How to Make Money on Periodic Expenses

Do you dread the months that your car insurance is due? Do you find yourself scrambling to come up with the six-month premium, or do you spread it out over several months incurring extra fees in the process? Did you have to have to replace your hot water heater unexpectedly?

These and other routine expenses can take a huge bite out of a paycheck. But, with a little planning, they won’t. Why look for ways to finance new units, or use a high-interest credit card, when it is possible to pay cash?

A hot water heater may not seem like a routine expense. It generally has a life-expectancy of fifteen years. You may reasonably expect it to fail. A new one installed runs around a thousand dollars. Other things with similar life spans include most major appliances and systems: washer, dryer, air conditioning system, refrigerator, and dishwasher, to name a few. Your house’s roof will last about twenty years; a garbage disposal only about ten.

The key to preventing replacement shock is advance planning. I put money into a savings account earmarked for these items. The formula for determining the amount to save is simple. Divide the cost of an item, such as a hot water heater, by the number of paydays that I will have during the next fifteen years. Since I am paid weekly, I get 52 paychecks a year, or 780 over fifteen years. Instead of waiting for the bill for a thousand dollars that will eventually come, I save $1.29 a week. In 2026, I will have the thousand dollars, plus interest.

There are several other items that I save for, including the above mentioned car insurance and appliances. Two items, new car tires and a new car, are based on different formulae. Each Friday when I get home, I note my car’s current odometer reading. I then set aside a penny for each mile that I drove that week for new tires, and a dime for each mile toward my next car. My current car has over 180,000 miles on it, so I will be paying cash for its replacement. Again, I have been collecting interest on the money, which certainly beats paying it.

People who are paid bi-weekly get 26 checks a year; salaried persons paid semi-monthly get 24. Use those numbers to calculate the number of checks you will receive during the projected lifetime of the items you will have to replace, then divide it into the anticipated cost. When the money is needed, it will be waiting for you.

The most difficult part of this plan is developing the habit of doing it. With direct payroll deposit, even that is simplified. Don’t wait for a major expense to motivate you to plan ahead. Start today!


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