Plan Ahead! Why Saving for Big Purchases is a Good Idea...
I was chatting with a colleague during our afternoon walk and we discussed her AC needing to be repaired and the possibility of it needing to be replaced at some point in the future.
This method can work for just about anything. You begin with the end in mind (a strategy for course design that happens to work in other instances). Decide what you want, how much it costs and determine how much you have to set aside to reach your target. Say you find a $1200 AC Unit; if you save for 1 year that requires saving $100 a month. At the end of the year, you have the full amount. Now you're ready to replace the unit whenever necessary. The key being not to touch those savings unless it's for the actual purchase. It may be tempting, but using the money for anything other than what you saved it for will likely you hurt you in the long run.
You could use the same method to save for a vacation, a new car, renovations, paint job, new tires, a new phone, computer, refrigerator, stove, etc. Start by calculating how much you need to save, determine the length of time you will save and that'll give you your savings figure.
Her hope was that it would be years down the line before it would need replacing stating she did not have $5,000 to replace the entire system. My recommendation? Start preparing now. Do some research, price the parts and labor and then start saving specifically for that expense. Do it before you need it so that when it does go out completely you won't have to go long without air, scrape to find the money, borrow the money, or add it to a credit card that's already close to being maxed out. Even if she doesn't have the full amount saved by the time it goes out, something is surely better than nothing.
This method can work for just about anything. You begin with the end in mind (a strategy for course design that happens to work in other instances). Decide what you want, how much it costs and determine how much you have to set aside to reach your target. Say you find a $1200 AC Unit; if you save for 1 year that requires saving $100 a month. At the end of the year, you have the full amount. Now you're ready to replace the unit whenever necessary. The key being not to touch those savings unless it's for the actual purchase. It may be tempting, but using the money for anything other than what you saved it for will likely you hurt you in the long run.
You could use the same method to save for a vacation, a new car, renovations, paint job, new tires, a new phone, computer, refrigerator, stove, etc. Start by calculating how much you need to save, determine the length of time you will save and that'll give you your savings figure.
Amount/Time = Amount to Save
What's the point?
Expenses will arise, that is a part of life. Some you'll be able to handle easily, others may really throw you off track. Doing what is in your power to be prepared for likely expenses puts you ahead of the game, it puts you in control. If your finances are tight but you've managed to put money to the side for an expense that you knew would come one day, you won't have to stress when the expense becomes a reality. Why? Because you can still cover your day to day expenses (even if barely) AND you can pay to repair what needs to be repaired or replace what needs to be replaced without much fuss.