Financial planners always recommend setting money aside for unexpected home repairs so you can attack issues with cash rather than credit. When you use credit, you’ll incur interest charges, which will make the expenditure greater. Of course, if your budget is already stretched to maximum elasticity, establishing such an account might seem impossible. However, these three approaches to establishing a rainy-day fund for home repairs will help you find the cash to get it done.
How Much Should You Have on Hand?
The amount you’ll need typically varies according to the nature of your home. If you live in a condominium, you’ll probably need less than if you live in a single-family house. The overall size of the home comes into play as well. If you’re handy with tools, you won’t have to worry about labor costs, but if you aren’t, that’s a consideration too. Most experts recommend setting aside one percent of the value of the home each year. The best strategy for determining a hard number is to plan for the worst-case scenario. Find out what it will cost to replace your roof or repair your foundation and set that amount as your goal.
Go Find the Money
In most cases, you have the cash already; you’re just allowing it to be siphoned off in drips and drops.
1. Start by requesting an interest rate reduction on your credit cards. Call their customer service department; tell them you’re planning to transfer your balance to a card offering a lower rate and you want to give them a chance to keep your business.
2. Use a list when you go to the grocery store and never shop for groceries hungry. This will keep you focused on needs rather than being distracted by your wants.
3. Do you really need that hugely expensive cable package? Going with a streaming service such as Netflix or Hulu will get you more entertainment than you’ll ever be able to watch at much lower prices. Buying your own cable modem and router will reduce your internet bill by at least $20 monthly.
4. If you still have a landline and a cell phone—and you’re dead-set on keeping the landline—change it to a no-frills basic service to reduce its cost.
5. While you’re at it, get revised homeowners insurance quotes to help you make sure your home is adequately covered against unforeseen circumstances, while keeping policy costs in line.
Getting the picture? Take a look at all of your monthly expenses through this filter and find places to shave off bucks. Put every dollar you find toward establishing your rainy-day fund.
This is Different from an Emergency Fund
Though unexpected home repairs might technically fall under the category of an emergency, this money should be separate from your emergency fund. That’s money set aside to cover things like losing a job or an unexpected medical emergency. Most financial experts suggest keeping at least three months’ salary in an emergency fund to deal with unexpected maladies of this nature.
Direct Deposit Is Your New Best Friend
One you’ve figured out exactly how much money these strategies will leave in your budget each month, set up a direct deposit savings account at a different bank. This way, the cash gets put away before you see it and having it off to the side makes you less likely to tap into it on a whim. Shop carefully to find one with the best interest rate and lowest fees.
Give Yourself Interim Targets
When you do the math and realize you’re looking at a pretty steep number, you might feel it’s an unattainable goal. Rather than viewing it as one huge chunk, divide the total into monthly increments. That way, you can feel good about hitting your target each month.
These three approaches to establishing a rainy-day fund for home repairs will serve you well now and in the future.