Home Repairs and Maintenance Budget question

[Retire2013]

Dear Forum Members,

I realize that it would not matter what I call it or how I manage it --- "It" being home maintenance and repair expense since whenever something needs to be done then we would have to spend the money to get it fixed, etc. But here's my question: I've just redone my budget to put $430 per month to the line item called Home Repair/Maintenance. $5160 per year. I plan to track all home repair and maintenance against that budget.

Should I continue to let that budget accumulate year after year? If no repair is needed this year should I roll that $5160 forward and keep adding to that line item next year etc. such that by end of next year my home repair fund (if no expenses were incurred) would grow to $10,320 etc? Conceptually this is just like the depreciation on our car or any other big ticket item. I budget a certain amount monthly toward the cost of eventual replacement of my vehicle(s) etc.

How do you think about/manage/track your home repair and maintenance? Do you set money aside and never touch it and keep adding to it and spending only from that fund for that particular type of expense?

Thank you for sharing.

Retire2014

 

[Tyro]

It's your choice and I expect you'll get a number of good answers and ideas. We're spending pretty much all of what we budget each year in this category, but if we weren't, I think we'd prolly (sic) carry over some portion of any surplus (e.g. we may have an idea of upcoming expenditures but just got "lucky" that they didn't occur in the current year).

Tyro

 

[Midpack]

I use an accrual account, knowing it will vary dramatically from year to year. Here's a basic description note "accrual" comments http://www.early-retirement.org/for...-categories-do-you-use-64917.html#post1279443

Unlike all other expense categories, annual variance are meaningless for the "accrual" expense category. But we know that, and can track all other variances.

We average $10K a year for accruals, but some years we know we'll spend twice that or more, and nothing other years. We simply made a spreadsheet planning on buying new cars every 5 years, a new roof every 15 years, new appliances every 20 years, etc. and then averaged over 30 years. Your frequency and items will be your own, but you know what your history has been from past decades.

But there are several workable ways to deal with major expenses that occur (much) less than annually, the key is accounting for them somehow. There's no good reason to be surprised when you buy a car, replace your roof/furnace/AC/appliances/furniture, remodel, etc. - we all know they'll happen sooner or later.

 

[Live And Learn]

I use an accrual account, knowing it will vary dramatically from year to year. Here's a basic description note "accrual" comments http://www.early-retirement.org/for...-categories-do-you-use-64917.html#post1279443

Unlike all other expense categories, annual variance are meaningless for the "accrual" expense category. But we know that, and can track all other variances.

We average $10K a year for accruals, but some years we know we'll spend twice that or more, and nothing other years. We simply made a spreadsheet planning on buying new cars every 5 years, a new roof every 15 years, new appliances every 20 years, etc. and then averaged over 30 years. Your frequency and items will be your own, but you know what your history has been from past decades.

But there are several workable ways to deal with major expenses that occur (much) less than annually, the key is accounting for them somehow. There's no good reason to be surprised when you buy a car, replace your roof/furnace/AC/appliances/furniture, remodel, etc. - we all know they'll happen sooner or later.

I do the same.

 

[MichaelB]

We keep a separate fund for the big things, such as roof and major home repairs. Smaller expenses, such as an appliance repair, come from the current year budget.

 

[Live And Learn]

Retire2013: I should have mentioned that 5k a year seems a bit high. I'm using 1.5% of home value annually. Could you share how you came up witht he 5k ? Worried that I may be short in my budget. Thanks

 

[Midpack]

Retire2013: I should have mentioned that 5k a year seems a bit high. I'm using 1.5% of home value annually. Could you share how you came up witht he 5k ? Worried that I may be short in my budget. Thanks

Just to compare notes, I agree on home expenses, but how do you deal with periodic car purchases? That's our biggest accrual expense, we pay cash (that may be my answer).

 

[REWahoo]

... we pay cash (that may be my answer).

+1

There are so many zero percent financing deals around, I went that direction on my last purchase rather than forking over a lump sum.

 

[bondi688]

REWahoo
How much did you budget for house repair in the event of an asteroid strike?

 

[REWahoo]

My complete net worth - including the house.

 

[rbmrtn]

I keep a contingency fund for things like this rather than budget because it's such an unknown as to when/if/how much.

But the amounts seem high to me. In 12 years I have spent less than 2k on what I consider maintenance. I replaced an AC compressor, and I just repainted the exterior trim, replaced some soffit / facia ( DIY ). What are you actually spending 500/month on ?

 

[rbmrtn]

Just to compare notes, I agree on home expenses, but how do you deal with periodic car purchases? That's our biggest accrual expense, we pay cash (that may be my answer).

Last vehicle lasted 15yrs/220k miles. That was a work commuter. I only do a fraction of the miles now. If I get to 200K on the current one at my present mileage rate... well I should be dead before the car is.

 

[Texas Proud]

Retire2013: I should have mentioned that 5k a year seems a bit high. I'm using 1.5% of home value annually. Could you share how you came up witht he 5k ? Worried that I may be short in my budget. Thanks

I think it makes a difference where you live on what % to use...

IOW, if you live in expensive Calif.... then the price of the house and the cost of repair probably does not compare with a lot of other places... the land cost is very high, so you have a small house that does not cost the same to repair or replace based on the total cost of buying a house...

I also think that it makes a difference if you put minor expenses in the category.... IOW, you have a dripping faucet, or a running toilet... is that in there or not... or even a bigger items such as pipe leak or a clogged drain... For me, I put all the Home Depot/Lowes, plumber if needed, AC guy etc. etc. expenses in there and they can add up over a year...

 

[bondi688]

Looking at all the posts about home repair bills and budgeting a reserve for such items nudge me more in the direction of renting in ER.

 

[Midpack]

Last vehicle lasted 15yrs/220k miles. That was a work commuter. I only do a fraction of the miles now. If I get to 200K on the current one at my present mileage rate... well I should be dead before the car is.

I drive my cars longer than most, but I don't want DW driving an old car. YMMV

 

[Retire2013]

Retire2013: I should have mentioned that 5k a year seems a bit high. I'm using 1.5% of home value annually. Could you share how you came up witht he 5k ? Worried that I may be short in my budget. Thanks

You and I are thinking along the same line. The $5,160 per year amount is less than 1% of my current home value (based on real estate comps). I hope this will be sufficient. I will not look at any amount leftover at year-end as "extra" money to be spent on frivolous things. My plan is to continue to add to this repair fund so that the one year when I may need a new roof, I will not be traumatized!

 

[Retire2013]

I keep a contingency fund for things like this rather than budget because it's such an unknown as to when/if/how much.

But the amounts seem high to me. In 12 years I have spent less than 2k on what I consider maintenance. I replaced an AC compressor, and I just repainted the exterior trim, replaced some soffit / facia ( DIY ). What are you actually spending 500/month on ?

One of the reasons that I put aside $430 per month on home repairs and maintenance is because I am a woman living alone and I lack the know-how to do any home repair work. Hence, I must put aside enough money to be able to pay others for that work when the need arises. It would be nice if actuals will turn out to be much less than budgeted.

 

[W2R]

To be honest, I have a lot of "slop" in my budget and that helps. Also my SWR is very low because I am cautious by nature. I guess I could handle up to about $30K-$40K during the year by upping my withdrawal to 4% that year and cutting back on my discretionary spending. I have only had to do the latter, so far.

If an uninsured expense higher than $40K arose, well gosh, I don't know. I could loan myself money from the next year's withdrawal, I suppose, and cut back spending for two years. But you know, my house is only worth about $170K or so, so that does not seem likely to happen.

Last year I needed a new hot water heater, so I just cut back a little on discretionary spending that month. I did the same to pay for replacing my carpet when water got into my house due to Hurricane Isaac, since it did not meet the deductible on my insurance. Basically, I just wait to do my discretionary spending until problems like that have been paid for and I find money left over.

One of the reasons that I put aside $430 per month on home repairs and maintenance is because I am a woman living alone and I lack the know-how to do any home repair work. Hence, I must put aside enough money to be able to pay others for that work when the need arises. It would be nice if actuals will turn out to be much less than budgeted.

Me too! I just call my handyman, plumber, electrician, or whoever. Problem solved. That reminds me; I need to call my handyman and have him fix a few things....

 

[HighRoller]

I guess I'm lucky in that I'm able to do most of my maintenance (cars, home, appliances, electrical, plumbing, property, etc) myself "if it's repairable". It has really helped me to be able to do these things myself since it can take a while to get anyone out to fix anything when you live a ways out in the country. My overall maintenance cost have been so low in the past 10 years (lucky so far I guess) that I don't even think about it as "a line item" anymore. I know some folks can't or don't want to do their own but for me it's worth it to avoid the cost but mainly the hassle of dealing with service or repairmen. While I don't budget for it, I do mentally expect to spend ~$1000 a year on maintenance parts and/or a major new appliance.

 

[Independent]

Dear Forum Members,

I realize that it would not matter what I call it or how I manage it --- "It" being home maintenance and repair expense since whenever something needs to be done then we would have to spend the money to get it fixed, etc. But here's my question: I've just redone my budget to put $430 per month to the line item called Home Repair/Maintenance. $5160 per year. I plan to track all home repair and maintenance against that budget.

Should I continue to let that budget accumulate year after year? If no repair is needed this year should I roll that $5160 forward and keep adding to that line item next year etc. such that by end of next year my home repair fund (if no expenses were incurred) would grow to $10,320 etc? Conceptually this is just like the depreciation on our car or any other big ticket item. I budget a certain amount monthly toward the cost of eventual replacement of my vehicle(s) etc.

How do you think about/manage/track your home repair and maintenance? Do you set money aside and never touch it and keep adding to it and spending only from that fund for that particular type of expense?

Thank you for sharing.

Retire2014

In our house, the bold makes the rest of the question kind of moot. We know we're going to replace the roof, furnace, AC, washer, dryer, hot water heater, dishwasher, stove, fridge, microwave, and garage door opener when the fail. We know we'll withdraw from the IRA if monthly income doesn't cover a big expense.

The decision point is behind us - estimated costs were included in the decision to retire when I did. The next future decision point would be when/if we're considering selling the house. Between now and then, we'll just record expenses.

Of course, we record all of our expenses, and look at the totals periodically. But for us that's not because we want to force them to conform to some original plan.


(I have a daughter who uses electronic "envelopes" - literally separate savings accounts at her bank - to bucket certain erratic expenses. She does it so she doesn't feel guilty about spending money on "fun" stuff right after she gets the car fixed. But, we've done LBYM for so long that we don't need that type of self discipline.)

 

[Ronnieboy]

I'm not retired yet, but I expect to do something similar to Retire2013. I would rollover the annual amount each year till I hit a ceiling, like $25k, then when a large expense came up start putting it in again. Kind of like a maximum vacation account at w*rk

 

[Live And Learn]

Just to compare notes, I agree on home expenses, but how do you deal with periodic car purchases? That's our biggest accrual expense, we pay cash (that may be my answer).

I have a separate accrual account for non home maintenance things. 3k / year. Assumes a new used car every 10 years and occassional furniture meltdowns needing replacement.

I only use cash. Or let me restate ... I only use my credit card (love the year end summary and the points !!!) but I pay it off in full year month.

 

[Live And Learn]

You and I are thinking along the same line. The $5,160 per year amount is less than 1% of my current home value (based on real estate comps). I hope this will be sufficient. I will not look at any amount leftover at year-end as "extra" money to be spent on frivolous things. My plan is to continue to add to this repair fund so that the one year when I may need a new roof, I will not be traumatized!

Ok - the 1% makes sense. and yes, keeping that accrual money aside until you hit the "realm of the ridiculous" is a good idea. I would that once you have enough to pay for a new roof and replace all the appliances that you can bring your monthly budget down.

 

[Dimsumkid]

I got the new Kiplinger's Personal Finance, April 2013 magazine today. There's an article called "How Long Will it Last?" on page 56. They state housing experts recommend you budget 1% of the purchase price of you home annually for maintenance and repairs.

 

[akck]

What might need replacing in your home? A new roof? I new furnace/boiler? I'd let the pot build until it is large enough to cover a major repair, then drop the budget to the average of what you've been spending on maintenance. When you do a major repair, start saving for the next one.

In anticipation of retirement, we've re-roofed our house and replaced almost every component in our boiler. Appliances are about the only things that might need to be replaced in the future. We'll likely keep our cars for another 10 years or more and will go to one car. Since we've done this all pre-retirement, I don't envision any major repairs for a long while, so we aren't budgeting for them. Instead, we'll use the surplus in our retirement fund to cover them. If we have no major repairs before the point when income exceeds expenses (mortgage paid off), we'll save the excess for repairs and final car replacement.