Things I’ve learned so far: The financial margin, Part I – Housing

As a (still relatively new) mother undergoing some major life changes, I’ve started recognizing a lot of things about life that had never occurred to me before. They are not earth-shattering discoveries, but they are my major breakthroughs. In this space, I will share with you some of what I’ve learned so far. I hope the thoughts I’ve gathered will inspire you to reflect on what you’ve learned about life (or at least laugh at how long it took me to figure these things out).

The financial margin

This post is part of a series called “The margin”.  If you missed the introduction, you can go back and read it here.  In this part of the series, I will talk about building in a financial margin when you consider your budget for expenses.

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Some items in a household budget are relatively stable.  Think mortgage payments (with some tragic exceptions), car payments, gym membership, internet service, landline phones (does anyone still have one of those?), and household supplies like light bulbs and toilet paper.  But many are not stable.  There are the obvious ones (heating/cooling, car repair, home maintenance) and then there are some sneaky ones like gas, groceries, medical bills and more.

To prepare yourself for unpredictable expenses, I suggest building a margin into your household budget.  That is, tally up what you can reasonably expect your costs to be, and then add some more.  How much more?  That depends on your situation.  Read about how each of the budget items can vary, adding non-trivial amounts to your total household expenditures, and then determine how big your margin should be.  Don’t worry, I’ll provide a bit of guidance there, too.

Apparently I have a lot to say about this topic, so I’ve broken the discussion of the financial margin into five parts.  Today’s installment is on five housing–related expenses

Part I: Housing

1. Home maintenance & repairs

This is a big and scary one, so let’s just get it out of the way first.  (Renters, take comfort.  You’re mostly in the clear here, but not entirely.  Skip the next paragraph, or skim it and revel in the fact that these are not problems you’ll face.)

Last winter during Christmas, the first in our new home, it rained like crazy.  When water started dripping down the back of my kitchen cabinet behind the water glasses it raised a concern.  After hiring a roofer we learned that the previous roofing job had been shoddy, leaving unsealed the seam at each of the ridges in the roof.  Hence the water pouring into our garage and kitchen.  They were able to fix it and we were able to pay them.  To my knowledge that’s how it works most of the time, so it’s important to stash a little extra away so you can pay the guy who can stop the flood in your house.  Or fix your dishwasher, which also broke at our house during Christmas.  We’re also expecting the ancient water heater and sewer line to go (but not blow, hopefully) in the next few years.  Socking some money away to prepare for that will help ease the stress when it happens.

What’s likely to need some repair or attention at your house in the next year or two?  Do you need a new paint job?  Washing machine?  Flooring?  Fridge?  If you rent your home, you’re still not completely off the hook here.  What about your microwave, toaster, furniture?  Even the little things can add up.

I have a wise and experienced friend who says that a house needs a complete re-do every twenty years.  Not all at once, of course, but even spread out over two decades, updating the kitchen, bathroom(s), flooring, paint, windows, roof, doors, etc… can leave you with a major expense every few years.  And then consider the furnishing and appliances.  Whoa baby.  Homeownership is not for the faint of heart.  Better make that margin a big one.

2. Property tax

Last year we received a shocking bill from our county.  A supplemental property tax bill tacking on an additional 7 percent to our total.  Ouch.  I’m not sure how or why it happened, but I was not prepared for that.  I’m sure my town isn’t the only one that levies bonus taxes, during the holidays, no less.

To be fair, we did once receive a property tax refund (in a different county), somewhat contradicting my claim that “underages” don’t happen.  However, although we gratefully received the check, it was bittersweet knowing that it was only issued because the value of our home had fallen so much.   Don’t pray for latter, prepare for the former.

3. Rent

If you rent your home, unless you live in a rent-controlled apartment, or have a super-long, fixed price lease, you should prepare for regular increases to your rent.  It sucks, but eventually most prices rise, including those on the expenses your landlord pays.  Best to be prepared.

To mitigate this somewhat, consider negotiating with your landlord to keep the price level.  Offer to sign a longer lease that locks in the price for two years instead of one, or, if you can swing it, offer to pay upfront for a full year (or 3-6 months, even) in lieu of a rate hike.  It can be a win-win by offering both parties a greater level of security (as well as a lump sum for the landlord to invest in making some needed repairs or upgrades, in the latter instance).

4. Utilities (gas/oil, power, water, sewerage, sanitation…)

We all know that a particularly hot summer or cold winter can jack up the utility bills.  Some companies offer the option to smooth payments over the entire year to make bills a little more manageable, but even then your bill could rise north of what you anticipated.  And if you pay for city services like sewerage and trash removal, those can also increase unexpectedly, too.

5. Phone service

While we’re on the subject of utilities, let me briefly address phone service.  My sense is that overages are less common now that more unlimited cell phone plans are available.  But, if you haven’t signed up for a plan that adequately covers the minutes, roaming, data, or text messages that you actually use, you can be in for a nasty surprise when you open your bill.

Call your provider, or look online, and compare your typical usage to your current service plan versus others they offer.  I’ve had good luck in the past talking to a service rep.  During different periods in my life, I’ve been advised to upgrade or downgrade my service according to my usage at the time, and it has worked out well each time.

The same goes for landlines.  If you still have one, make sure you have a plan that is appropriate for your talking habits.  There are several phone service providers that offer web-based landline service for very low fixed monthly rates for unlimited minutes, including on international calls.  Frankly, they are worth checking out whatever your phone habits are.

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The housing-related expenses I’ve discussed above can unexpectedly rise, throwing you a nasty curveball.  Consider taking the steps I mentioned above to mitigate the odds of them happening and/or their impact.   For that which you can’t avoid, build in a healthy margin.  It will certainly help buffer the impact when it’s your roof that leaks next or your area that’s struck with a cold snap.

I hope this has given you something to think about.  Next time I’ll talk about why you may want to build a margin into your budget for groceries and clothing.

What did I forget?  Are there housing-related expenses that unexpectedly rise around your home?  Do you build in a margin for that?  Please share. 

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Disclaimer: I’m no financial pro, nor professional.  I do have common sense, some life experience, and smart friends who know about these things.  However…

The information provided in this post is my personal opinion and does not constitute professional financial advice. The information is of a general nature only and does not take into account your individual financial situation or needs. If you need financial advice, Economist at Home recommends that you contact an appropriate professional.  Furthermore, while this post may contain links to third party websites, these have been provided solely for further information.  Economist at Home is not responsible for their content.   The inclusion of links to a third party website is not an endorsement of the content provided or the third party itself.

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