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Budgeting for Major Home Expenses

Budgeting for major home expenses is crucial to ensure that you can cover the costs of repairs, maintenance, and upgrades without straining your finances. Here’s a step-by-step guide on how to budget for major home expenses:

Step #1: Identify Major Home Expenses: Make a list of potential major home expenses. These may include:

ComponentTypical LifespanTypical Costs
Roof20-30 years$6,000 to $30,000+ depending on the size and type of your roof.
HVAC / Furnace~15 years$6,000 to $10,000 per unit
Water Heater~10 years$1,500 to $2,000
Appliances~10 years$800 to $3,000+
Bathroom Renovation~$5,000 to $15,000 depending on the size and materials
Kitchen Renovation~$15,000 to $50,000+ depending on the size and materials
List of major home expenses

Step #2: Estimate the Remaining Useful Life: For HVAC, water heater, and appliances, you can often look up the manufacture date on the label affixed to the component. For the roof, you can usually guess the age of the roof by its appearance.

Step #3: Estimate the Replacement Costs: You can typically call local contractors, roofers, HVAC companies, etc. to give you an estimate for the replacement costs.

Step #4: Calculate the Amount You Need to Save Each Year: To set up your saving goal for each component, take the replacement costs and divide it by the years of remaining useful life. For example, if the roof costs $20,000 to replace and is estimated to last another 10 years, you need to start saving about $2,000 per year.

Another example is your HVAC system, if it is approaching or past 15 years old, you should expect to save about $9,000 in the next 2-3 years. So you need to save between $3,000 to $4,5000 per year.

Home Emergency Fund

Also, you should have at least $1,000 in your “home emergency fund”. This amount will cover your homeowner’s insurance deductible and the replacement cost of most appliances. Bringing this amount up to $2,500 to $5,000 will cover you against most emergencies.

Home Warranty

Another option you can look into is buying a Home Warranty plan that covers these components. These plans typically cost around $600 to $900 per year. However, there are some caveats:

  • Roof is usually not covered by a Home Warranty plan
  • The Home Warranty company will try to repair instead of replace old components.
  • They may replace a failed component with a cheaper equivalent, and not with the brand/model that you desired.
  • They may have a maximum limit on some components, and you have to pay the difference.

Don’t let the cost of major home expenses catch you off-guard. You need to plan for these major repairs so that you can keep up with your home maintenance.

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