4 Ways the 50% Rule Can Save You Money

By Andrea Cannon on 29 January 2016 0 comments

The 50% rule is a simple guideline that can help you determine whether it's time to replace an appliance, adjust your budget, and lots more. Here's how it can help you save real money.

1. Appliances

When a household appliance has an issue, it may be difficult to determine whether you should schedule a repair or replace the machine altogether.

To easily determine if it's worth keeping, use the 50% rule. If the appliance has used up more than 50% of its useful life and the cost of the repair is more than 50% of the cost of a new appliance, then you should replace it.

If you have a warranty on your appliance, find out if any of the repairs are still covered. Most appliance warranties cover labor and parts for one to two years. Some small repairs can also be completed as DIY projects.

On the other hand, Consumer Reports recommends that if an item has already broken down once before, it might make sense just to replace it. Keep in mind that if you decide to keep your original appliance, there will be extra costs like additional maintenance and possibly a "trip charge" from the service contractors you hire.

What You'll Need

You can easily compare the costs of repair versus replacement to determine what's a better value. In order to get the most accurate estimate possible, there are several pieces of information you will need:

  • The appliance's expected useful life: Knowing how long your appliance is expected to last will help you determine if it's worth keeping. (See also: This Is How Long These 6 Appliances Should Last)
     
  • The original purchase price of the appliance.
     
  • The average cost to repair your type of appliance: If your service contractor will offer a free estimate, this will help you make a more informed decision.
     
  • The cost of a new appliance.

Benefits of Replacing

You may also want to consider the benefits of replacing the appliance to a newer, more updated version. These benefits could include:

  • Improved energy efficiency, which may mean lower electricity bills, lower insurance, or tax deductions.
     
  • More features that will improve your life.
     
  • Less chance of repairs in the near future.

2. Real Estate

In real estate, the 50% rule states that operating expenses and vacancy account for about 50% of the rent. This means that if a property rents for $1,000 per month, about $500 will be spent on expenses and vacancies. The remaining 50% would be devoted towards mortgage principal and interest, with the leftovers serving as cash flow.

This can serve as a general guideline to help you determine if a particular real estate investment will be worth it in the long run. If you are considering a long term buy and hold, then the 50% rule can help save you money by preventing any purchases that won't pay off.

3. Insurance Claims and Disaster Recovery

After a natural disaster, if the damages do not exceed 50% of the cost of replacing the building, then it will be deemed repairable. The Federal Emergency Management Agency uses a 50% rule to determine if something is considered to have heavy damage or needs substantial improvement. The rule states that if the repair costs are 50% or more of the building's value, then the building must be elevated and brought into compliance.

Another application of the 50% rule states that when a building is to be renovated, if the total costs of improvement are 50% or more of the building's value, it will have to be brought into compliance. This is a hidden cost that most don't know about. Being aware of what's to come can help save you time, money, and frustration.

4. Budget

If you've heard of the 50/20/30 budget, it relies on the 50% rule. It specifies that 50% of your budget should be dedicated to essential expenses (like housing, food, and transportation), 20% to financial obligations (like debt repayment, retirement, and emergency savings), and 30% to personal expenses (like entertainment, dining out, and phone, cable, and Internet expenses). By following this guideline, you can create a workable budget that alerts you when you are spending too much, saving you money over time.

Keep in mind that the 50% rule is a guideline and won't always work perfectly. It's best to make adjustments to the numbers so that you can get a better estimate and make a more informed decision.

Have you ever applied the 50% rule to your life? Please share your thoughts in the comments!

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