How to Successfully Budget for Home Repairs
How to successfully budget for home repairs
For many of us, it feels like our paychecks are pulled in a million directions right after they’re deposited in our bank accounts. After paying for the mortgage, student loans, groceries, gas, childcare, and utilities, it’s a wonder that anything’s left over at the end.
If you’re a homeowner in this boat, setting aside money for home maintenance and repairs might seem like a big ask. However, it’s completely possible and, by doing so, you can avoid a lot of headache and unnecessary expenses. In this article, we’ll review why a home maintenance budget and savings account is so important, what kind of projects it can cover, and how to go about using automation to start successfully saving.
Start setting aside money for maintenance and upkeep
Every home—even a new build—requires maintenance, upkeep, and care. It may not be something that shows up in your mortgage statement alongside the principal or interest, but it’s part of the inherent cost of owning a home. You’re going to end up paying for it in one way or another, which leaves you with two choices: you can either be continually surprised by these costs, or plan, and save, ahead for them.
This is the purpose of a home maintenance budget and savings account. If you know your home needs its deck resealed every other year, find out how much that will cost and start saving for it now. The same thing goes for all your spring, summer, fall, and winter home maintenance projects.
If you’re just getting started, you don’t have to sweat the details. As a general rule of thumb, you can follow the “one-percent rule.” This means you need to save at least 1% of your home’s market value every year for maintenance and repairs. The owner of a $250,000 home should be setting aside about $2,500 annually. This rule has its flaws—after all, market value has no actual relation to home maintenance costs—but it’s a good place to start thinking about your home’s needs.
Let your savings snowball
Even if you’re dealing with a tight household budget, push yourself to add to your home maintenance budget every month. When you have cash on hand—such as a federal tax return—put all of it, or at least a portion of it, into your home savings account. If you’re contributing more to your account than what is needed in any given year, you’re going to see this rainy day fund start to snowball and grow.
This savings account is crucial. It can help you cover major expenses that you did not plan for or anticipate. For example, if your air conditioner stops working, you need to call a licensed HVAC professional for repair. Your home upkeep savings account can cover the cost of any repairs or replacement parts, or even—if your air conditioner is at the end of its lifespan—replacing the system.
Without this savings set aside, you’d be in the difficult position of having to pay for this urgent repair with a credit card or a loan. This, of course, comes with interest and fees. A home savings account like this can take significant stress out of owning and maintaining a home.
Automation can help enforce good habits
Let’s call a spade-a-spade: as humans, we’re all pretty bad at forming good habits. If the opposite were true, a lot of our New Year’s resolutions would be more successful! Automation and technology can help. First, open a separate savings account at your bank for your home maintenance fund. You may want to consider making this money “inconvenient” to access: to avoid the temptation of using their savings for something else, some homeowners don’t connect this account to a credit or debit card, and instead force themselves to go to an ATM or the bank if they want to withdraw cash.
To fund your account monthly, talk to your employer and bank about splitting your direct deposit so that a small portion is diverted straight into this separate account. Just like automated deductions for a Health Savings Account or 401K, you’re less likely to “miss” the money if you’re not the one moving it every month.
Budgeting and saving for home maintenance has come a long way from the days of keeping a rainy day fund under the mattress. By automating your saving, you’re forcing yourself to develop good savings habits. That’s something everyone can find helpful.
To learn more about budgeting for home repairs and to get tips on how to start setting up your rainy day fund, check out this infographic.