What is a Replacement Fund?

November 30, 2009

My wife and I started developing the replacement fund idea right before we started packing for our last move. As do many couples, we seemed to have a lot of things, that we either didn’t use, or only used a handful of times. As we started to pack we starting dreading packing, moving and unpacking all these things we rarely even used. We wondered why we had all this “stuff”.

Now let me just say, we live lightly. Most of our friends and family have far more “things” in their lives. My point? If we can benefit from using a replacement fund, there is no doubt most Americans could!

The replacement fund idea: Sell or shed all belongings you don’t have an immediate need for. Take the funds you raise doing this and save them in a separate “replacement fund”. If you ever actually do have the need to use these items, purchase them using these funds! The basic theory is you won’t use all the “things” you think you might. Save the remainder, and use it for things you do actually need.

A quick note for those who like to be prepared. This doesn’t mean you need to shed your emergency supply of water, or 5 gallons of gasoline. It doesn’t mean you should be unprepared. We are simply talking about things that are not survival items, but rather everyday consumer electronics, books, and other non-life threating items.

The benefits:

  • You will be keeping less things (save on storage, live a less cluttered life, can buy a smaller home etc.)
  • You will be left with only things that you rely on and use frequently
  • You will have funds set aside, for when you actually do need to buy something or “replace” something
  • You will make interest on your “replacement funds”
  • You may possibly need less homeowners/renters insurance
  • You can more easily take care of the fewer items you do have
  • You will view your possessions with a new perspective. “Would I rather have $30 or this old iPod we used once last year?”

You will be surprised how many things you have around that are just sitting there. First go with your large items (furniture, cars, tools). Once you get the hang of it you can move on to the smaller stuff (books, DVDs, electronics) Below are a few (of the many) items that we ended up selling rather than packing.

At this very moment, we have a little less than $2,000 sitting in our replacement fund, and we don’t miss a thing!

  • Portable DVD Player (My wife’s new laptop does the job better!) (Sold for $80 Amazon.com)
  • Waffler Maker we used once in the last 3 years ($25 Craigslist)
  • Old Laptop in the closet, given to us a few years ago($80 ebay)
  • Ti-89 Graphing Calculator from my high school days! ($75 ebay)
  • Many more items! (Old CD’s, DVD’s, Books I never would read again etc)

You can see it adds up quicker than you would expect. After a month or so of liquidating our extra stuff, we started to look at our possessions with a different perspective. Is that $30 calculator getting enough use to justify not selling it? If “your item” was a $20 dollar bill would you just leave it there in the drawer? Or would you rather have it in your “replacement fund”?

Now you skeptics are thinking, that sounds like a lot of work. But How? How do we sell our things? Doesn’t this take a lot of time? What if I sell something that I end up needing? I like my stuff, and dont want to part with it…

Next: How to Determine What to Shed?

Talking Point: Can you think of anything you have, that you may not use ever again?  Would you rather have a nice collection of stuff you might use, or a nice collection of cash ready to be spent in the bank?

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Welcome to the Discretionary Dollar!

November 29, 2009

Welcome to the Discretionary Dollar!  My goal for this blog is to explore everday ideas regarding personal finance. Here are a few main objectives of this blog.

  • Explore ways to save and live frugally
  • Create an environment of collaboration
  • Discuss and evaluate various investment strategies
  • Learn more about personal finance!

Please feel free to comment with your suggestions, tips and personal experience. We all have something to add.