Advice abounds on the web about creating your annual home maintenance budget, and while there’s some truth to the belief that saving anything towards home maintenance is better than saving nothing at all, the fact is that by saving too much for your home’s maintenance, other areas of your budget can end up being sparse when they really don’t need to be.
In short…the closer you can get to saving towards the actual costs you’ll incur, the better.
Commonly recommended formulas
Nothing says comfort to a confused homeowner like a formula. Because many people aren’t sure how to budget for home improvements these formulas can seem like the perfect answer to their dilemma.
But are they?
1 percent rule of thumb
One of the most commonly recommended methods of creating an annual home maintenance budget is to allocate one percent of your home’s value for home maintenance costs.
So for example, if your home is worth $250,000, you would allocate $2,500 a year towards home maintenance.
While this doesn’t mean you will spend $2,500 each and every year, it simply means that over a long time – such as 10 years – your costs will work out to be, on average, $2,500.
Some years you’ll pay more (e.g. a roof replacement) some years you’ll spend much less, but this rule of thumb assumes that your costs will be about 1% of your home’s value.
While there’s nothing wrong with using this formula as a guideline, it’s important to point out that there’s really little correlation between your maintenance costs and the value of your home.
For example, if you were to pluck your home out of its current location and move it to an area where the market values are depressed, does that mean your home suddenly needs less maintenance?
Of course not.
There are other ways to figure out how much you need to budget for home maintenance that don’t rely on what the property market is doing.
Square foot rule of thumb
The square foot rule of thumb assigns a dollar figure – typically $1 dollar – per square foot of home. So if your home is 1500 square feet, you should set aside $1,500 per year – on average, just like the above formula – for maintenance costs.
While this is a bit closer to the mark in that it takes your home’s size into account, it fails to address several factors including:
- ⬧the wildly varied costs of labor and materials between areas
- ⬧the age of your home
- ⬧the climate your home resides in
- ⬧the current condition of your home (e.g. whether or not it’s been well maintained)
- ⬧physical location (in a floodplain, earthquake area, areas where the soil erodes, etc)
- ⬧single family vs attached (condo and HOA fees cover many repair/maintenance costs)
A more realistic option – and one that just may leave more cash in your pocket – is to take a good, close look at your home’s condition. Pay attention to any potential issues that might need to be addressed and factor their estimated repair costs when working your home maintenance budget.
Then, look through your checkbook and/or receipts to calculate how much you’ve spent in the past. At minimum go back a year, but if you’ve been in the home longer, go back as far as you’d like to get a good average.
Keep in mind we’re just talking home maintenance, not upgrades to the home…that is a separate matter.
Once you’ve figured out the average, split it into 12 monthly payments that you can then set aside to cover any maintenance issues that arise or those which you know you need to plan for.