How to Budget for Unexpected Car and Home Repairs

How to Budget for Unexpected Car and Home Repairs

Having a car or home break down unexpectedly can be super stressful, especially if you don’t have the cash on hand to pay for repairs. But there are things you can do to prepare for surprise expenses and avoid going into debt when something needs fixing.

In this article, we’ll give you a bunch of tips for budgeting for unexpected repairs on your car or house. We’ll talk about how much to save each month, where to keep the cash, and how to prioritize repairs when money is tight. Let’s dive in!

How Much to Budget for Car Repairs Each Month

So how much should you set aside for unexpected car repairs each month? Experts recommend saving $50 to $150 per month per vehicle.

AAA says you should save around $50/month to cover surprise repairs. This adds up to $600/year, which AAA says is the average cost of an unexpected repair. But if you have an older car, you’ll probably need to save more like $100 to $150/month.

When deciding how much to save, look at how much you spent on maintenance and repairs last year. If it was $900, saving $75/month would cover you in a typical year. If your car is getting up there in age, save more in case a transmission rebuild or something pricey crops up.

Basically, take your previous year’s repair costs, divide by 12, and use that as a baseline. Then adjust up or down depending on your car’s age and condition.

Where to Keep Your Car Repair Savings

Stashing cash in a dedicated car repair savings account is smart. That way it won’t get mixed in with your regular checking account balance and potentially spent on non-car items.

Look for a high-yield savings account to earn a bit of interest on the money. An online bank usually offers the best rates. It only takes a few minutes to open an account online.

Some people like to keep car repair savings in a cash envelope or jar at home. This can work but make sure you don’t “borrow” from it for other stuff!

How To Prioritize Car Repairs

When money is tight, deciding which car repairs to make can be tough. Here are some tips on prioritizing repairs so your car stays safe and reliable:

• Take care of issues that impact safety first – like tires, brakes, lights, etc.
• Address drivetrain problems next – engine, transmission, etc. A breakdown here will leave you stranded.
• Deal with issues that could cause further damage if left alone – leaks, worn belts, strange noises, etc.
• Cosmetic stuff like dents can wait until you’ve saved up cash.

Basically tackle repairs that affect safety and drivability first. Problems that could lead to breakdowns or higher repair bills are also a priority. Cosmetic issues can wait.

And of course, stay on top of regular maintenance like oil changes, tune-ups, battery replacements etc. That will help avoid surprise repairs down the road.

How Much Should You Save for Home Repairs?

Figuring out how much to set aside each month for home repairs can be tricky. The general rule of thumb is to save 1-4% of your home’s value each year.

So for example, if your home is worth $200,000, you’d want to save around $2,000 to $8,000 annually for maintenance and repairs. That comes out to $167 to $667 per month.

Most experts recommend saving closer to 1% for newer homes and 4% for older homes. So for that $200k house, $167/month would be a good goal if it’s less than 10 years old. Bump it up towards $667/month for a 70 year old house.

Take a look at your actual repair costs over the last few years too. If it’s been around 1% of your home’s value, sticking with that percentage is probably fine. If costs have been higher, save more.

Where To Keep Home Repair Savings

Again, a dedicated savings account for home repairs is smart. It keeps the money separate from your everyday spending cash. An online high-yield account usually offers the best interest rates.

Some people like using a HELOC (home equity line of credit) for home repairs. This gives you access to funds as needed, while allowing you to pay interest only on what you use. Just be careful not to rack up too much debt!

How To Prioritize Home Repairs

When money is limited, which home repairs should you tackle first? Follow these tips:

• Make safety and integrity repairs first – leaky roofs, electrical issues, etc.
• Focus next on improvements that make your home more energy efficient, like new windows or insulation. This saves money long-term.
• Repairs that prevent further damage are also a high priority – e.g. fixing leaks.
• Cosmetic updates like new floors can usually wait until you’ve saved up enough cash.

The key is to focus first on repairs that keep your home safe, habitable, and energy efficient. Issues that could lead to more expensive problems down the road should also be addressed ASAP. Cosmetic fixes are usually lowest priority.

What To Do When a Big, Unexpected Repair Bill Hits

Even if you have savings set aside, a super high repair bill can be tough to handle. Here are some options if you get slammed with a huge estimate:

• See if the repair can wait, or be done in phases, while you save up
• Negotiate with the repair shop for a lower price
• Put the repair on a 0% credit card and pay it off over time
• Take out a personal loan at the lowest interest rate possible
• Use home equity to pay for home repairs
• Borrow from family/friends or use crowdfunding

Taking out debt should really be a last resort. But if you have to finance a repair, shop around for the cheapest financing option. And pay it off ASAP!

Reduce Your Risk of Unexpected Repairs

Here are some tips to minimize surprise car and home repairs:

• Stay on top of maintenance – Follow recommended maintenance schedules to catch issues early.
• Inspect regularly – Walk around your car/home frequently looking for problems.
• Make minor fixes quickly – Small issues can turn into big ones if left alone.
• Keep things clean – Clean car interiors and home appliances/fixtures last longer.
• Drive/use gently – Aggressive driving and overuse increases wear and tear.
• Research before buying – Choose reliable vehicles and homes.
• Maintain warranties – Keep manufacturer warranties valid as long as possible.

Putting in a little preventative effort goes a long way towards avoiding surprise repairs down the road! But stuff will still wear out eventually, which is why a repair budget is so important.

The Bottom Line

Setting aside cash each month for car and home repairs helps you avoid nasty surprises. For car repairs, save $50-$150 per vehicle depending on age. For home repairs, save 1-4% of your home’s value annually.

Stash the cash in a dedicated savings account. Prioritize repairs that affect safety, drivability and prevent further damage when money is tight. And take steps to minimize repairs like regular maintenance.

With a little planning and discipline, you can handle unexpected repairs without derailing your finances. The peace of mind is worth the effort!