You know it’s going to happen at some point. A pipe will break, or your HVAC system will go on the blink, and you’ll get hit with a major home repair bill. The question is, will your wallet be ready for it?
According to a recent study by financial services company Synchrony, the answer for most homeowners is a resounding no. While many do set aside money for home repairs, they vastly underestimate how much they’ll need over the course of living in the home.
The study found that people tend to estimate a “lifetime” maintenance cost of $70,000. In reality, those expenses will total an estimated $339,000, with the price tag rising above $400,000 if emergency repairs are needed. Synchrony’s projections are based on estimated costs over nearly five decades of homeownership.
Curtis Howse, who leads the home and auto divisions at Synchrony, said in the report that such a large discrepancy between homeowner estimates and actual costs demonstrates “a critical disconnect between perception and reality.”
The lack of awareness around typical maintenance requirements leads to another distressing trend highlighted in the survey. Ninety percent of respondents said they have a home repair need, but almost half haven’t addressed it because of the high costs. When maintenance is delayed, even small repairs can become major issues over time, increasing the financial outlay required to correct them.
“At a time when homes are older and more expensive to maintain, many homeowners are unprepared when it comes to understanding and planning for the real cost of maintenance and repair,” Howse said.
How to budget for home repairs
Buying and owning a home is a large investment, so you want to make sure it remains in tip-top shape. The best way to do that is to purposefully set aside an emergency fund for home maintenance so you’re not forced to come up with the funds out of the blue. There are a couple of guidelines you can follow to achieve your set yourself up for success.
A common rule of thumb is to set aside between 1% and 4% of your home’s value each year. For example, if your home is worth $350,000, you would aim to save between $3,500 and $14,000 per year. Another way to establish a budget is to save at least $1 per square foot of your home. If your home has 4,000 square feet, for example, you would save $4,000 per year (or more, if your budget allows).
Exactly how much you should have in your repair fund will be determined by the age and condition of the property: the older the home and the higher the wear and tear, the more you should expect to spend on repairs.
Putting aside several thousand dollars at once for a maintenance budget may seem daunting, but don’t let those figures discourage you. Figure out how much you can comfortably contribute each month and deposit that into a dedicated savings account (or an individualized bucket within a bigger account).
As with all savings, anything is better than nothing, and the more you save, the more you can let your money work for you by sitting in an interest-bearing high-yield savings account or money market fund until you need it. The sooner you begin saving, the larger your emergency repair fund will grow.
Finally, it’s helpful to know the most expensive repairs you may need to plan for. According to Synchrony, a leaky or storm-damaged roof costs an average of $11,373 to fix, followed by an HVAC system breakdown ($8,219) and burst or leaking pipes ($4,284). Once repaired, you shouldn’t have to worry about them again for a while, which gives you time to replenish your savings.
The good news is that once you’ve accumulated enough money to cover major repairs, you can adjust your savings strategy to a minimum. Doing a little bit of homework to research typical costs for common repairs (and updating your estimates every year or so) can give you a good sense of how prepared you are.
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