I’ve written a few posts about our home maintenance costs and surprise repairs that have been needed for our home in the past year. Last year we had to replace our air conditioning and water heater. Just a couple of weeks ago we had to replace the sump pump. The total cost of these repairs was $2,125.
Thank Goodness for our Home Emergency Fund
As a homeowner it is essential to have an emergency fund. If it wasn’t for our emergency fund we would have incurred additional debt to pay for those home repairs. And who wants that? We’re in the process of paying off debt we incurred from our home renovations in 2012. The total above does not even include the lawn maintenance costs, which for last year was $1,350 for the landscapers. This year my husband and I will be taking over the lawn maintenance as we feel more comfortable with what we need to do take care of it. We’ll need to purchase a lawn mower and we’ll pay for it from our emergency fund. We don’t know what other emergencies 2014 will bring but what we have learned, as first time homeowners, is that something will come up and we need to be prepared.
How Much Do We Save In Our Home Emergency Fund?
I discussed in a previous post that many suggest you should save 1% of the value of the home to cover home maintenance costs for the year. We will be going with this suggestion. Our home is currently assessed at $225k by our township and Zillow is suggesting a Zestimate of $304k. I think Zillow is closer to the real value based on all the home improvements we made since purchasing the home. To make it easy, we decided to go with the average of those two numbers which is $265k. One percent of this amount is $2,650. So that is the minimum amount we will maintain in our emergency fund this year.
Thankfully, our home emergency fund is fully funded for 2014. What helped us to fund it last year was a bonus from work and some overtime income towards the end of the year that really helped out. But now we need to work on funding it for next year.
Our Strategy for Funding our Emergency Fund
I mentioned in a previous post that we are looking for new ways to reduce our expenses. For 2014 we want to reduce our cell phone and grocery bills. As I mentioned above we also decided to take care of the lawn maintenance ourselves.
- By getting rid of the landscapers we will be saving $100/month
- By switching to prepaid cell phones we will be saving $157/month
As you can see, by reducing our expenses in these two areas alone we will be saving $257/month.
Now to the funding part. I decided to participate in the 52 week money challenge after reading about it from other bloggers. However, I didn’t really care for the traditional method used to save in this challenge. I wanted to have a fixed amount that I could save every week as that works better for me. So, I decided to create my own way of saving for the challenge.
Initially we were going to save $25/week, but then I realized if we save just a little more then in the end we will have the entire minimum needed for our home emergency fund. So now we’ll be saving $51/week. To make it easier, we will transfer $102 to savings every paycheck. At the end of the year this will equal to $2,652.
Now in our case this fund is for our home emergencies. We are allocating additional funds to another account for home improvement projects and to pay down our debt. Those funds are coming from the monthly expenses we were able to reduce last year, which were approximately $400/month. Since last year we have been able to reduce our monthly expenses by $657/month. I am so happy we took a second look at our expenses and found practical ways to reduce them.
Figure out How You Can Save
Every situation is different, therefore, it’s important to figure out how you can save based on your individual situation. Saving this amount of money on a weekly basis is realistically manageable for us because of the savings I discussed above. I know this is not technically how this money challenge was designed to work but I see the challenge as a way of challenging yourself to save on a regular basis. You shouldn’t be discouraged if you can’t save the total amount stated by the challenge. If you need to modify a system or create your own then do it. I’ve seen others modify this challenge as they see fit. Below are some examples.
- Some people are saving backwards by starting with the highest amounts first
- Some people are saving randomly by choosing which amount they can save that particular week
All that matters is that you’re challenging yourself to SAVE.
I’m feeling pretty good about participating in the challenge in my own way because I was able to make it work for my individual case. By having a savings strategy in place early on in the year we know that the money is already allocated to a need and we can’t be spending it on a want. In addition, we don’t need to worry about our home emergency fund being empty at the end of the year.
What are your strategies for funding an emergency fund?
Photo by: Flickr
This post was linked to LivingWellSpendingLess.com Thrifty Thursday Week 45
This post was included in the Carnival of Financial Camaraderie hosted by AllThingsFinance.net