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July 27, 2021

How to Create a Sinking Fund to Better Manage Your Home & Save Money

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You Should Have a Sinking Fund for Home Maintenance!

As Forest Gump said, “Life is like a box of chocolates, you never know what you’re going to get!” Owning a home is a little like that box of chocolates and, like life, there will be many great moments, but these moments are often interspersed with unexpected and expensive surprises!

Owning a home comes with many expenses.

The adventure of owning your home comes with a lot of expenses. There are moving expenses and then comes decorating and making your house a home. Maybe this is the first home you own and suddenly the cheap furniture you got secondhand off Craigslist just doesn’t cut it anymore. But beyond these initial expenses, you need to factor in wear and tear over time. Keeping your home well maintained ensures that your home retains, and even increases, its value.

The beauty of the sinking fund.

A sinking fund is kind of like insurance for the unexpected surprises that life (and our homes) can throw at us. To build a sinking fund for home maintenance, you should put aside an amount of money every month. In this way, you have money on hand when anything breaks down and don’t have to reach for your credit card or an overdraft.

When something breaks in your home, it needs to be fixed. It could be a pipe that gets blocked and floods your kitchen. Or an AC unit that decides to break down in the middle of a hot summer. These things can’t wait and need to be repaired immediately. However, as you gain experience in homeownership you will also recognize that regular maintenance can help you delay or avoid problems. For example, keeping an AC unit clean and regularly replacing the filter, can prolong the life of your AC unit and keep it performing optimally.

Being financially prepared for home maintenance and repairs will save you a lot of stress.

How much do you need in your sinking fund?

There is no hard and fast rule for how much money you should be putting aside for home maintenance. According to , you should plan to set aside between 1% – 4% of the value of your home each year for upkeep and maintenance. That’s quite a big range – on a $250,000 house, that’s anywhere from $2,500 to $10,000 per year. So what’s right for you? Plan on the lower end (1%), if your house is brand new when you move in, or if you’ve bought an apartment or condo where the HOA fees you pay will take care of some aspects of maintenance. Plan on closer to 4% if you have bought an older house and/or a detached home. And if you bought your home expecting some big-ticket items such as replacing a roof, finishing a basement, or replacing the siding, you should definitely be putting aside as much as 4% a year.

Adjust once a year.

At least once a year, you should review your maintenance and repair costs over the last 12 months. Expenses will fluctuate from year to year and, as you gain experience as a homeowner, you’ll also be able to predict expenses for the upcoming year. As your house ages, you might need to increase how much you’re putting into your sinking fund. Also, after a major repair like replacing your roof, you’ll probably build your depleted sinking fund up again.

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