Third Type

There are three kinds of saving. An emergency fund equal to 6 months of living expenses, long term goals such as retirement, and replacement savings.

Things wear out. A car, given regular maintenance and low miles, can last 10-15 years. Part of our budget should include set asides toward your next car purchase.

Other necessities with expected lives are: microwaves (10 year life), refrigerators (17 year life), water heater (11-14 year life), and asphalt shingled roof (15-25 year life).

Knowing that our roof was reshingled in the fall of 1989, we can project that we will face that huge expense in the next 6-8 years. We also know that in 1989 we reshingled and we will probably have to remove the older shingle layers as well.

If that will cost us $12,000, we should have been saving about $600 a year. Of course, costs rise and our horizon can lengthen. Even more reason to budget $ toward expected replacement expenses.

If it is your nature to replace your car every 5 years and you spend about $30,000 per car, your month set aside should be in the range of $300. In 5 years, your trade-in may have a value of $10,000. If not, you will need to set aside more $ each month, assuming you want to pay cash for the vehicle.

Three types of savings: emergency for the short term, long term such as retirement, and replacement/expected needs.

'til later