New Visitors Privacy Policy Sponsorship Contact Us Media
Baby Boomers Family Green Home and Auto In Critical Condition Just Starting Out Lifestyle Money
- advertisement -
Bankrate.com
News & Advice Compare Rates Calculators
Rate Alerts  |  Glossary  |  Help
Mortgage Home
Equity
Auto CDs &
Investments
Retirement Checking &
Savings
Credit
Cards
Debt
Management
College
Finance
Taxes Personal
Finance

Guest columnist
Lee Eisenberg   Expert: Author Henry K. Hebeler
Plan for future purchases
This savings strategy can be adopted by anyone.
Guest columnist

How the pros save money
 

If you reach for plastic to pay for many of your purchases, you may find yourself mired in debt -- like many Americans. But the truth is, you can arrange your finances to increase your own bottom line rather than the bottom line of creditors.

- advertisement -

Sue, my barber, married a man with a ton of credit card debt -- which she didn't find out about until after they married. Using her barber shears, Sue cut the credit cards in half and put her new husband and herself on a two-meal-a-day diet until they paid off them all off. They got some benefit from the diet as well.

Sue quickly learned something that wealthy people learned long ago. Few people can get an interest rate on their investments that competes with the rate they pay for debts. That means that every dollar used to pay off high-interest debts is a better investment than putting that dollar into savings.

Here's a novel idea: Rather than make monthly payments for years on items purchased with a credit card, you can save for purchases in advance. It's really not a new concept at all, but one that many people have trouble putting into practice.

You can do it, too
Follow these steps to ensure you will have enough money saved when you're ready to draw it.
How to save:
1. Establish a replacement-planning goal.
2. Calculate your goal.
3. Tax considerations.
4. Practical implementation.
5. How you can do even better.

Establish a replacement-planning goal
The first step is to establish financial goals. These goals should include savings needed for future retirement, but also savings to replace things that will wear out. You've heard that you should use a retirement-planning program for retirement savings, but you seldom hear about replacement planning.

To implement a replacement-planning goal, you can adopt a time-proven method used by competent condominium associations. These organizations have reserves for the eventual replacement of such items as the roof, road, carpeting, painting, appliances, etc. In other words, they save before they buy whenever possible, a strategy that avoids incurring debts or tapping condo owners for whopping assessments to make these repairs.

Calculate your goal
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.

Next: "... work toward being able to buy an automobile with cash."
Page | 1 | 2 | 3 |

Compare Rates
NATIONAL OVERNIGHT AVERAGES
IRA MMA 0.51%
1 yr IRA CD 0.79%
5 yr IRA CD 1.83%
Mortgage calculator
See your FICO Score Range -- Free
How much money can you save in your 401(k) plan?
Which is better -- a rebate or special dealer financing?
VIEW MORE CALCULATORS
FINANCIAL LITERACY
Rev up your portfolio
with these tips and tricks.
- advertisement -
- advertisement -

About Bankrate | Privacy Policy/Your California Privacy Rights | Online Media Kit | Partnerships | Investor Relations | Press Room | Contact Us | Sitemap
NYSE: RATE | RSS Feeds |

* Mortgage rate may include points. See rate tables for details. Click here.
* To see the definition of overnight averages click here.

Bankrate.com ®, Copyright © 2014 Bankrate, Inc., All Rights Reserved, Terms of Use.