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A 2016 study from the Gallup Poll financial need preparation that nearly half of the U.S. population couldn’t afford a major purchase (including home repairs) if they needed to. The struggle is real, my friends. Of the 44,500+ people who responded to the survey, 51% said they weren’t prepared to pay for a large purchase, like an appliance, should it break down.
And it’s not a sign of the times or the economic recession. The statistics have not changed much over the years, suggesting that most Americans aren’t saving as much as they should. But can they? From the same poll, 70% of respondents say they make enough income to support themselves, however 60% say they’ve cut back on daily spending. So as the nation tightens its belt on spending habits, that means less money left to put into the coffers.
Even those who are better off and earning an income above the national average are not financially prepared; 16% of people with a household income of more than $240,000 say they aren’t able to afford a significant home repair. (Hope Rachel Ray isn’t one of them or else her soufflés will surely suffer).
How to Prepare for Sudden Financial Need
What can celebrity chefs and homeowners alike do to prepare in case of a home breakdown emergency?
- Get a Home Warranty – It’s like an insurance plan for all the equipment in your home like your air conditioner, furnace, refrigerator, dishwasher, washer/dryer and more. Some plans even include coverage for pools (for those who are so fortunate)! But unlike home insurance (which is mandatory by most banks), having a home warranty is often an afterthought.
- Save Your Pennies – An obvious option but this is often easier said than done. If you’re someone who find it hard to remember to sock away money in your savings, check with your bank to set up an auto draft from your checking into your savings account. Note for savings accounts: there is a limit to how many times you can withdraw before it’s turned into a checking account (which often have greater fees associated with them). This is another incentive to not dip into your rainy day fund.
- Beg, Borrow (But, Don’t Steal) – A friend or family member who is willing and able might be nice enough to loan you the funds at a low (or interest free) rate. But make sure you get the terms in writing – i.e. when you promise to pay them back, how often you will be expected to pay and how much the interest rate will be. There are also peer-to-peer lending sites online to explore or you can try to get a loan through your bank, although that’s a more difficult route for most.
- Get Your Credit in Line – Getting a new credit card should be your last resort for an emergency because the interest rates are high and increasing your debt is never a good thing. Also, if you are not timely with your payments, your credit rating could be negatively impacted. But, getting a new credit card that you can pay down the balance each month is a great way to start building a good credit score. Further, when the time comes down the road that you are seeking a little extra spending money, a good credit history will allow for higher spending limits and lower interest rates. However, the more credit cards you use, the more risk you are exposed to so be sure to monitor your credit.
And you don’t have to pick one of these tips over another. You can have a home warranty plan and work on saving while improving your credit at the same time.
Advantages of a Home Warranty
Just like people don’t anticipate getting into a car wreck or having a major illness, accidents can and will happen. And when they do, you don’t want to be out thousands of dollars. On top of dealing with the headache of repairs, house ownership can be a money pit and suck your savings dry if you are not diligent in its maintenance. With a small monthly premium you can rest assured knowing that if the heat goes out, you won’t freeze (or have to freeze your bank account).
It’s easy to file a claim, too. There’s no need to go scouring through Angie’s List looking for a reputable repair company. Simply request a service call through your warranty company and, for a small fee (similar to a co-pay at the doctor), they’ll schedule a certified specialist to come to your home and either repair or replace your appliance for you.
Another advantage of having a home warranty that is often overlooked? It adds to your resale value. Many home buyers see a home warranty plan that is included at the time of purchase as a positive selling point and an insurance policy against any major house breakdowns in the first year of ownership.
What unexpected home breakdown are you most concerned might happen to you?