Owning a home takes a toll on your wallet. From the initial downpayment to the taxes you need to pay, the expenses add up quickly. Unfortunately, the major expenses of homeownership don’t end there. Many homeowners face financial trouble when they suddenly need to replace a major appliance or pay for repairs caused by natural disasters.
While it may be tempting to convince yourself that these financial emergencies won’t happen to you, that is a precarious way to live. Appliances and features in your home won’t last forever and serious damage can happen to anyone’s home at any time. You can anticipate these expenses by following a few helpful budgeting tips and creating a comfortable financial security blanket that can help see you through the toughest of times.
Make a List
Every good budget starts with a list. For this list, you need to think of all of the major items in your home that could need repair or replacement at any time. The exact list of items will vary depending on your home, but these are the most common items in a home that will need repair or replacement at some point:
- The roof
- The floors
- Kitchen appliances, such as the fridge, dishwasher, and oven
- HVAC system, including the furnace and central air conditioning unit
- Hot water heater
- Bathroom features, such as the tub, toilet, and vanity
You should also make a list of potential risks to your home that could cause major damage, requiring major funds to repair. For instance, if you live in an area where hurricanes are common, list the type of damage it might cause and how much it would require for you to repair it. Remember to keep insurance in mind when you’re listing these expenses. About 20% of insurance claims relate to water damage of some kind, so if you have the right type of insurance you may not have to pay for repairs from flooding or other causes of water damage.
Order the List
Once you have all of the potential expenses laid out in a list, order those items according to average life expectancy. You probably won’t be able to include your list of natural disasters on this list, but this step is important for the repairs and replacements you will have to make in the future. Knowing how long each major appliance or feature will last is key to budgeting properly. By knowing that furnaces are designed to last for about 15 to 20 years, for instance, you can better ensure that you have the funds to replace your furnace as it approaches its 15th birthday. This is also helpful in prioritizing what you need to replace and can make your list much more manageable.
Save Money in a Special Account
The final step is to start saving. Open up a savings account that is dedicated to expenses related to homeownership. Having an account separate from your regular checking and savings accounts will prevent you from using it for other expenses while still being easy to access when you need it.
When it comes to how much you should save for home repairs and replacements, a good rule of thumb is to estimate spending 1% of the purchase price of your home in maintenance costs each year. If you paid $200,000 for your home, that means you’ll likely spend about $2,000 per year to maintain it. Over the year, that breaks down to $167 per month or $77 per paycheck if you’re paid biweekly. You may want to consider putting a little more than that in the account each month if you’re concerned about having to pay for repairs from natural disasters.
Another way to figure out how much you need to save is to use the life expectancy of appliances and features you need to replace and sock away a certain amount each month. By knowing that a conventional water heater lasts 10 to 12 years and that it costs an average of $500 to replace, you can use the year or two before its replacement date to save up in advance. Even if you just take a year to save up, you would only need to put about $42 in your dedicated savings account each month. By breaking the expenses down this way, saving for major home expenses suddenly becomes much simpler.
No matter how you decide to break down your monthly savings for home expenses, it is important that you have a strategy. By planning for repairs, replacements, and emergency cleanups from natural disasters, you won’t have to scramble to pay for them at the last minute. Instead, you can stay relaxed and reassured that you have some money in the bank to care of your home.