Managing the Cost of Home Maintenance and Repair

Thank you to everyone who commented on yesterday's post. I read an article that suggested that most homeowners don't budget enough for maintenance, and certainly it seems like there are many who are as unsure about this as I am.

I think that the key here is certainly to do some planning and budgeting so that I have an element of control. I am going to use my idea of a reserve fund, like a condo would have, to plan for the major expenses. The monthly household budget would be a combination of regular (annual or monthly) expenses along with the amount that gets put into the reserve fund.

Today I will describe how the reserve fund is to be calculated and then we can perhaps look at some other elements next week.

The first step is to make a list of things that would make you say "ouch!" if you had to replace them. My list started with roof, furnace/AC, carpet/flooring, fridge, stove, washer/dryer, windows (broken down by room because I have some newer and some older ones), front door, garage door, deck. Then I also added large expenses that aren't replacement items but maintenance that happens less than once a year: exterior painting, interior painting, tree pruning. I know I forgot stuff, but this is a starting point.

The second step is to estimate how often you need to do each item. For example, I said roof was 25 years, furnace 25 years, etc. This partly depends on how much you spend each time you do it. For example, I know they sell roofing shingles that are rated from 15-50 years with appropriate price differences.

The third step is to estimate when the item was last done. If you weren't the person to do it this might be a wild guess. But you are really planning for when you will do it, so work backwards from the numbers in step 2 if you need to.

And finally, you need to estimate the cost of the item. Use today's dollars and hopefully the interest from your savings account will offset the effect of inflation. So if you were to buy a new fridge today, would you want a $600 fridge or a $2000 fridge (or more if you really like fancy fridges!)? As you start you can ballpark these numbers and update your plan if you get an updated cost.

This is enough to calculate the contribution to the reserve fund that each item requires. Simply subtract 3 from 2 to get the number of years. Multiply by 12 to get the number of months. And divide the cost by the number of months. Voila!

Here is the spreadsheet that I came up with when I did my own quick and dirty version of this (click to enlarge):



I definitely don't know if many of these costs or lifespans are accurate, but I wouldn't be surprised if the estimate ended up very close to the real answer!

What this tells me is that I had better be earmarking $500 per month into long-term planning for irregular expenses or I am going to experience significant pain if a bunch of these happen close together. That turns out to be just over 1% of my house value annually, which is the lower end of what most sources seem to suggest.

I'm not claiming that I should be on the low end though. This is only the irregular expenses. Next week I will look at the regular expenses that occur every year and see what the additional costs for those items might be.

Have a great weekend!