Part 4 of 6 of Wela’s series on buying a house.
Buying or maintaining… what’s more fun?
This isn’t meant to be a trick question; it’s actually really easy.
It’s not often that I go and make a big purchase, whether it’s a car or even something simple like a lawn mower, then I say to myself, “I can’t wait to get this thing home and maintain the shit out of this!”
I actually don’t know who would think like that.
Although we are all unique, we have a similar wiring for certain items, and this question shows one of those similarities.
So, what’s the point of this question?
We spend time figuring out how we can buy something or spend our money, but we end the conversation right after the purchase.
It’s almost like helping people figure out how to get to an island, then taking them there. Yeah! They got to the island they have been dreaming about.
But then we drop them off and leave. Hey, you’re here now figure everything else out.
We didn’t do the whole job. We should have trained them for living on the island. Or provided them directions to water and food. But nope, we got them to the island and that’s it. That was their goal.
We got the island, and that’s what everyone wants. I want the island. No one every really says I want to know exactly what to do on the island. Nope, it’s just that they want the island.
I don’t think that it is just a problem with posts that talk about saving, but just a general societal problem. We want the object and that’s our sole focus.
What happens afterward is blocked from our minds, because we are so focused on the objective itself.
Unfortunately that can lead to some major troubles.
This is a typical situation when someone goes off to buy their first home and maybe even their second or third home.
The goal of getting the home is the sole goal. What needs to occur after the actual purchase of the home is an afterthought.
Getting that home
20% down… that’s the goal. We need to determine how much home we can afford, and then calculate 20% down.
Our focus stays on this number for the entire process. Does this house or that house fit into our budget, and have we saved enough to put down 20%?
Then we start focusing on the location. Okay, is this in a good school district? Does the school district even matter? Maybe this will always just be a starter home. How far is it from my office? Are there enough activities for us?
Now it’s time to get in the car with a realtor and take a look at the list of houses they just provided us.
And then the offer. Oh, gosh will they accept our bid? We hope so.
The bid gets accepted and the closing process starts and finishes
Now the goal has been accomplished and our saving strategy worked! We got the house of our dreams!
That’s the problem. The focus is onto the next goal, likely to be how to save for the furniture necessary to fill the house. (Check out our blog on how to go about furnishing your home).
Maintaining the home
The real problem though is that we are so focused on buying the home that we put all of our last efforts towards saving for the down payment and actually getting the home.
When we finally close on the home, we have utilized all of our savings and are basically starting from zero all over again.
The issue being that we now own a home. Shit happens with a home. We have now just gone from the buying to the maintaining stage instantly. The moment we get those keys, that change occurs. You move from being in the camp you enjoy to the one you dislike.
Who is able to plan and save for maintenance on a home, when either they have never owned a home before or maybe it’s a new type of house for this buyer. Who can prepare and save for something that they have no knowledge about?
That’s the real problem. And that is why we as humans try to avoid it like the plague. We don’t understand it. As humans when we don’t understand something we just like to shy away from it.
It’s tough to find information on maintaining a home. It’s a lot easier to find information on how to buy a home because that is the end goal. That is the post that gets people to the island. A post on maintaining helps that individual navigate the island. Not as fun.
Defining maintenance for a homeowner
Take a quick Google search for information on how to figure out how to budget for maintenance of a home.
You may come across one of three mentalities.
Either you will come across a post that talks about budgeting 1-4% of the price of your home per year for maintenance.
This seems a little off because a house could be bought at a fire sale or really over priced and just because of that we shouldn’t be saving more or less for maintenance.
Or maybe you will come across a post that talks about saving $1 per square foot per year for maintenance.
I actually like this one a little. It makes sense. The bigger the house the more you will likely have to pay to maintain it. But again, this doesn’t take into account age, location, weather, etc.
Another post listed out all the major items in the house that will, at some point, need to be replaced. Things like the fridge, hot water heater, washer/dryer, etc. Then they estimated a cost on these items, estimated a current age and then estimated an expected life.
The writer then sorted the list based on those items most near needing a replacement. That’s how they determined to begin saving. But then they didn’t even save the money. They just noted that cash flow would help them pay for it…. Lame!
I actually like the idea of listing out all the items and determining a replacement value and an estimated life on the items. I just don’t know who will actually do that. It is a ton of work! Then on top of all that you, you actually have to stick true to it.
If you go and do all this work but then forget about it in a year or two, then it was just a waste of time.
So, what is the real answer?
I could cop out and say you should just go with whichever idea above works best for you. Or maybe just say to pay for these maintenance projects with cash flow!
But, really, it is actually quite simple. This blog post could have been about two paragraphs… but that’s no fun. We can’t provide actionable ideas within two steps!
The real answer to maintenance for a house
It’s all about the basics.
In order to properly budget for maintaining a home, one needs to go back to square one of financial planning.
It’s really all about the emergency reserve… boring maybe, but who cares when it’s easy!
When we talk about building up an emergency reserve these are the situations we mean for them to be used for. When something happens unexpectedly. Like a maintenance issue with a house!
A couple years after I bought my house I had a tree fall through the deck and take out a corner of the kitchen. The house next door actually got the brunt of it.
But I didn’t list out a new deck as one of my expenses or tree removal either. It was unexpected. Yeah, insurance covered this, but I had to float the money (or cover the costs until insurance got me my check). I couldn’t let the tree stay in my house until insurance cut me a check!
I’ve had to replace water heaters, windows and busted pipes. All part of maintaining a house and none of which I prepared for.
That was when the emergency reserve came to the rescue.
Here is what I believe needs to be done.
- When you begin to save for your down payment build in an emergency reserve of 3-6 months worth expenses (and assume a basic mortgage payment). Don’t use this money on the down payment. This should be left in your checking/savings account after making the wire for the house.
- Don’t use the emergency reserve for any of your furniture. At all times have this amount in your checking/savings account. For this example let’s say that amount is $12,000 for your emergency reserve.
- Once you buy your house begin saving another $10,000 or so. Get on a saving plan to get this done within 12-24 months. But put this money in some sort of investment, rather than cash. Here is why I came to that number:
- When I think of the big items that may need to be replaced I think of the following: Fridge, hot water heater, stove, ac unit, pipes, roof, windows, deck, landscape, gutters, dishwasher, dryer and washer. Having $10,000 saved away should be able to take care of much of these issues along with your emergency reserves. And if it is invested it has the ability to possibly grow over time as prices of these things may move higher.
- If something happens to your house and needs to be repaired, use your emergency reserves first. But right after paying for the items begin saving back towards your emergency reserves before anything else. And get back to the previous level within 12 months.
- So, if you have to use $2,000 for a water heater. Then you now have an explicit goal to save $2,000 in 12 months. We now have a known goal!
- If something happens to your house that costs more than what you have within your emergency reserves, dip into your investments that were designated for house maintenance.
- The beauty of this is that if we never need to dip into this account, it acts as a savings vehicle for us longer term!
I am not a big fan of telling people to do things that may not be fun. But this is a simple task. We want to be sure that the house doesn’t put us financially under water.
We also don’t want to just save these high amounts of money into cash savings if we are not getting much return on cash. We’d rather have our reserves and then another pool of money that is secondary. That way the secondary funds are actually working for us.
Buying or maintaining… one of the same
Yeah, it’s no fun to have to think about putting money away for maintaining rather than to buy something.
We are an instant gratification society who wants to save and get that immediate gratification of having the item in our hands.
The fact of the matter though is that when we reach our goal of buying the home, we are immediately bound to begin maintaining it.
So, the question asked in the first line was, in fact, a trick question… when it comes to buying a home. There is no one answer, they are both the answer.
The fact is that if you are financially sound, then you have already saved for maintenance, because you have already created your emergency reserve.
Maintaining is boring… but don’t let that keep you from doing it. Boring is sometimes necessary.