How To Budget For Home Maintenance Costs

How To Budget For Home Maintenance Costs

A large part of buying your first home is the maintenance costs that you incur year after year just by living in the house. Some people advise to budget a certain percentage of the value of your home and keep that money in a savings account for when things go wrong.

But what does the value of your home have to do with how much maintenance costs may be? Nothing. You need a better way.

Don’t Use Your Home’s Value

Using your home’s value to predict the amount of money you should set aside to deal with preventative maintenance and other repairs doesn’t make sense. What if you have an older home that hasn’t been maintained? It will need more maintenance than a newly built home, but its value is likely less, so you would save less for maintenance costs based on this method when you would actually want to save more.

Routine maintenance won’t be extremely expensive and you can probably cover that when you use the percentage method. But what about costly repairs and unforeseen expenses such as replacing the roof or emergency plumbing situations, which blow your maintenance budget right out of the water? You won’t be prepared for those, either.

Your home’s value has nothing to do with the maintenance costs that you will incur during the time you’re living there. You may be happy that you saved that three percent, or whatever arbitrary percentage you choose, when you need to do annual maintenance each year, but you’re in for a reality check when you face a major repair problem.

So, if setting aside a percentage of your home’s value doesn’t work, what will? Since the maintenance and repair costs you incur have to do with the components of your home and the items in it, why not base your maintenance budget off of those things. Bingo, you have a winner!

How To Estimate Maintenance Costs

To use this method, you take account of each component and major appliance inside and outside of your home. Estimate the items’ age, total life expectancy and replacement cost. Then calculate the item’s remaining life expectancy.

First, you should list all of the components on your property that will need replaced at some point in the future. This includes your kitchen appliances, washer and dryer, heating and air conditioning systems and your water heater. Then don’t forget to add items from your home’s exterior to the list, such as the roof, deck, gutters, fencing and the windows.

Enter these items into a spreadsheet or write them down on a piece of paper. Start with the easy part first, the age of each item. You can examine the items themselves for a date stamp or look at past receipts for items you’ve purchased, and estimate other items based on when you purchased your home.

Next you should estimate how much a replacement item will cost you in the future. Don’t make this too complicated. Yes, there are a variety of options and factors to include, but you can’t say right now what you may choose years from now.

Determine the remaining life expectancy by subtracting the age estimate from the life expectancy estimate to tell you the years left before you may have to replace the item. This will tell you when you may incur the expense in the future so you can budget for it.

To give you an annual estimate of maintenance expenses, add up the estimated replacement cost numbers and calculate an average. Build in a buffer to cover smaller repair and maintenance items, like changing air filters and cleaning coils. Remember to add in a few hundred dollars to account for these smaller repair and maintenance items that didn’t make the main list.

Planning For The Future

Arrange the items in your list from least to greatest based on the remaining life and look at what’s coming in the next five years. Will you have to replace the windows? Will the house need a new roof?

You should plan for these larger expenses by putting money aside now. By estimating a timeline, you can also easily see if you have expenses that will fall in the same year and could kill your budget unless you plan for those as well.

Now you have a good way to estimate your annual maintenance and repair expenses for your home, based on your situation and not some arbitrary percentage that could leave you unprepared. Take the time to go through this method so you can cover any repair and maintenance expenses that arise, without having to beg and borrow to save your home.

About Anum Yoon

Anum Yoon is the founder and editor of Current on Currency. She loves all things personal finance, which is why you'll find her work all over the PF blogosphere. Catch her updates on Twitter @anumyoon!

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One Comment on “How To Budget For Home Maintenance Costs”

  1. Great system for figuring out how to calculate the average maintenance cost of your property. This is too often a “hidden” cost that deals a blow to your finances at the worst possible moment. If you do the work advised in this post then you’ll be prepared and make smarter investment decisions!

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