Build emergency home repairs into your savings plan.
Hot water heater failures. Leaky toilets. Loose shingles. These are the kinds of unexpected home repairs that need immediate attention to keep a small problem from getting bigger. Generally speaking, your home is your biggest asset, which means protecting it can make an enormous difference in your long-term financial picture. So, what’s a savvy homeowner to do? Let’s have a look.
Certain kinds of maintenance expenses are predictable, like annual service for your air conditioner and furnace. While routine maintenance can seem like an unnecessary strain on your regular budget, it pays off over the long term by keeping your equipment in good working order and alerting you to upcoming repairs. If you keep a budget (and you should!), you can look ahead and either schedule routine maintenance when you have the funds or put the money aside for a few months ahead of time.
But that sort of planning doesn’t help when your furnace stops working on a cold winter’s night or when your roof leaks. Those home emergencies require other kinds of preparation.
Save, save, save
The best way to prepare for the unexpected is to save some cash in advance in a home repair emergency fund.
Consider keeping this fund separate from your other savings, so it’s easier to keep track of and you’re less likely to spend it. You’ll want to put the money somewhere you can get to it easily and don’t have to pay high fees or taxes to withdraw it. A money market account or short-term CD could earn you more interest than the typical savings account. Linn Area Credit Union’s All-In Checking account is also an excellent choice; not only will you earn interest, you’ll have immediate access to your funds via check or debit card when the emergency happens. (No need to move money!)
If keeping a separate account isn’t feasible, use an extra line item in your budget to keep tabs on how much you’ve saved. Adding this to your budget can also help you think of this emergency fund as another bill to be paid rather than an optional expense.
Set a goal
How much should you save for home emergencies? A good place to start is between 1% to 3% of your home’s value, but how much you need will depend on your situation. Think about the age of your house and all of its components and critical systems, such as the furnace, air conditioner, water heater and roof. For example, newer appliances are less likely to need repairs or replacement while older appliances might cost more than average to repair if parts are hard to get.
Make sure to save enough to cover your homeowner’s insurance deductible, which could be as much as $1,000 or more for storm damage. If you have a home warranty, you’ll also need to set aside enough money to cover the service fees. Keep in mind that emergency service calls at night, on a holiday, and during the weekend cost more than scheduling routine maintenance during regular business hours.
Be generous in your estimates, especially if you haven’t lived in your house very long. Unexpected and unusual things tend to reveal themselves over time. For example, you may not realize you need a new roof until you go through several windstorms that cause your home to lose shingles each time.
Even if you have only a few hundred saved, you’ll be in better shape than if you have nothing set aside and have to rely on credit cards to pay for emergency repairs.
Make a backup plan
While you’re building your home emergency repair fund, having a credit card can provide another safety net to help you temporarily cover unexpected expenses. Even a card with a low credit limit, such as $500 or less, can help you manage an unplanned expense until you’re able to access your emergency cash. All of Linn Area Credit Union’s credit cards have a 25-day grace period on purchases, so you can avoid interest if you pay off the card right away.
Remember that not all sudden expenses qualify as emergencies. Financial planner Dave Ramsey recommends asking three questions to decide whether you should use your emergency funds.
- Is the expense unexpected?
- Is it necessary?
- Is it urgent?
If the expense isn’t unexpected, necessary, AND urgent, then look first at your budget and long-range plans to decide how — and when — to pay for it.
Every penny counts
Remember that even a little bit of cash set aside with every paycheck will grow over time. Your home provides you with comfort and security, and setting up a home repair emergency fund will add to your peace of mind. And, with your emergency savings in place, a broken furnace won’t also break your bank account.