How much should you budget for home maintenance?

The common rules of thumb

This is general information, not financial advice. These rules are shortcuts that lenders, insurers and personal finance writers repeat. None of them knows your house.

• The 1% ruleAmerican Family Insurance puts it as setting aside 1% of your home's total purchase price each year. Its example: about $2,500 a year, or roughly $209 a month, for a $250,000 home.
• The square-foot ruleAmerican Family's version is about $1 for every square foot of livable space, every year, so roughly $2,500 a year for a 2,500-square-foot home. It notes that this rule doesn't consider labor or material costs.
• Higher percentagesScotiabank describes the 1% rule and notes that some sources suggest as much as 3% to 5% a year.
• The 10% ruleAmerican Family also describes saving 10% of your main monthly housing costs, such as the mortgage, property taxes and insurance.

Treat these as a long-run average. You won't spend the same amount every year. Most years are small, then one year the water heater fails and the roof needs work.

What pushes the number up or down

The age of the house and its systems

American Family says homes built 30 to 40 years ago usually need more spending to maintain than homes built in the last decade. Scotiabank makes the same point about systems: a newer home won't face appliance replacement soon, whatever its size. What matters most is how old the big pieces are, not the house's square footage.

Climate

American Family notes that winter climates can speed up maintenance costs. In the Chicago area, that means a furnace that runs hard for months, freeze and thaw on driveways and steps, ice at the gutters, and snowmelt and spring rain testing the basement. It also says homes that regularly take on water in the basement typically have higher yearly costs, which is one reason a working sump pump is worth checking.

Where you live

Scotiabank calls labor one of the biggest costs for repairs you don't do yourself, and labor costs vary by area.

Build the budget from your own house

Scotiabank's preferred approach skips the percentage: list the major components, how old each one is, and what it would cost to replace. That takes an hour and gives you a number that fits your house.

InterNACHI, the home inspectors' association, publishes typical life spans for home components, based on regular maintenance and normal wear. A few of its estimates:

• Conventional water heater6 to 12 years.
• Gas furnace15 to 25 years.
• Central air conditioner7 to 15 years.
• Asphalt shingle roofAbout 20 years for 3-tab shingles and 30 for architectural shingles.
• Sump pumpAbout 7 years.

InterNACHI is clear that these are guidelines and that actual life depends on use, weather, installation, maintenance and quality. Your inspection report and the year on each appliance's label tell you where you are on that range.

A sinking fund for the big items

A sinking fund is money you set aside on a schedule for a cost you know is coming. It turns a sudden bill into a monthly line.

1. List each big item: roof, furnace, air conditioner, water heater, sump pump.
2. Write down its age and the typical life span above, and estimate the years it has left.
3. Get a rough replacement price from a local contractor or a recent quote.
4. Divide each price by its years left, then by 12, for a monthly amount.
5. Add a smaller amount for routine upkeep and small repairs: filters, service visits, caulk, a plumber call.
6. Revisit it once a year, or whenever something is replaced.

An item already past its typical life span gets the most attention: start setting money aside for it first, and have it looked at before it fails on the coldest night of the year.

Upkeep versus improvements

Keep maintenance money separate from remodeling money. A maintenance budget keeps what you have working. A kitchen or a finished basement is a project with its own budget. Mixing them is how the water heater fund becomes a backsplash.

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