Unexpected expenses

[FinallyRetired]

I'm beginning to think I should expect huge unexpected expenses. Just over the last 12 months I've had the following:

New heat pump compressor $1200
Plumbing leak damage above insurance reimbursement $5000
Share of funeral expenses for close relative $2500
Window glass repair $750
Replacement microwave $1080
Replacement water heater $380
Fallen tree removal $250
Total $11,160

I include an unexpected expense line in my budget but nowhere near this much. I wonder how common this is?

 

[HFWR]

I've seen 1% used as a rough guesstimate for the ongoing upkeep of a [-]money pit[/-] house. So, if you have a $200k house, you should budget $2000/yr to your "she's gonna blow" fund...

 

[tuixiu]

Wow that's a serious freakin microwave!

The unexpected expenses thing comes up a lot when the wife and I discuss how much money we should have in our emergency fund. We have no debt and a paid-off townhome so we can live pretty lean if we needed to, so end up figuring in 12 x monthly expenses + 5000 as our number.

We figure just having enough to live day to day can really get thrown out of wack if stuff like you mentioned, major car repair, etc. happens. Pulled the number $5000 out of our asses.

 

[REWahoo]

I include an unexpected expense line in my budget but nowhere near this much. I wonder how common this is?

I don't think it is possible to budget for this with any degree of accuracy since it is uncommon and highly unpredictable.

During the last year or so leading up to my retirement I tried to anticipate breakdowns/large expenses and did some upgrades while still working. My planning was lousy as the first year of retirement was the most expensive repair/replace period we've ever experienced. The microwave, dishwasher, water softener and pressure pump on our well all died and had to be replaced. We also had major repairs to both our central air and septic systems. Thankfully, things have calmed down considerably since.

 

[W2R]

I include unexpected big expenses as a budget item. I compute what I expect to be spending, and multiply it by 1.8. The extra 0.8 is for these unexpected expenses. Another way of expressing the amount is that now that my house is paid off, 45% of my budget is dedicated to unexpected big expenses. These expenses are not even from year to year, so this percentage is a five year average that I computed from 2002-2007, and now set aside for these expenses. I guess I'll find out in a few years if this estimate really works for me or not.

Examples of this type of expense would be the need to replace a TV or computer, dental crowns and/or root canals (no dental insurance), replacement of my A/C system, new hot water heater (and mine cost $800! you got a much better deal) and so on.

 

[freebird5825]

dh2b and I put an extra $200/month above our monthly bills in a joint account for minor league unexpected expenses. That sounds very low, but it hasn't bit us yet.
For monster size expenses, I can always write a check against one of my bond funds if I have to.
I had done a lot of upgrading of appliances in a full scale kitchen remodel (1999) and had the roof done in 2006. We just replaced an ancient freezer and are almost done paying that off at zero interest until Dec 31. Sears was desperate and offering some darn good deals online right after xmas.

 

[FinallyRetired]

Wow that's a serious freakin microwave!

Yep. Built-in, has to match the oven, has to be custom fit into the space from the old oven, etc. Oh, I did all that work myself, but it started blowing fuses (I had a thread on this) and finally had to call in the electrician to put in a separate circuit. The cost includes about $250 for the electrical work.

 

[tuixiu]

Our townhome we're not responsible for the roof or exterior so that's a nice buffer to even out housing repair even though we're paying for that indirectly in our HOA fees plus still have the heat pump, hot water heater, and whatever can go wrong inside.

I forgot about dental crowns! I've gone thru the root canal + crown thing twice, leaves you wondering what the hell you have dental insurance for if you're paying that much out of pocket.

 

[bbbamI]

I put our budget together for this year copying last year expenses. I had to trim them down since the only income we will have is a pension. Since the first of the year, we are below our budget and would like to keep it that way. If there is any money left over in a category, such as auto and home maintenance, we'll carry that over to next year.

If something comes up that has to be fixed/replaced that we don't have in our budget...well, we've got some stocks in a taxable account we can sell. Even though I count these stocks in our net worth funds, they are for emergencies only.

 

[unclemick]

I don't overly plan large unexpected expenses - I try to stay fully invested at my retirement asset allocation with one year's expenses in MM.

At year 12 into ER - had a little event, Hurricane Katrina which caused a 1000 mile move inland and a long list of unexpected expenses - maybe 15% of net worth as a ballpark guess.

So you redo portfolio and budget, bury the dead and move along.

Planning is great - but life sometimes requires the best plans to be re-adjusted periodically.

heh heh heh - Actually took a tax loss, did a partial Roth conversion and my expenses doubled and tripled for the next 2-3 yrs from a really cheap level. The market 2005-2008 wasn't as onerous as now.

 

[jazz4cash]

Good topic. I figure any plan is better than no plan. Every dollar set aside for a contingency is a dollar less that has to be scraped up in an emergency. My spreadsheet has nine different scenarios and I randomly assign dollar amounts in a hi/medium/low fashion to three contingency categories (home/medical/auto). These happen to range from 10 to 16% of monthly expenses. I never really looked at the percentages until this thread came up. At that rate, I should be able to back down on the contributions to these accounts once we have built up a buffer. I have 9-10 years to tweek the process.

 

[Maurice]

Interesting topic indeed. I've been tracking my expenses for only a couple of years, but each year I have several 'unexpected' expenses, and together they total in the thousands. Maybe even 10k in some years.

I'll start tracking them as an independent category so I can get a few years of data before I retire.

 

[Meadbh]

There are expected but unusual expenses, such as replacing a vehicle or a roof, and then there are the unexpected expenses, such as Hurricane Katrina. These events are rare but can be catastrophic. It's impossible to self-insure for all of them. But one should expect the unexpected!

 

[RunningBum]

I don't think it is possible to budget for this with any degree of accuracy since it is uncommon and highly unpredictable.

I think you have to make a best guess, a 1% rule or some multiplier on predicted expenses, or based on past 10 years avg * inflation, or something. They may be uncommon and unpredictable, but you know that sooner or later you'll have some. In years where you have less than budgeted, leave the excess in savings. That way in the bad years you can dip in and grab it without blowing your plan.

Alternatively, maybe you have some amount like, say, $100K set aside for such expenses, and don't count that towards your requirement. In a good year that $100K grows a bit, in a bad year you eat into it, and hopefully it never runs out.

The only other way I see is to have a buffer of a larger total nest egg than you need. But I use that buffer for things that might be worse than predicted, like a lower return on investments or higher inflation rate. I won't need that buffer if my assumptions are right, but I know with 99.999% certainty that I'll have some large unexpected expenses at some point, so I make a prediction of a yearly average just like my other expenses. Part of the buffer is in case I underpredict, but the assumption should be > 0 such expenses.

 

[ls99]

Not exactly unexpected, we will have a the roof re-done in a month or so, we are 7th on the roofer's schedule. We expected about 5 more years of life when we bought the house. Well we are at 4 yrs. and a few leaks showed up in the garage and at one of the chimneys. I don't do roofing, too many ways to screw it up.

Will pay for it with taxable stocks. The original plan did not include the recent drop in market. So grin and bear it and get on with it.

One unexpected expense was a sewer line clog, due to settled dirt and some separation of clay pipes, with some sag. 25 feet of it is under laundry/furnace room's concrete floor. Rather than chop and dig and putting up with the resultant horrid mess, we had a liner installed. $ 4.5K, last year. All other issues I could fix, saving around $ 5 to 7K in labor costs. The material costs were in the few hundred $.

 

[RonBoyd]

 

[Maurice]

Ron - LOL!

 

[Alan]

I don't have separate accounts for major repairs, they just come out of the 12 month emergency account which I then have to replenish. I remember 1992 when all sorts of cr@p happened - new roof, new AC and gas heater, re-painting and repairs to house, pool pump and filter, major tree trimming after Hurricane Andrew plus other stuff such as new fridge. Then in November raccoons ate a soccer ball sized hole through the new roof !!!

You've just got to expect that some years are going to be a lot more expensive than others and it's near impossible to plan for it.

 

[Independent]

I made a list once of the things that can require repair/replacement in my house:
Roof
Doors
Windows
Paint
Furnace
Water Heater
Air conditioner
Dishwasher
Garbage Disposer
Fridge
Stove
Microwave
Garage door and opener
Clothes Washer
Dryer
Plumbing (3 stools, two showers, 4 sinks), both fresh water and drains
Electrical lines (many)

A person who's even more analytical than me could look up life expectancies at sites like this Appliance Life Expectancy, do a worksheet with replacement costs, life expectancy, and come up with some expected average annual cost. That still doesn't include funerals and catastrophies.

 

[talltrees]

I use the following formula. It has covered most, if not all, of the expenses mentioned.

Repairs and replacement: $12000 ( $1000 per month)

Medical and dental $ 5200 ( $100 per week)

I have medical insurance. Any balance at end of year gets rolled over to following year.
Hope this helps.

 

[RunningBum]

Good list, Indy. I'm adding decks to my list since mine gets weather beaten and I don't think the builder used very good wood.

As the OP mentioned, tree removal for those of us with treed lots, though I do most of that myself. I also have an unpaved driveway that needs maintenance every few years.

Carpet replacement and/or wood floor refinishing.

Car expenses and replacement also need to be considered. Edmunds has true cost-to-own numbers.

 

[tuixiu]

Pets... their medical bills tend to come in big bunches, even for the regularly scheduled tuneups.

I imagine people who own boats can get the unexpected wallop.

 

[FIREd]

Our monthly budget comprises 2 pots of money: one to pay for monthly bills and another one for "extras". Sometimes the extras are clothes, sometimes they are pieces of furniture and sometimes they are a new appliance, a new garage door opener, or a new water heater as needed. So small repairs (less than $1,000) are paid right out of our monthly budget.

But we plan for large, somewhat expected expenses such as roof, siding or A/C replacement. For those, we set about 1% of the value of our house aside each year.

For large unexpected expenses (water leak, sewer line replacement, etc...), we use money in our emergency fund and divert part of our "extras" money each month to repay the EF over time.

 

[Sue J]

I had planned for new tires on my car this month, I estimated $400-$450 and it was $422 including an alignment. I figured that was it for our extra expenses this month. Then we found water coming up from the basement floor drains when we used the kitchen sink. Not enough for a flood, but definitely an unexpected emergency expense. Our city sewer department recommended a local drain company and he cleared it all out for only $115. I was expecting that bill to be much higher. But then we had real emergency with one of our cats. So far that's been just under $200 and we're happy to pay it to get him better.

That's what the savings is for. Ours is just a general savings but I like the idea of 1% of the house value per year set aside for house expenses. First priority should be the roof and furnace.

 

[Amethyst]

We had our house built in 1990 and have replaced pretty much everything in it since then. We're on our third refrigerator. Houses really are money pits.

I have a Badthings fund, just like I have an Estimated Tax and Property Tax fund. An amount of our income gets set aside into a money market checkwriting fund each month, and any EOY balance gets rolled over, or has to be replenished somehow.

(I'd like to know where a tree can be removed for $250.00. Nobody around here will touch a medium-sized tree for less than $1000, and it goes up from there).