Extension Educator, Consumer Economics
Have you ever had a big expense come along and you wonder, "How will I pay for this?" Most of us have had this experience. This past month many families had back-to-school expenses. Back-to-school expenses are an example of "occasional" or "seasonal" expenses. Unlike rent or food, which are ongoing or occur every month, seasonal expenses tend to occur less often -- perhaps once a year.
Other examples of seasonal expenses include:
Even though occasional expenses don't occur as often as other expenses, we still need a way to save and plan for them. Here's a way to build seasonal expenses into your monthly spending plan. Decide how much you will pay for the seasonal expense each year, and then divide the amount into a monthly amount. Each month put that monthly amount into a special savings account that you know is for seasonal expenses.
For example, home maintenance needs to be done to protect your investment in your house. And yet, often these expenses tend to be large. One rule of thumb is to budget one to two
percent of your home's purchase price for annual maintenance. If your home or the appliances are older, you may need to save more. Thus, if your home value is $100,000, plan on spending $1,000 to $2,000 dollars a year on home maintenance. This would mean saving about $80 to $165 a month towards maintenance.
Being aware of tax credits and rebates can help you save money on home maintenance and improvements. The American Recovery and Reinvestment Act (ARRA) of 2009 can help you save money in two ways: first, you can save money for home energy improvements by receiving a tax credit and second, you will save money in energy costs once you've made these home improvements.
Remember, a tax credit helps you on your tax bill more than a tax deduction. When you receive a tax credit, the amount is subtracted from the amount you owe. (In contrast, a tax deduction is deducted from your income before you calculate the tax you owe.)
The new law increases the energy tax credit for homeowners who make energy efficient improvements to their existing homes. The new law increases the credit rate to 30 percent of the cost of all qualifying improvements, and raises the maximum credit limit to $1,500 for improvements made to your home between January 1, 2009 and December 31, 2010.
Home improvements such as the cost of insulation, energy-efficient exterior windows, and energy-efficient heating and air conditioning systems qualify. Installation costs do not qualify. For a list of qualified improvements, visit the Energy Star website, energystar.gov/taxcredits.
For example, you could save up to 30% of a window's cost (up to $1,500 maximum per homeowner for all improvements combined) with this credit. Plus, new Energy Star qualified windows can help reduce your energy bill up to 15 percent. If you have noticed drafts in the winter, or one of your rooms with many windows feels especially warm in the summer, then these are good clues that your home might benefit from new Energy Star qualified windows.
Be sure to consult a tax professional and read the IRS fact sheet 2009-10 about the Residential Energy Property Credit (http://www.irs.gov/newsroom/article/0,,id=206871,00.html) to be sure that your improvements qualify before planning to use this tax credit.
Planning ahead to fit occasional expenses into your budget can help you manage your money. Taking advantage of tax credits is another good strategy for stretching your dollars. Take time to think about home maintenance you need to do and how you will pay for these costs.