The hot water heater breaks, the roof is leaking and your car just broke down. Home emergencies can happen in the blink of an eye, and with all of life’s other problems, coming up with the money to take care of these repairs can be a challenge.
Having an emergency fund to fall back on can help ease the burden and reduce the stress of unexpected repairs.
What is a Home Repair Emergency Fund, and Why Do You Need One?
A home repair emergency fund is exactly what it sounds like – money set aside for emergency home repairs. The fund ensures that you have money on hand at a moment’s notice to take care of a broken water heater, plumbing issues or any other unexpected repair.
An emergency fund will prevent you from having to put the repair on a credit card or a high-interest loan.
How Much Should You Save?
How much money should you put into your home repair emergency fund? Experts recommend setting aside three to six months of living expenses. Aim to save 1%-3% of your home value.
The amount you save will depend on the home and your lifestyle. If your home is newly built, you may not need to tap into your emergency fund for quite some time, but if you have a fixer-upper, you will likely need to tap into your savings more quickly. In the latter case, you may need to save more aggressively.
Where Should You Put Your Emergency Fund?
Because an emergency fund needs to be accessible at a moment’s notice, it’s important to avoid putting the money in a long-term savings portfolio to avoid massive fees for taking out the money early.
Ideally, the money should be placed in a separate bank account. Putting the funds in a separate account will help you avoid temptation to tap into those reserves.
Consider a high-yielding savings account. These accounts are federally insured up to $250,000, and the money will earn interest. Funds can be withdrawn at any time through a funds transfer or withdrawal.
How to Start Building a Home Repair Emergency Fund
The prospect of building a home repair emergency fund can seem daunting. Here are some tips to get started:
Set a Goal for Monthly Savings
Set a monthly savings goal to get into the habit of saving. One way to reach your goal is to automatically transfer funds to your savings account from each paycheck.
If you have no money left at the end of the month, cut back on your expenses. Go over your expenses with a fine-tooth comb to find areas where you can cut back. Try cooking more meals at home, eliminating your daily takeout coffee or lowering/eliminating your cable bill.
Earn Side Income
If you’re determined and motivated, you can take on a second job or find a way to earn some additional income on the side.
Save Your Tax Refund
If you receive a tax refund each year, try saving it instead of spending it. Consider having your refund deposited into your emergency account.