May 19, 2011

Budgeting for Big but Unplanned Expenses

I've already mentioned our upcoming bathroom remodel, and how it's not something we've been planning but something that needs to be done because of water damage to the floor. The contractor will start work in a couple of weeks, and in the meantime, we've ordered and paid for the wall and floor tile. That was a substantial expense, and we still have more to buy - and we still have to pay the contractor too.

Apparently the 10-year mark is when things start breaking down around the house, because in addition to the water damage in the bathroom, we discovered that our water heater was leaking and needed to be replaced. That's been done, but it was a rather hefty and unexpected expense.

With these two major expenses happening back to back, I've been thinking about our budget and whether we should make any changes.

I'm not sure what we would do, though. We could create a home maintenance account, which would work much like our infrequent bills account - every month, we'd deposit a predetermined amount into the account, and we'd make withdrawals from the account when expenses need to be paid. But I wouldn't know where to begin deciding how much to put into the account every month, and it would be just one more account I'd have to keep track of.

And our current system works pretty well. The money to pay for these expenses will come out of our emergency fund, which is well funded since that was one of our steps for me to quit my job as an attorney. Really, the only issue is that psychologically, it's hard for me to part with money that's in our "savings" because it's not intended to be spent!

How do you budget for unplanned expenses?


Camille said...

Anything that breaks and needs fixing or replacing comes out of our emergency fund (and then we just replace the money). But anything that we can plan for, goes in to a general savings account (I actually use a Roth IRA for that). For instance, we know we will need a new car soon so that money goes in to the Roth, but if the car needs repair, the money comes out of the emergency fund.

Our home is only 5-6 years old, but two of our neighbors have had their water heater burst in the past few months. Since we all have the exact same builder installed water heater, we are now preparing to replace it if ours breaks. I'm just thankful that it wasn't ours that broke first so now we can plan for it, just in case!

Chief Family Officer said...

@Camille - That's a clever use for a Roth, I never thought of that. I will definitely be asking our accountant about it, thanks!

In retrospect, I should have seen the water heater thing coming but neither of us is very knowledgeable about technical stuff. Our old water heater had a 9-year warranty and was 15 years old! The plumber made it sound like 9 years is standard, maybe yours is still under warranty?

Denise said...

We're like you, just one general emergency fund that covers house stuff, and well as anything that the "car fix" fund can't handle or I suppose, extreme medical. I've heard that you "should" be saving 1% of your house's purchase price yearly for repairs. However, I've never done it.

kim said...

Hello, I reccommend reading Americas Cheapest Family, if only for the budgeting, and savings and investment portion. It tackles situations like these, and to me seems like the better solution. Keep up the great work on your blog, Also I and many people I know find it very inspirational how much thought you put into your finances, such an important matter. Kim

Chief Family Officer said...

@Denise - Interesting, I'll have to look into that 1% figure. Thanks!

@Kim - I've never read that, will definitely have to check it out, thanks!

Chief Family Officer said...

@Kim - And thank you so much for your kind and supportive words! You made my day :D