Hindsight is twenty-twenty, even when it comes to household expenses. Consider the following scenario from the National Association of Realtors’ HouseLogic.com. You’ll quickly start reconsidering which of your household expenses to eliminate.
The washer and dryer were perfect! The cheerfully colored front-loader set could actually make laundry fun! “They were a gorgeous, greenish teal, and they looked great in my laundry room,” says Eliesa Prettelt, avid DIYer and author of “A Pinterest Addict” blog. But after barreling through three sets in four years, she knew she’d made a mistake. “They were pretty, but I had nothing but problems with them,” she says. She eventually gave up and got nondescript, white, commercial-grade top-loaders she scored for less than half the cost of her original machines. They might be plain, she says, “but I’ve had no problems since.”
Lesson learned – the hard way. Now for learning the easy way. Here are five common money mistakes homeowners make – and now you won’t.
Extended warranties: It’s tempting to insure your new, big purchase, but according to Consumer Reports, you’re probably already as covered as you need to be. How? Most major appliances come with at least a 90-day manufacturer’s warranty. Buy with a major credit card (Visa, MasterCard, Discover, or American Express) and it will likely double that standard warranty.
Combine that with the fact that Consumer Reports found most products won’t break during the standard two- or three-year service contract period. When they do, the repair cost is usually just a few dollars more than the cost of the warranty. Instead of paying for an extended warranty, stash the cash in a savings account earmarked for home repairs. When you need it, it’ll be there.
Flashy feature appliances: The newest appliances come with super fun features. Who wouldn’t want an oven that talks, remote access to your air conditioner, or bottle jets in the dishwasher? Still, it might not be financially wise to replace a fully functioning older model just to gain modern perks. So says Arthur Teel, owner and operator of The Handyman Plan in Asheville, N.C. “Circuit boards break,” says Teel.
Budget bulbs: Incandescents might be easy on your everyday household budget, but they’re tough on your energy bill. Start replacing them with LEDs. To help swallow the initial costs, just replace them as they die out. A typical LED bulb can recuperate its cost in a little over a year (at least according to manufacturers, so in reality it’s probably a bit longer, but not enough to quibble about). Even better, since LEDs can last a decade or more, you won’t have to buy bulbs as often, and your energy costs will be lower!
Storage unit: If it doesn’t fit in your home, is it really worth keeping? Ditch nostalgia and think with your bank account: At a cost of between $50 and $300 per month, it might be time to purge the junk. If you can’t bear to part with something you don’t use regularly – say, great-grandma’s heirloom china – rethink your home’s organizational storage. Clean out the closet, craft shelves beneath the stairs, or build window seats with drawer storage. You’ll be investing in your home instead of giving money to a storage vendor.
Private mortgage insurance (PMI): Bought your house with less than 20 percent down? You’re probably paying for PMI, a type of insurance that guarantees your mortgage lender will be covered if you default. It costs between $600 and $1,200 per year for a typical home. But once your loan-to-value ratio drops to 80 percent, you’re not required to pay it. But the lender isn’t required to drop it until it reaches 78 percent.
That 2 percent difference could cost you hundreds, even thousands, of dollars, depending on your home’s mortgage balance. So, keep an eye on your statement, and whip out that calculator when you’re getting close. Then, if you’re feeling savvy, keep paying that amount every month – but apply it to your mortgage principal instead. As you pay down your principal, you’ll pay less in interest, potentially saving thousands and possibly recouping your PMI fees. How savvy is that?
You work hard for your money. Spend it wisely by carefully applying these tips and reevaluating your current household expenses.
The Greater Chattanooga Association of Realtors is The Voice of Real Estate in Greater Chattanooga. The Association is a regional organization with more than 1,700 members, and is one of more than 1,400 local boards and associations of Realtors nationwide that comprise the National Association of Realtors. The Greater Chattanooga Association of Realtors services Hamilton and Sequatchie counties in southeast Tennessee, and Catoosa, Dade, and Walker counties in northwest Georgia. For more information, visit www.gcar.net.