time and replacing it promptly when it fails.

  2. moom says:

    If you earn enough money and generally live frugally none of this is a big deal at all. Even replaning out czr wouldn’t be hard for us now.

  3. MP3 says:

    We do that too. In fact, we have enough money in the bank right now to replace our 20 year old furnace if it ever needs replacing. And we have started to put the money towards replacing major appliances over the next 3 years. If they don’t need replacing in the next 3 years, the money’s there if they fall apart afterwards.

  4. Izabelle says:

    I mentioned this in another comment, but when it comes to the furnace it pays to do some research and math: sometimes the energy savings from an upgrade makes it essentially free, or much less expensive than the cost of the upgrade itself.

    For example, we changed our old oil furnace for an electric one a little over 2 years ago. The upgrade included changing the electric input of the house, removing and disposing of the oil tank & system, and installing a new furnace. We financed it over 2 years. The savings on our heating bills completely offset the payments for these 2 years. And now that it’s paid, we have about $3000 less per year in heating payments that we can put toward other goals!

  5. Mike says:

    I have a different ‘policy’, I have a spread sheet that lists each appliance, the date of purchase and the expected date of replacement. Based on that I have a column that states how much I should have saved up until today for its replacement, and how much I should save each month to meet the replacement goal.

    Then I sum the monthly terms up and I know my monthly payment. Add a ‘risk’ factor (multiply by 1.1 if you are risk averse, or 0.9 if you want to pay less and accept more risk).

    I’m single, live in a small apartment, no car. Monthly saving for replacements is 130 EURO. This includes phone, Apple laptop, bike etc.

  6. deRuiter says:

    Appliances are what a savings account is to cover, among other things. How many little savings accounts does one need before it becomes too many? This extra weekly or monthly contribution could just as easily be put into the account where the author is saving for his dream house, and if there’s an appliance failure, the money is taken from the savings account. Of course this did fill up a page in the book and now it requires no thought to fill up a column here. But is there any point to a profusion of tiny accounts? iIt’s all money, and if you have the discipline to save $10. or $20. per week or month for an appliance fund, add it to your regular savings, when an appliance goes, you’re prepared with cash. The REAL problem is Connie’s HUSBAND who isn’t onboard with the savings and unless she puts the money in a secret account she will still not have money to replace an appliance as her husband will have taken the money in the appliance savings account also. The problem isn’t the need for yet another bank account, the problem is for Connie’s husband to stop spending and start saving. I can easily understand a couple of special accounts: vacation, new car, perhaps a major appliance fund, but after a while there are too many little savings accounts. The problem isn’t lack of bank accounts, it is people who refuse to put money in a savings account and leave it there. Connie’s husband for instance might benefit from getting a part time job and having that money for spending, and leaving their savings account to grow. They don’t need another savings account, they need the husband to stop spending. Another bank account, unless it is a secret one (not a good idea) is not the problem or the answer. A person needs to solve the root cause of a problem, not put a bandaid on it.
    A hot water heater has to be replaced by a new hot water heater. Appliances like washers, dryers, stoves can often be replaced by like new pieces from Craigslist, estate sales, or small contractors who remodel kitchens and often remove and store barely used appliances during remodels because they don’t “match” the new kitchen. It’s one reason I buy only white appliances! They all match.

  7. Emma says:

    “A person needs to solve the root cause of a problem” So true.

  8. getagrip says:

    I’m of the opinion that this is what building up the emergency fund is for. Sure, once you are in a strong financial position you can start dividing up the emergency fund into all these sub-categories (appliances, car repair, home repair, etc.). But when you’re starting out with that first $1000 or so like Connie is this is exactly what that emergency fund is for, to help keep you from totally derailing the process of getting out of debt. Per Connies words, had she had a full $1000 saved, or more, she wouldn’t be hurting. However she is hurting less with a few hundred versus likely around $800.

    I feel for Connie in many ways because I was much that way for a long time. But stuff happens and it’s demoralizing when you have a spouse who will look you in the eye, nod their head that they understand, and then really not get or follow the plan. It makes you feel alone, that there’s no point, etc. My advice to Connie is keep plugging along. While it feels like one step forward and two back now, eventually it becomes three steps forward and two back. There are always bumps that have to be dealt with until you are in a really stong financial posiiton.

  9. Geoff Hart says:

    It’s worthwhile remembering this axiom of financial wisdom: “Pay yourself first.” That means putting aside money for your needs (here, the emergency fund), not the needs of the local Starbucks (for instance). If you have money left over at the end of the month, you can always treat yourself to some overpriced coffee. It takes a bit of discipline to make this a habit, but once it’s a habit, it’s easy to live with.

    A lot of people still make the mistake of considering their emergency fund to be wasted money if you end up not using it. Nothing could be farther from the truth. First and foremost, this money should be a secure investment, and therefore part of your investment portfolio. That means it’s money in your pocket and it’s earning more money for the future until you need to spend it.

    At some point, the funds in this investment will be larger than the amount you actually need to have in an emergency fund. My fund, for example, has grown to more than 6 months of my expenses should I suddenly be unable to work. (Disability insurance kicks in at that point. Waiting that long saves me a ton of money on annual premiums.) The additional money beyond that required amount becomes discretionary income that can be put into (for example) my retirement savings. Or it can be kept there as part of the income-generating, relatively secure portion of my portfolio. Very flexible.

  10. Tom says:

    I hope everyone comments positively on this decently-composed photo of a clean appliance.

  11. Gretchen says:

    As already mentioned:
    The real issue is the husband, not the type of account.

  12. Riki says:

    Having a fund for appliance repair/replacement is an excellent idea, however, it’s not an appropriate suggestion for Connie. Specific funds are advanced savings – she’s still on step one. It makes no sense for somebody who has only $300 in savings to put small bits and pieces towards many tiny goals. It doesn’t make any sense.

    Connie needs to be proud that she didn’t have to finance the entire heater purchase. She had a setback but it could have been much worse – so it’s time to move on, keep saving, and address the additional issue of a husband who isn’t completely on board.

  13. Misha says:

    I actually do like the photo this time. It isn’t dirty and it isn’t simply a picture of an appliance; it tries to tie in with the financial aspect as well.

    moom at comment #2 wrote: “If you earn enough money and generally live frugally none of this is a big deal at all.”

    moom at comment #2 needs to realize that they are lucky to be in a situation where they do earn enough money and needs also to realize that maybe that means this series isn’t for them right now.

  14. Tracy says:

    As a couple other people have said, having a separate account for appliance replacement isn’t the solution here. With Connie working to get 300 in an emergency fund, how much would she have had with an appliance fund?

    Even though I know it’s frustrating to feel like you’re getting behind even when you try to go ahead, Connie’s still better off having done the emergency fund … she had to take on less debt with the replacement.

    “$10 a week is a few beers or a few morning coffees. It’s one dinner you make yourself instead of getting a pizza.”

    I always hate this line … particularly if it gets used every time there’s a new savings goal. It assumes people *are* having coffee runs or dinner out all of the time. And since it will get applied to like 15 different ‘eliminate for savings’ it usually ends up adding up to a lot more than 10 dollars a month in theory.

  15. Kai says:

    Photos get comments when they are bad or really good. A decent photo is simply what would be expected.
    The composition is decent here, but it still looks like she’s taking photos under indoor lights with natural light settings. All the photos have a yellow cast to them that would be easy to fix by adjusting the white balance in the camera properly in the first place, or by a quick minute in a processing program afterwards.

  16. valleycat1 says:

    Connie – It isn’t a failure to spend the money you’ve set aside – your emergency fund functioned just as it should. It was there when you needed it, and you used it. Now you pay off the remaining amount you still owe on the new appliance and start building up the emergency fund again, either sequentially or simultaneously depending on what you can afford to do and what makes you feel more secure.

  17. BD says:

    @Tom: I did notice that it was actually a clean appliance, instead of a moldy, dirty one! :)

  18. skrpune says:

    @Tracy – I hear you. I’ve already cut out buying lunches, cook at home more, and make my own coffee. Once you’ve already made steps to be more frugal, it’s difficult to find more things to cut out without feeling like you have nothing left to cut out in order to reduce costs. But in Connie’s case, that doesn’t appear to be the situation. It’s great that she was able to get an emergency fund started, but it just sucks that an emergency hit before there were enough funds to cover it. Seems like Connie really needs to sit down with her husband and review finances, and it may take multiple conversations. In her case, I’d advise holding on to the receipts for his discretionary spending – then total it up and show her husband the total and the large pile of receipts so it can really sink in. If talking doesn’t work, the visual might.

  19. sjw says:

    I agree with #16 valleycat1. Connie shouldn’t feel like a failure. She has less debt with this than she would have had if she didn’t have this buffer. It is a success story.

    As for the appliance fund – if you’re doing this, set yourself a cap. At a certain point, you’ll have the cash you need in it, and you can allocate this money elsewhere. (Once we hit our set # of months for the emergency fund, we stopped putting money towards it, it was already big enough.)

  20. ehunt says:

    so…how do you actually keep track of all these different savings funds? do you open a separate savings account for each one or is it just one savings account and you have a spreadsheet of what portion goes to ‘car fund’ ‘appliance fund’ ‘dream house’ ‘general emergency fund’ etc? Sounds good in theory to put away $10, but I fear it would get swallowed up in the a general savings account and I’d forget what was ‘car replacement’ vs ‘appliance replacement’ etc etc…

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