How Much Money Should You Have In A Home Emergency Fund?

If there’s anything you can count on when it comes to your home, it’s that things are going to break. The less glamorous side of homeownership features leaky roofs, clogged toilets, and busted water heaters. Setting up an emergency fund for house repairs keeps these issues from turning into major disasters.

Save a percentage of your home’s value for emergencies or enough to cover insurance deductibles. Determine what the largest repair would cost for your home and save that amount in a high-yield savings account. Define separate amounts for home maintenance, general emergencies, and house-related emergencies. Aim to save at least $2,000 to $5,000 to tackle small unexpected repairs.

When you prepare for the inevitable, you turn emergencies into inconveniences, which is a lot easier to handle. However, you want to ensure that you save enough, rather than just pulling a random number out of thin air.

Should You Separate Your Home Emergency Fund from Your Regular Emergency Fund?

Financial experts and advisors often recommend saving three to six months of expenses in an emergency fund. This general emergency fund is for unexpected events such as major car repairs, medical emergencies, or a decrease in income due to job loss.

It’s up to you to decide if your general emergency fund also covers home-related expenses. However, there are a few things to consider.

First and foremost, it’s not a matter of if something will break when it comes to your home, it’s when. Therefore, many people decide to create a separate emergency fund solely dedicated to their house.

Here are some things to think about to help you make your decision.

• When deciding how much money to put in your general emergency fund, think about your income and lifestyle. If you live in a two-income household, you could save closer to the three-month mark. However, if you’re in a one-income household, or one of you works in a volatile job market, you might want to save closer to the six-month figure.
• If you decide to use your general fund for home expenses, make it your goal to save a minimum of six months of expenses to build a better buffer.
• Would having a dedicated home emergency fund bring you more peace of mind? 
• Do you have any type of home warranty plan that covers repairs and replacements?

How Much Money Should Be In A Home Emergency Fund?

Let’s assume you’ve decided to create a separate fund to cover home-related emergencies. There are a few different ways to approach your savings target.

First, you could do it simply by saving a small buffer of about $2,000 to $5,000 to handle immediate, smaller emergencies, like a busted hot water pipe. Your primary goal could be to reach an amount that would tackle a big problem, like your AC going kaput. In this example, you would research how much a new HVAC system would cost and make that your savings goal.

Another way to reach your number could be to save enough to cover your insurance deductibles plus a $5,000 buffer. Finally, you can save based on a percentage of your home’s value, which is the typical recommendation for home maintenance expenses.

The Percentage Guide To Figuring Out Home Emergency Savings

Before deciding on the best emergency savings rate for your home, it’s worth noting that home emergencies are not the same as home maintenance. Therefore, it’s essential to distinguish the two.

Home Maintenance Is Not An Emergency

The general rule of thumb for budgeting for home maintenance and minor repairs is to save 1% to 4% of your home’s value. You decide the best percentage based on your home’s age and overall condition, but this table provides some reference.

In addition to the age of your home, consider the quality. If you buy an older home that was meticulously maintained, you might be able to save 2.5% of the value. Or maybe you buy a home that’s only seven years old, but it’s basically a fixer-upper because it wasn’t well-cared for, so you save 4%.

Also, as your home ages, make sure to adjust your savings rate accordingly. It’s also necessary to separate what is an emergency and what isn’t.

Remember, if your roof is approaching 20 years old, replacement becomes an expected expense, not an emergency. An emergency would be if your five-year-old roof starts leaking, and for some reason, your warranty no longer covers it.

Your Home Emergency Savings Number

You can make your home maintenance and emergency funds one in the same. However, if you do so, plan to save beyond the maintenance percentage. For example, if you decide that 2% is ideal for maintenance, maybe you opt to save 3% instead to cover maintenance and emergencies.

However, if you struggle with defining boundaries, it’s easier to create a second account for emergencies. Your home emergency fund should be for things like:

• Storm damage that isn’t covered by your insurance
• Major systems breaking well before their time
• Termite damage or other pest-related issues
• Water damage from a busted pipe in the wall
• Clogged sewer line

You could use the same percentage system for determining home maintenance expenses to decide your emergency number. Or you could adjust the percentage based on your comfort level.

For example, pretend your home is worth $400,000, is 10 years old, and in excellent condition. You decide to save $8,000 a year for home maintenance. In addition, you feel good about saving an additional 1.5%, or $4,000 a year, in an emergency fund.

As your home approaches the 15-year mark, you up your maintenance savings to $12,000. You also increase your emergency fund to $10,000.

It’s best to find a balance between what you can afford to save without stretching your budget too thin and putting your mind at ease. You want to ensure you have enough to take care of your home, which is likely your biggest asset.

How To Save For A Home Emergency Fund

Once you determine the best amount for your home emergency fund, you need to set up a plan for your savings. One of the best places to save money for emergencies is in a high-yield savings account. Your money grows thanks to interest, but you can access it quickly and easily when an emergency hits.

To build your savings, put a specified amount into the account each month. For example, assume your 20-year-old home is worth $300,000 and you decide to set aside 3% a year, or $9,000, for house-related emergencies. Take $9,000 and divide it by 12 to determine your monthly savings rate of $750.

If you pay for a home warranty, you might adjust your savings rate a bit because you won’t need as much. However, make sure you fully understand what your warranty covers (and what it doesn’t).

Make Sure To Replenish Your Savings

If you use money from your emergency fund, make sure to replace it. For example, if your magic number is $9,000, and you reach that amount, you can decrease your savings. Perhaps you go from putting away $750 a month to just $50. (Note that you should not decrease your home maintenance savings; this amount should remain constant.)

But then, you discover the tree in your backyard is infested with termites and needs to be removed. It costs $2,500, knocking your emergency fund down to $7,000. Start saving $750 a month again until you get back up to your baseline of $9,000.

A Home Emergency Fund Protects Your Biggest Asset And Your Peace Of Mind

Stashing money into a savings account for some future problem might not seem like a lot of fun, but it’s critical. And it's one of those things that you won’t likely truly appreciate until an emergency occurs.

When the water heater goes bust three days after the warranty expires, you don’t have to stress about it. Instead of enduring cold showers while you scrounge together money for a replacement, you simply tap your emergency fund.

When you plan for these inevitable problems, it removes the chaos, stress, and fright that often accompany emergencies. You’ll rest easier, knowing that you have what you need to keep your home safe and sound.

Related Guides:

• Why First-Time Homebuyers Underestimate Home Maintenance Costs
• How Much Should You Spend Per Year On Home Maintenance?
• Ways To Save Money On Pool Maintenance This Summer