Having a fully funded emergency fund can save homeowners a substantial amount of money in their written budgets. How’s that? Rather than spending money on things like home warranty insurance, save the money in your emergency fund. Then if something breaks down, you have the money to fix it.
On the Homefront
Appliances
Let’s say your washing machine breaks down. Advertisements from home warranty companies would lead us to believe that our appliances are always about to go on the fritz.
The most expensive washing machine I could find at Lowe’s was about $1700. And if you’re paying cash, you’ll most likely be able to negotiate some kind of a discount. But this assumes you’d be replacing a broken machine with a brand new one.
What if you just called a repair company like A&E. This would be cheaper than replacing the appliance. You may have to do a load or two of laundry at a friend’s or neighbor’s house until the repair person can there. The worst case scenario is going to a laundromat. But heck, that’s what most of us did before we become homeowners!
Home Insurance
As a homeowner, your mortgage lender will require home insurance to protect their collateral. Even if you pay cash for your home, you’ll likely need insurance to protect against catastrophic events like fire.
Budgeting allows you to save money by paying annually. But the emergency fund allows you to reduce the premium by having a higher deductible. A healthy rainy day fund can enable you to absorb a $1000 setback.
(BTW, be sure you have guaranteed replacement cost as not all insurers have this).
On the Road
As with the home insurance, having a solid written budget will allow you to pay the premium annually. This substantially reduces the cost of insurance.
Also like home insurance, a higher deductible on an auto policy will also reduce the premium. By assuming some of the risk of loss, the insurer requires a smaller payment from you.
So having a substantial rainy day fund can allow individuals to reduce budgetary expense items. And by being able to cash flow the slightly bigger hits, insurers will give you lower premiums. So remember to budget, budget, budget!
If you need a little help, feel free to get in touch.