The 1% Rule - Budgeting for Home Repairs

“The time to repair the roof is when the sun is shining” – John F Kennedy

Whenever I ask people to record for me what they typically spend their money on each month i.e. a monthly budget, in order to help them complete this exercise accurately I give them a template they can use which lists every possible area they could spend their money on, from dog food, to cinema trips and everything else in between.

One of the categories I include in this budgeting tool is large once off expenses like Christmas, summer holidays, birthdays and one area that, is often overlooked which is the cost of home maintenance and repairs

According to a survey carried out by the AA a few years back, they found that after mortgage repayments, home maintenance and repairs were the next biggest cost for homeowners. They found that the average home owner will spend (and need to set aside each year) €1,290 every year to keep up with wear and tear in their home.   

As with any large, once off, unexpected expense, it can throw our finances out of whack and put a dent in either your savings which were set aside for other purposes or increases the amount of debt we have because we have to borrow to carry out whatever maintenance is required. We know the best way to overcome these shocks are to plan in advance for them and the best way is to build this expense into our monthly budget and set aside a certain amount each month so that when something needs to be repaired, up-graded or replaced you have the money set aside specifically for that purpose.

And when people populate the budgeting template for me, the amount they set aside varies from €0 up to the maximum I have seen of €2,000. However, I do think people get confused when recording this amount in their budget because I feel people are putting in an amount they plan on spending on their house for home improvements (non-essential spending) rather than home maintenance (essential spending)

Anyway, it is important you don’t confuse the two and what I want you to consider and reflect on is the amount you need to budget for essential repairs. The question of course is how much should you set aside each month? And this is a really difficult question to answer so to help you with this, I did some research as to what the optimum amount should be and I found there were two rules of thumb that I thought made the most sense, were the most practical and were the easiest to remember.

And the first rule of thumb is called the one percent rule which states that you should set aside 1% of the value of your home for ongoing maintenance. So, if your house is worth €150,000, you should budget €1,500 each year for maintenance. This figure, or any figure by the way doesn’t mean you are going to spend that amount every year, some years you will spend less and other years you will spend more, but on average and over say 10 years, this is the average amount you will spend each year.

The second rule of thumb for the amount you need to budget for home maintenance each year is related to the square footage of your house. For every square foot you should be setting aside €1 for maintenance and repair costs. So, if your house is 1,800 sq ft then you need to be budgeting for an average annual cost of €1,800 over the long term.

And this method of determination might make slightly more sense than the first because the more square feet in your house, the more you have to manage and repair as opposed to what the house is valued at. But what you don’t have control over using this rule is the cost of labour and materials which may vary depending on where you live – in certain parts of the country, contractors and the costs of materials could be significantly more expensive.

I am going to come back to which rule I personally use at the end of this article, but before I do, I want to look briefly at those factors that make the biggest impact on the amount we spend on our houses each year. And the first is obviously the age of your property. You would like to think that any property built in the last 10 years would need very little maintenance, but the chances are probably good that as a house gets older the cost of maintaining it will increase. My own house is 30 years old and we are in it 12 and we are beginning to see the importance of setting aside money each month because every year we are seeing the amount we are spending on it increase – this year we need to give the heating system a much needed makeover. 

Another factor that will influence how much you will spend on your house each year is the weather. Friends of ours have a property in West Cork and they tell me that their house is frequently subjected to heavy winds and rain together with long periods of below freezing temperatures and the impact this has on the exterior and interior of their house and the amount they have to spend to repair it each year is significant.

There are many other variables that will impact how much you should budget for repairs and maintenance each year, including the location and type of property you have, but that said, I think it is prudent to combine the 1% and square footage rule when figuring out how much you might need each year and this is what I do.

If for example your property is worth €250,000 and the square footage is 1,500, then the average of both is €2,000 and that is what you should budget for each year. And furthermore if your property could be adversely affected by its age, weather or location, then add another 10% for each of these factors to the overall amount you should set aside each year.

It is hard to predict how much it will cost year on year to maintain your home, and like many other areas of your finances, the best you can do, is make an educated guess and using these rules is a very good starting point.