Save Up For Purchases Using Replacement-Planning

These days, when some people want to buy stuff, they whip out the plastic. For life’s emergencies, this is sometimes unavoidable (if you don’t have an emergency fund), but there’s some items you know will need to be replaced and you have a decent idea of when. In those cases, Bankrate writes, you can borrow a technique used by condo-associations called replacement planning. To wit:

“Let’s use an example of a $1,000 water heater with a 10-year expected life. The amount you must save each year is $100, that is, $1,000 divided by the 10-year life. If the water heater is three years old, you should put three years times $100, or $300, this year in your reserves.”

A variation on the old, “don’t buy things you can’t afford” theme. The article goes on to explain how this gets you an after-tax return at least equal to inflation.

How the pros save money [Bankrate]
(Photo: Getty)