The Unexpected Costs of Home Ownership

"I care. But not t-h-a-t much."
-- Herb Cohen, negotiator

There's an interesting post about Managing the Cost of Home Maintenance and Repair on A Canadian and her Money. The idea is to setup a reserve fund for predictable and unpredictable expenses. This works well for condominiums because predicting is easier when there are many units. For one home, the statistical approach is less meaningful.

Let's consider a simple example: death from an injury. The chances are 1 in 1,755 in a year and 1 in 23 during a lifetime, according to US statistics. How does knowing that help us as individuals? We're digital. Dead or alive.

Similarly, our fridge works or it doesn't. Our roof leaks or it doesn't. The furnace breaks down or it doesn't. Each of these items has an expected lifetime, but how long they last for us can be much longer or shorter. So how to we plan? If the furnace is expected to last 15 years, and it's still working well, do we still replace it? Chances are we'll wait and perhaps get many more trouble-free years of service.

Some expenses can be scheduled. If the roof needs replacing, you might be able to wait another year to free up money for "squeakier wheels".

Budgeting Is Boring
Saving is important, but budgeting is boring. Much like dieting. Many of us start, quickly lose motivation, quit and feel guilty. Worse off than when we started.

It's clearly a budget. It's got a lot of numbers in it.
--- George W Bush

An Easier Approach
An easier approach is to save money automatically by "paying yourself first" through automatic transfers from your bank account. This money can be used for savings and emergencies. In essence, we're self-insuring. So we're prepared for emergencies.

If we're faced with unexpected expenses and don't like borrowing to spend, we'll feel out of our financial comfort zone. So we'll likely reduce other discretionary expenses until we're comfortable again. So even if we dip into our savings, we'll work to restore them.

Does this make sense? Or should I leave the psychology of human behavior to others :)

THREE PRACTICAL WAYS TO INCREASE YOUR NET WORTH

If your out-go exceeds your in-come,
your upkeep will be your downfall.— Unknown


Here are three practical (i.e., boring) ways to increase your net worth.

1. Save More (Spend Less)
   
2. Earn More
3. Invest Better

Save More
The best technique is to "pay yourself first". Have a portion of your pay (e.g., 10%) deposited into a savings vehicle from which withdrawals are more difficult. You're less likely to spend money you don't see. Similarly, you can save a salary increase (or a portion of it) instead of spending it.

For those who don't payoff their credit card balances each month, an idea to pay for everything with cash. You keep one credit card for emergencies and cut up the rest. Put this credit card in a metal can, add water and freeze. Why? If you're tempted to make a purchase, you'll have to wait until your card thaws. By then, the urge to spend may be over. Why the metal can? So you can't use your microwave oven to reduce the wait time.

Earn More
You can increase your income by learning more and applying what you learn. I listen while driving in my 'university on wheels'. Traffic jams are no longer annoyances. They're an opportunity to listen longer ;)

Learning is also a strategy for remaining employable in the uncertain days ahead. Learning doesn't have to be in a classroom setting. You can learn plenty online for free using your favourite search engine. Blogs are an excellent --- and interactive --- tool.

Invest Better
Investing is a contentious topic. Who doesn't have an opinion or two? Relying on the advice of others over the years, I've lost money in shares, mutual funds, warrants, etc. Our current focus is paying off our mortgage while getting better educated about investing.

Interconnections
These ideas are related. Saving more and learning more help in investing better. Learning more is a form of investment. You can can the increase in your earnings from the increase in your learning.

Do you have other practical tips?