Saving money is important when considering the bottom line of your personal budget, just as it is with a small business. If you have a home, HGTV recommends putting aside 1%-3% of your home value aside for repairs and maintenance of your home. If you have a $200,000 home, that means you should put aside between $167-$500 a month to prepare for repairs and replacements of your home’s appliances or home systems.
These recommended amounts are relative to your life style as well, if your appliances are entry level you may be able to save on the lower end of the spectrum, if your style is more high end, you will want to save on the upper end of the spectrum. If these amounts seem a little high for your pocket book, you do have other alternatives to preparing for repairs and maintenance on your home.
A home warranty is a service for homeowners or small business owners to help cover the unexpected repairs and replacements of the appliances and systems in their homes or businesses. The home warranty service plan covers repairs and / or replacement of a business or home’s appliances like refrigerator, stove, dishwasher etc. The average cost to replace an office or home appliance ranges from $300-700 depend on the make, model and style.
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If these amounts seem a little easier to fit into your budget, that’s exactly what they are designed for! It is rare that all of your appliances would go out at the same time, but having that low monthly cost provides peace of mind that if something were to go wrong, one thing or ten things, they are covered by your home warranty.
Types of Coverage
A home warranty is customizable some home warranties offer different tier levels of coverage depending on your needs. If your home has a pool or spa you can add additional coverage to include these in the plan. If you do not want coverage on something you can opt to have it excluded from the plan. These customizable plans can create a one of a kind plan just for your home or business needs. Obviously use is considered when providing coverage for businesses. If the business is a laundromat covering the washer and dryer would be considerably different than covering a home clothes washer and dryer for a family of four. This type of change would affect the coverage cost.
When looking at the two options for how to financially prepare for the unexpected expenses of home or business ownership, one of these two will fit the bill. As always consider the costs associated with each of the two choices. If you save $1,000-$9,000 for the repairs and maintenance of these appliances you can invest the money and earn interest. Without considering APY and looking at straight APR the funds could earn between $10-$90 annually in an investment account like a standard savings account. While $10-$90 may not seem like much, as long as the funds stay in the interest bearing account it will continue to grow.
If you then need to pull funds for the repair or replacement of an appliance, you need to build the savings account back up. For example: if your refrigerator breaks down and after a $100 service call they tell you it will be $350 to repair your fridge, you are faced with the decision of fixing it or replacing it. Fixing it will then cost you $450 with the repair and service call fee combined. Then after the repair you need to replace the used funds back into your savings account for the next possible repair or replacement. Thus adding the monthly savings back into your monthly budget. A second repair could happen before you build back up your savings account. This is a vicious cycle when having appliances and or home systems that need repairs.
If you use a home warranty to be prepared for the unexpected repair or replacement of the appliances or home systems, your monthly amount does not change by much. After the first couple of years your premium may increase just due to the expectation that it will soon be covering a repair or replacement, if it hasn’t paid for such an expense yet. Your costs could go from $33-$40 a month. The $7 increase is much easier to fit into the budget than to add the $83 or more to build the savings account back up.
While a home warranty has no cash value like that of other insurance policies, it’s relatively low cost is far exceeded by the service that it provides. Having the peace of mind that the $40 monthly premium fee will be there to cover your expenses can be more beneficial than having the couple thousand in the bank to cover repairs yourself.