You might not like thinking about it, but everything in your house has a built-in time limit. The hundreds of moving parts and structures that keep your home running smoothly are under constant strain. And they will all break down sooner or later. This makes budgeting for emergencies essential, because you usually have no choice but to make immediate repairs when your air conditioning goes out, the sewer line breaks, or a roof leak floods your kitchen.
Your home is a major investment — indeed, perhaps your biggest investment — so assembling an emergency budget is not only prudent, but also an essential tool of financial planning.
HOW MUCH IS ENOUGH?
Financial planners say homeowners should build up an emergency maintenance fund of about $5,000, if possible. That should be enough to handle most sudden expenses, including major repairs such as a complete HVAC replacement.
Veteran contractors recommend saving up between three and six months’ worth of your home expenses. This rainy-day fund is a good idea for more than just household emergencies; it will provide a cushion in the event of job loss, medical emergencies or other unexpected costs.
WHERE SHOULD THE MONEY COME FROM?
Financial planners recommend opening a savings account attached to your checking account, which transfers a set amount of money into savings every time you’re paid. This can cover routine maintenance and emergencies. Financial experts say savers often forget about this automatically set-aside money, so it builds up faster than they might imagine.
If you have no emergency fund, you would be wise to keep a credit card on hand with enough money available to pay for emergencies. This should be a last resort, since you could wind up paying high interest. You might also refinance your home or take out a home equity line of credit if major equipment goes awry without an emergency fund to back it up. But whether this is a sound idea will depend largely on your personal situation.
HOW TO PREPARE FOR EMERGENCIES
You can plan for emergencies in ways other than saving money. Even if you’re not planning to sell your home, a home inspection can provide insight into what systems are most likely to fail soon — and it will typically cost only a few hundred dollars. An inspection can’t offer guaranteed protection against hidden dangers, but arming yourself with information can help. You should also familiarize yourself with the home emergencies covered and not covered by your homeowners’ insurance policy.
Be sure to hire reliable contractors to regularly maintain your HVAC and other systems. This offers a number of benefits: First, it will extend the lifespan of your systems; second, it will uncover problems before they become catastrophic; and third, it will put you on good terms with a contractor who’s familiar with your home and more likely to jump you to the front of the line if an emergency should arise. This last part can be very important; you don’t want to be thumbing through phone numbers trying to get someone on the line if your sewer main breaks on a major holiday.