How to Budget Your Money for Unexpected Home Repairs
My high school economics and financial planning class taught me to spend money wisely, divvying up monthly income into needs, wants and reserves for rainy days. As a homeowner, it's the saving for the unexpected that is my real life struggle. How do I save money for something that might not even happen? (And, if it does, I have no clue as to how much it will cost!)
But I’ve realized as I’ve gotten older that with the right kind of planning, we can all be financially prepared for the unknown home repairs that may come our way. Here are some general guidelines:
Follow the general rules
When you're at a loss of where to start when budgeting for home maintenance and unexpected repairs, use the popular rules as guidance. For instance, NerdWallet.com notes the 50/30/20 rule, which dedicates 50% of your income to necessities, 30% to wants and 20% to savings and debt. The Balance suggests the 1 percent rule, which means setting aside 1% of the purchase price of your home each year for ongoing maintenance and repair costs. There's also the square foot rule, which calls on homeowners to save $1 per square foot.
Of course, these rules aren't foolproof and there are many factors to consider when determining just how much money you should save each year. To name a few, there's the age, condition and location of your home.
Make your calculations
For a more accurate number, The Balance suggests averaging the 1 percent and square foot rules and then adding 10 percent for each factor that may influence your home's likelihood of needing repairs. You can also use NerdWallet's budget calculator based on income to get an idea of how you should allocate your finances. Don't hesitate to download helpful budgeting apps or meet with a financial planner for some extra guidance.
Define your goals
WalletHub makes a very valid budgeting point: Without an objective, you won't get anywhere. While prepping for unexpected home repairs may a big goal, it most likely won't be the only one. Maybe you also want to save for debt reduction, vacations or wedding expenses. Maybe you want to save for your kids’ college educations or your retirement. Having a clear idea of why you're saving encourages you to stay accountable, but it also helps you set goals to determine how much money you should set aside each month. From there, you can establish money-saving habits to cut down on your outgoing expenses and reserve funds for your goals.
Consider a home warranty
For just a few hundred dollars a year, you can be prepared for home system and appliance breakdowns with a home warranty. When issues arise due to normal wear and tear, your warranty plan can help with covered repair or replacement costs - so you aren't hit with a hefty bill. This helps you to stay on course with your budgeting plan.