Part 5: Replacing The Stuff You Can’t Live Without

Today I'm continuing the mini-series on the six different common expense types.

If you missed the first four, here they are:

  1. Weekly Living Expenses
  2. Predictable, Non-Weekly Repeating Expenses
  3. Product Purchases
  4. Repairing Things

Today we look at number five — replacing the essential items you simply can't do without.

Expense # 5: Replacing Items That Support Your Life

This includes white goods, motor vehicles, furniture, computers and any other items you rely on in living your life. It also includes items that you have just for fun if you can afford to include them. You can already see from the previous expense types that your income has a lot of work to do, so it might seem overwhelming at times. Fortunately, type 5 expenses do not cost very much each week, even though they tend to be more expensive purchases when they occur.

The New Fridge

Type 5 expenses can best be demonstrated using a fridge as an example. A fridge that you bought brand new for $1,000 SHOULD last 10 years. If you started saving for your next fridge when you purchased your current one, you will need to save a grand total $2 a week to replace it when it's 10 years old. Pretty easy, right? If you wait till it's 5 years old before you start saving, it will cost you $4 a week to reach that same target. If you wait till it's 9 years old it will require $20 a week! Not so easy. A year later it may cost you $1,000 in one hit if it dies and you will regret not having done something about it sooner if that happens! Not easy at all, and a major source of stress and difficulty. Obviously, the sooner you include type 5 expenses into your plan the less you will have to put aside for these items each week! It's just simple mathematics. Consider this scenario... If you were just starting out, newly married and lucky enough to have everything brand new, taking care of this group of expenses would require the absolute minimum amount per week because everything is brand new with the maximum savings time available. However, seven years down the track when some of these things start to need replacing, if no money has been allocated, you only have to add to the mix a houseful of kids, one income, a busted washing machine, a dodgy fridge and a crook lawnmower and it's easy to see how relationships can come under a lot of pressure. A fridge, washing machine, lawnmower, microwave and a few other essential items would most likely only need $15 to $20 a week in savings to put you in a position to avoid the heartache! If you have left it for a while to get started you might need to double that. Getting this right saves marriages!

Where To Keep This Money

This money can be kept with your bills money. You can do this by having a Spending Plan that combines the two but identifies within your balance what the breakdown of funds is between the different areas. For example, a balance of $800 might consist of $500 for type 1, 2, 3 and 4 expenses, and a further $300 for Replacement of Items. If you have a mortgage offset account it might be to your advantage to combine these funds and store them in the offset account so you can save interest on your mortgage. On the other hand, you may decide to separate this money into a high interest-bearing account that you can regularly add funds to. Withdrawals are few and far between so you should be able to earn some decent interest.

How To Manage This Money

You will never be able to guess when your fridge, washing machine, television, computer, car or other items in this category will need to be replaced, making budget plans tricky. The best strategy is to nominate a date when you want to have funds available to replace each of them. If they are still going strong at that time, you have options. When you think about it, it makes no sense to wait for these items to be totally worthless before you replace them (unless you just love them so much)! You could: Replace them with new items once you have reached your savings target date while you still have something of value to sell. (There is always someone looking for an older but still functional item.) Donate them to someone needier than yourself once you are in a position to replace them.

Money Advice for Financial Success

If you have no money saved and your fridge or washing machine dies it puts you in a bad position and you need a big chunk of money in one hit! However, as you can see, it does not take a lot to take control of these items. If you think success with money is for someone else, think again. It is not as hard as you might think. You just need someone to put you on the right path and hold your hand for a while till that path becomes a habit. You deserve financial success as much as anyone else does and my money advice system has helped thousands of people achieve it, so why not you?

Take Control of Your Finances

If you can take control of your spending by making some of the little changes above, you'll put some breathing space between you and your money stress, allowing you to relax and start building a stable financial future for your family. How many expenses do you accept in your day without question, and where could you reduce your weekly outgoing money just by changing a few habits? If you just can't get your head around that and/or you are tired of money stress and have decided it's time to take control, talk to a Spending Planner to find out how you can break the cycle - BOOK A FREE CALL

You have nothing to lose and lots to gain. Spending Planners are non-judgmental professionals who are trained to help. A short relationship with a Spending Planner will provide you with tools and training that will benefit you for the rest of your life!           

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Creating your own personal Spending Plan will be one of the best things you ever did.

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