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Budget for non-recurring expenses
Old 07-29-2010, 12:02 PM   #1
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Budget for non-recurring expenses

Just curious, but what do you all budget on an annual basis for non recurring expense. For me it would simply be car replacement and repairs in addition to home repairs. Medical is not really an issue for me as I live in Canada.

Personally I have added 8,000 to my annual expenses as recurring split as 2,500 for car and 5,500 for home repairs. The car assumes a 20-25K car purchased every 10 years + repairs less trade in value for said car. For home I assumed 1.5% of market value as my annual repair estimate.

I really need some feedback on this as I have all my other expenses pretty shored up after tracking them for several years.

Also, I have thought that this would be one advantage of owning a condo in that your condo fee includes exterior maintenance so this is a known cost reducing uncertainty. This assumes the condo has an adequate reserve to avoid any large one time costs.
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Old 07-29-2010, 12:09 PM   #2
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I added $9,000 to my budget:

$5,000 for car replacement (2 new cars, every 10 years, $25K each)
$2,500 for home repairs (1% of home value)
$1,500 for car repairs (based on the past 10 year average)
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Old 07-29-2010, 12:12 PM   #3
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Quote:
Originally Posted by accountingsucks View Post
Just curious, but what do you all budget on an annual basis for non recurring expense. For me it would simply be car replacement and repairs in addition to home repairs. Medical is not really an issue for me as I live in Canada.

Personally I have added 8,000 to my annual expenses as recurring split as 2,500 for car and 5,500 for home repairs. The car assumes a 20-25K car purchased every 10 years + repairs less trade in value for said car. For home I assumed 1.5% of market value as my annual repair estimate.

I really need some feedback on this as I have all my other expenses pretty shored up after tracking them for several years.

Also, I have thought that this would be one advantage of owning a condo in that your condo fee includes exterior maintenance so this is a known cost reducing uncertainty. This assumes the condo has an adequate reserve to avoid any large one time costs.
Sounds like you have it covered. I've always had a "car" account that I use to save up for the next car and and an account used to save up for vacations. I don't save specifically for other major purchases. I keep a 9 month emergency cash account and when major repairs etc come up I pay them out of this and then proceed to top it back up.

These days we have sold our house and have lived in leased apartments for the past 5 years so major house repairs are no longer an issue.
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Old 07-29-2010, 12:23 PM   #4
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I budget for car repair and maintenance and for home repair. I live in a condo too, but have a separate amount budgeted for the maintance fee. As for car replacement, I don't budget for it but when the time comes, I'll pay in cash, so that one year, I'll have a "big withdrawal" from my savings.
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Old 07-29-2010, 12:43 PM   #5
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We decided to increase our "emergency" or "buffer" savings once we decided on a percent-of -portfolio withdrawal strategy. This fund is considered to be outside of our portfolio.

In addition to covering cars, repairs, etc. a large expense hit to the portfolio would have a larger direct impact on our short-term income than is comfortable for us. We feel better with a larger safe buffer fund to soften the blow after the inevitable storms. Now at about 6 months expenses, mostly MMF.
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Old 07-29-2010, 12:52 PM   #6
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Cost of replacing the car amortized over 10 years.
House maintenance/repairs - assume 1% of value, or $1600 a year roughly. I hope to get some more "historical data" in the next few years on this one. Seems like $1600 would cover a few smallish repair/maintenance tasks, or one larger repair/maintenance task every year or two. Seems ballpark accurate given that small stuff might come up more frequently than 1x a year, and big stuff (painting, new roof, new HVAC, etc) is much less often than 1x a year.
Car repairs - I'll base this on historical data.

My overall philosophy is that all the known unknown lumpy expenses will tend to average out year to year. Maybe one year the dishwasher and the hot water heater will break, the next the A/C might break. The following might be a new transmission in the car, the next year maybe some major medical or dental expense. It's always something, so I think it is smart to plan ahead like the OP is thinking and budget for expected unknown/lumpy expenses that will undoubtedly occur at some average rate every year.
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Old 07-29-2010, 12:55 PM   #7
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Originally Posted by easysurfer View Post
I budget for car repair and maintenance and for home repair. I live in a condo too, but have a separate amount budgeted for the maintance fee. As for car replacement, I don't budget for it but when the time comes, I'll pay in cash, so that one year, I'll have a "big withdrawal" from my savings.
Pretty much the same for me. My car is 3 years old and has only about 11,000 miles on it, so it won't be needing any costly repairs for a while (like the similar 15-year-old car it replaced). I live in a co-op and we just finished some costly interior renovations which required a temporary assessment.

Besides my "slush funds" I have in muni bond funds, I have a surplus of income (about $5k) from my major bond fund dividends over my expenses I can use to cover unforseen expenses instead of reinvesting them. For 2010, I am using about half of it to pay estimated taxes on a large, unexpected cap gains distribution on one big bond fund back in late June.

I also made sure to have some costly dental work done in 2007 and 2008 before I FIREd in late 2008 and lost my dental insurance coverage. This has greatly lowered and stabilized my dental bills.
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Old 07-29-2010, 05:50 PM   #8
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How much did you spend in the past year?

Don't even have to count up what you bought, only have to take income and subtract how much your bank accounts changes. The highly variable investments should be easy enough to calculate

Divide by 12

That should be close to your budget for all expenses, recurring or not. Go back even further for even more accuracy

Some years it might be new tires, other years it might be plane tickets or a refrigerator. If paying for too much of that stuff seems to come all at once, that's what savings are for

For me only really expensive thing that would bust all that is buying a car, which hopefully should never be more than once every eight to 10 years (and would love any years added on top of that). Means sometime this decade I'll have to write a check for $10k. I don't budget for it specifically, I'm simply aware of it, which is more than enough to ensure it won't be a hardship
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Old 07-30-2010, 05:48 PM   #9
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Also, I have thought that this would be one advantage of owning a condo in that your condo fee includes exterior maintenance so this is a known cost reducing uncertainty. This assumes the condo has an adequate reserve to avoid any large one time costs.
Be careful with that thinking. We own a condo in Hawaii. Our condo fees have remained fixed, actually increasing at about half the inflation rate. But others in the area have seen fees more than double in the last couple of years for several reasons including having to pay for repairs, a large number of delinquent owners or REO units, etc. Just don't count on maintenance fees being stable.
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