Most of us spent more time at home during the pandemic. We saw an increase in home maintenance projects that had been deferred but suddenly were elevated on the priority list. Personally, 2021 gifted me the purchase of a pellet stove and a water softener, the repair of a broken sprinkler line, and some plumbing reconfiguration. None of these were planned.
The 1% Rule
Many of our clients ask how to budget for home maintenance and repairs. We like simple. So, look up your home’s market value. Calculate 1% of that figure. Plan to spend this amount over the course of a year. Roll unused funds over for next year. It’s that easy. Oh, I know. It’s tempting to want to splurge when you have remaining funds after a year. However, you’ll thank me when that hot water heater replacement or that A/C unit that’s limping along finally bites the dust.
How exactly do you “roll” unused funds over? Many clients have success creating a separate account for these funds in the first place. That way there’s no rollover. The funds simply remain in the account while you maintain your inflows and when home maintenance projects occur, you withdraw from this account. Other clients use the bucket system offered by some banks (like Ally.com) or maintain a spreadsheet of how much of their savings account is allocated to future home maintenance projects.
What counts as a home repair or maintenance? Repairs and maintenance are projects that you’re doing to maintain the current condition of your home and keep things in working order. Examples would be replacing a water heater, painting the exterior, or getting a new roof. They are not home improvements. Improvements like redoing your kitchen, upgrading your flooring, or getting a new front door are going to fall outside of the 1% budget.
Home maintenance costs should be part of the equation when considering how much house you can afford. Think about how the following items will fit into your monthly budget: principal & interest if financing, property taxes, insurance, and 1% of the home value for maintenance. Lower your down payment amount if you do not currently have a home maintenance savings bucket.
Make a Plan
Do some research on the useful life of existing features or appliances in your home. Predict which big ticket items you may be looking at next. Determine what your 1% is. It’s possible that if your home is older or requires more work right now, 1% may not be enough. You may need to flex up to 3%. Start making adjustments to your monthly spending to be better prepared for these costs. Implement a plan so you can keep on top of routine maintenance. Avoid putting off maintenance or repairs which can be fraught with higher costs and more work further down the road.
Plan for your remodeling projects, as well. Bonus funds are a great way to fund those “nice-to-have” upgrades on your home. Just be careful not to channel Tim the Tool Man Taylor if you’re doing the remodel yourself. Your remodel project could turn into a repair cost… which is why I farmed out my planned home projects for the year.
If you’re looking for some additional support in this area, you may be able to benefit from our live planning engagement.