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Why NOT Budgeting for Home Maintenance Can Ruin Your Retirement

How much should I budget for annual expense on the general maintenance of my house?

Where most people ‘take it for granted’ until they need to replace the windows at $300/pc or the roof at $10/sqft. And if you retired and most of your money is in your IRAs, now we have to add taxes in top of the cost.

While conducting one of our Retirement Planning classes here locally, one of our students had an interesting question regarding how much he should budget for the general maintenance of his house. This is a question that usually arises when we are putting an income plan together in order to bring a couple successfully through retirement. It also happens when we are putting together an estate plan and the trustees want to set aside money specifically for the upkeep of their home so their beneficiaries don’t have to sell home before they are ready. They understand that at any time you ‘have to’ sell anything, especially a large ticket item, the buyer wants a pretty good deal.

There is a general rule of either 1% of your purchase price (Current Market Value) or about $1 per square foot of living area. The living area should include your basement, attic and garage in this calculation. For example: 2 story Colonial with a two car attached garage and full basement. If your assessed size of your home is 2400 sq. ft. then it is safe to assume you have 1200 sqft on the top floor as well as the main floor and the basement. So realistically, you are looking at a potential 3,600 sq ft of living space. A two car garage is usually about 440 sq ft. So if you add it all up, you have a little over 4,000 sq ft that should go into this calculation and not simply the square footage you originally purchased your home.

So the range in which to implement your budget is anywhere from 1% of the purchase price to $1 of the entire square footage of the home. In our example, assuming homes are selling for $100 sqft, and you bought your home for $240,000. The bottom end of your budget for home maintenance should be $2,400 and the top end would be $1 of the total square feet or $4,000.

Now let’s talk about the $100 per sq ft. If we place this as a par value, we can simply Cad Design investigate what homes are currently selling for in our neighborhood to see if we are above or below that factor. For instance if we find that a similar 2400 sq ft home just sold for $220,000 then we know immediately that is below par value (22/24 = $91.67 sq ft). We would then budget at either 91.67% (2400*.9167) which is $2,200 or (4000 sqft * 92 cents) which is $3,680. Of course our budget would work the opposite way if we find that our home is currently valued above par. For example a similar home sells for $300,000 or 125% above par so our bottom end of the range is $3,000 while the top end is now $5,000.

So why the difference? How does the market value per square feet have any effect on my maintenance cost? When considering a budget for your home there are Geographic Cost of Living, Quantity and Quality of products and services, and level of outside influences as main contributors in how current market fluctuations effect the day to day maintenance costs of your home. More affluent neighborhood stores sell products at a higher premium compared at lower income neighborhoods. Those same stores have more specialized products versus more generic brands to choose. More affluent stores have better opportunity to buy in bulk compared to lower income demographic stores where premium is placed on smaller packages that fetch a lower investment from the customer. Bigger homes usually have more amenities, landscaping and changes in construction materials that add a higher ongoing maintenance cost.