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)


Edit Your Comment

  1. Pop Socket says:

    I know a guy that buys cars on this plan. He bought a beater for a first car and then paid himself a car payment each month. Once he has enough money in the bank, he can buy a newer auto.

  2. Who spends $1000 on a water heater? They’re around $2-300 at Home Depot or Lowe’s.

  3. nickripley says:

    @Pop Socket: That is clever!

  4. SadSam says:

    I totally do this and not just for replacement costs but for random stuff that I want to purchse (travel, vacations, gifts, holidays, clothes, etc.) I’ll be buying a nused car for cash next year once my car fund is completed and once I buy the nused car for cash I start the fund all over again. I can’t tell you how wonderful it is to not have to worry about where the money is going to come from or what type of financing I might qualify for. I do agree with the article – don’t tell the car salesman you are buying with cash until you get to the point of actually paying for the car.

  5. AD8BC says:

    I do this when I buy a new toy. I always ask what the extended warranty would cost me (they are more than glad to fill you in on it) and then that amount, instead of going to the warranty company, instead goes into a special account at ING Direct.

    When something does break and is not covered, well, I can just go and either pay for the repair or buy a new one.

  6. speedwell (propagandist and secular snarkist) says:

    I thought everyone did this before credit cards. At least I don’t use credit cards and this is the way my parents taught me to deal with potential big purchases. It’s not always foolproof and it’s not for the unlucky and cash-strapped, but it’s the only sensible way to plan and save for known future expenses.

  7. satoru says:

    My fiancee told me a funny story. She’s originally from Hong Kong which was and still is a cash-oriented society like Japan. She was very confused by credit cards because she didn’t understand “Why you would buy something you can’t afford?” So she had the old green Amex charge card which she’d pay off every month.

    Just interesting how the prevalence of credit is somehow culturally bound. It seems that Asians have a lower tendency to go insanely into credit debt, at least for 1st and 2nd gen Asians. I’m curious how this behavior (assuming it exists, I’m just going by personal observation, since I’ve never seen any Asians on debt consolidation commercials) is created.

  8. Starfury says:

    Segfault: If you’re buying a standard tank heater they’re $300+. If you are looking at the on-demand type heater (like I am) they’re about $1000.

  9. Satoru, not all asians-Koreans have bigger debts than americans

  10. That70sHeidi says:

    Have this in place for a move, three vacations and have my brother set up doing the same thing to be a groomsman in a wedding and two other weddings he has to attend. This isn’t revolutionary, this is basic common sense.

  11. forever_knight says:

    @segfault: the tankless kind (big in Europe and Asia) cost $700 and up. will save you money in the long run.

  12. satoru says:

    @forever_knight: That reminds me that in Japan they’ve had tankless water heaters for decades. But their’s are so tiny, the size of a small computer. While the ones I’ve seen here are even bigger than the tanks they are supposed to replace :P

    I’ve not understood why there is such a size disparity when the net result seems to be identical?

  13. forever_knight says:

    @satoru: hmmm… do you know if they are electric or gas? the electric point-of-service tankless can be very small.

    maybe since space is less of an issue here, manufacturers go the cheaper route.

  14. TekSiDoT says:

    On the topic of buying cars loan vs cash:

    My observation, at least in Germany, are quite the opposit. Buying a car with cash is likely to gain you another 10% off of the original price, with the usual discount of around 33% you’ll end up buying a new car for around 60% of the announced price.

    It’s all about bargaining :)

  15. GearheadGeek says:

    @satoru: My gas-fired Noritz is about the size of a big briefcase or very small suitcase, 24″x13″x9″. I can shower while the dishwasher and clothes washer are both running without a problem, so if you’re seeing bigger tankless (demand) water heaters than that someone’s using bad technology. My water heater in Italy was slightly smaller, but had a much lower flow rate for the rated temperature rise, and was for a small 1-bath apartment.

    The tank water heater I replaced with the Noritz was about 18″ in diameter by 5′ tall.

  16. gte910h says:

    @segfault: Condo associations. When you have 12-24 units sucking off a water heater, you have to pay more for them.

  17. jjjacob811 says:

    Good idea. I’m not a big fan of credit cards anymore. By the way, if you are going to get a credit card, the site where the information for this post by Lifehacker came from ( is the place to go to shop for a card…look for the terms you want.

  18. ironchef says:


    They are $500 for a 60 gallon one. Plus $500 installation. These are prices from Home Depot.

  19. 22rifle says:

    @satoru: There are no tankless water heaters on the market that are bigger than the normal storage tank type water heaters. You must be confused somehow.

    And in many areas, to get a better quality storage tank type water heater installed will run you between $800 and $1,200. Make it a mobile home approved model and you can add a few hundred dollars to that. The company I worked for 8 years ago was charging $1,400+ for a gas mobile home water heater installation and around $850 for a 50 gallon electric water heater installation. Of course, we included a 10 year tank, parts, AND LABOR warranty with that. But this was 8 years ago.

    So the prices quoted are well in line.

    BTW, just fired up a Noritz tankless this afternoon. It is heating a radiant floor for a year or so until the homeowner gets his wood boiler bought. Those Noritz’s are sweet little units.

  20. 22rifle says:

    @gte910h: Like a LOT more!

    If you have 12 – 24 units running off of a water heater you are looking at a minimum of two $4,000+ units. Or a big bank of tankless units. Or better yet, a couple of modulating condensing boilers with a small bank of indirect fired water heaters.

  21. agb says:

    I do this with weed. Every time I smoke, I put $1 in the weed jar. Then, after I’ve smoked 400 times, I’m ready to… wait, what was I talkin about?

  22. akalish says:


    It’s a magical water heater that comes with a free set of elves!

  23. sarahp says:

    Credit cards are evil! This is why my sister is in such debt. She never knows how to use a credit card without getting in debt or hurting her credit score. If I don’t have the money to pay for it then and there, DON’T buy it! I know it might be hard to put down that new laptop, or diamond ring but really if you can’t afford it at the moment it’s just not meant to be.

    There are tons of ways for people to make more money so they can afford the things they want at that moment but credit cards are not the answer. I remember reading aboutt this budgeting plan and some others in this book, “Millionaire Zone.” This is just one way for people to start saving, there are plenty of other money saving and money pinching methods. Those luxuries you might not be able to afford right now will still be there when you can afford them (and they might be less)!