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Actually maintenance and repair can be modelled fairly easily (and as I found out I over modelled it) I used $5/sqft/year as a maintenance cost. The parent was

Actually maintenance and repair can be modelled fairly easily (and as I found out I over modelled it) I used $5/sqft/year as a maintenance cost. The parent was talking about the volatility of maintenance costs, not the average. Just like people in different situations need to adjust their investments to achieve the right amount of volatility, for some people it probably makes sense to shield themselves from the possibility of unplanned maintenance costs. I have no clue how volatile maintenance costs are, but I don't think you addressed it in your reply.

ChuckMcM 11y ago
Sorry, I wasn't clear, I put $1000/month into a savings tagged as "maintenance", and as maintenance tasks have come up I've deducted from that account to pay for them. Yes, you'll go months where you put money in, and then you have to re-roof and it costs you $7,500. And then a lull and then maybe you need to paint the house or replace the rain gutters, etc. In my budget I put the "expected" cost of maintenance to be about $5/square foot per year. And then divided that number by the number of pay periods to get a contribution into that account per paycheck. Since actual maintenance costs turned out to be less than that my maintenance account was running a surplus and growing so I reduced the amount I was contributing. This is a very common way to annualize a very volatile cost, but what it means in practice is you find yourself putting money into the maintenance account when no maintenance needs to be done that month, with the understanding that eventually in the future you're going to have a cost which you can then pay out of that account. You don't go into debt that way to cover random maintenance expenses, because if you did it right there is always enough money in the account to cover your costs. Granted a string of costs all at once will bite you, but statistically that is not likely to happen. The goal though is to never use credit card debt to finance anything because you pay so much interest on that debt if you can't pay it off at the end of the month. And in practice it means putting what seems like all your money into weird "future" accounts (maintenance, food, insurance, taxes, etc) but it also means than when you pay to those expected bills you already have the money to pay them and don't have to borrow. You are mailing yourself the funds in the future to cover that cost.
- solipsism 11y ago
  in practice it means putting what seems like all your money into weird "future" accounts I'm curious, do you really mean multiple separate accounts? What's the advantage to that over putting it all in one single account? After all, if one of your accounts were to run out you'd surely have to draw from the others?
  - tvmalsv 11y ago
    I do much the same, though in my case I would change it from 'weird "future" accounts' to 'weird future "accounts"'. I use a software package called You Need A Budget [1], which is essentially a virtual version of the old envelope system of budgeting. I'll create spending categories such as "new roof" or "2016 summer vacation" and then divide the expected cost by the number of months I expect will occur before the event. Then, each month I toss that amount into that month's category. So, if I suspect I'll be replacing my roof in 3 years for about $10,000, then I will be adding $277.77 per month. Hopefully my estimation was correct and when I need to replace the roof, there's no financial stress since I'll have about $10,000 sitting in my "new roof" account. That "account" though is virtual, not a real separate account. Though I do have a separate real account I'll use to hold high-dollar/long-term future savings. But that's just a little paranoia on my side, not wanting to keep all of my eggs in one basket, so to speak. It's just in case something weird happens, like an unauthorized ACH run on my checking account or my wife splits with the debit card and drains it completely on week long bender in Las Vegas. At least the larger value "accounts" or "envelopes" would be unaffected. So, the money set aside for items like a new roof, rebuild of deck, next car, etc., is safe and sound in their own separate savings account. It works well for car repairs, which I recently confirmed. I always put $100 each month into my "car repairs" envelope. I went about 6 months with no significant repairs and then got hit by two repairs within two weeks for a total cost of about $470. I must admit I really enjoyed the lack of stress over the bill. I simply paid the man his money and drove away still having $130 in that category and it'll continue to increase by $100 per month. The YouNeedABudget.com style of budgeting has immensely improved my financial situation. It's a Mac app with a companion iOS app, but a similar method is used by the good folks at everydollar.com [2]. Their app is web-based but they also have Android-based apps. Well. This post meandered about a bit more than I had intended :) [1] https://www.youneedabudget.com/ https://www.youneedabudget.com/ [2] https://www.everydollar.com/ https://www.everydollar.com/

ChuckMcM 11y ago

Sorry, I wasn't clear, I put $1000/month into a savings tagged as "maintenance", and as maintenance tasks have come up I've deducted from that account to pay for them. Yes, you'll go months where you put money in, and then you have to re-roof and it costs you $7,500. And then a lull and then maybe you need to paint the house or replace the rain gutters, etc. In my budget I put the "expected" cost of maintenance to be about $5/square foot per year. And then divided that number by the number of pay periods to get a contribution into that account per paycheck. Since actual maintenance costs turned out to be less than that my maintenance account was running a surplus and growing so I reduced the amount I was contributing. This is a very common way to annualize a very volatile cost, but what it means in practice is you find yourself putting money into the maintenance account when no maintenance needs to be done that month, with the understanding that eventually in the future you're going to have a cost which you can then pay out of that account. You don't go into debt that way to cover random maintenance expenses, because if you did it right there is always enough money in the account to cover your costs. Granted a string of costs all at once will bite you, but statistically that is not likely to happen. The goal though is to never use credit card debt to finance anything because you pay so much interest on that debt if you can't pay it off at the end of the month. And in practice it means putting what seems like all your money into weird "future" accounts (maintenance, food, insurance, taxes, etc) but it also means than when you pay to those expected bills you already have the money to pay them and don't have to borrow. You are mailing yourself the funds in the future to cover that cost.

solipsism 11y ago
in practice it means putting what seems like all your money into weird "future" accounts I'm curious, do you really mean multiple separate accounts? What's the advantage to that over putting it all in one single account? After all, if one of your accounts were to run out you'd surely have to draw from the others?
- tvmalsv 11y ago
  I do much the same, though in my case I would change it from 'weird "future" accounts' to 'weird future "accounts"'. I use a software package called You Need A Budget [1], which is essentially a virtual version of the old envelope system of budgeting. I'll create spending categories such as "new roof" or "2016 summer vacation" and then divide the expected cost by the number of months I expect will occur before the event. Then, each month I toss that amount into that month's category. So, if I suspect I'll be replacing my roof in 3 years for about $10,000, then I will be adding $277.77 per month. Hopefully my estimation was correct and when I need to replace the roof, there's no financial stress since I'll have about $10,000 sitting in my "new roof" account. That "account" though is virtual, not a real separate account. Though I do have a separate real account I'll use to hold high-dollar/long-term future savings. But that's just a little paranoia on my side, not wanting to keep all of my eggs in one basket, so to speak. It's just in case something weird happens, like an unauthorized ACH run on my checking account or my wife splits with the debit card and drains it completely on week long bender in Las Vegas. At least the larger value "accounts" or "envelopes" would be unaffected. So, the money set aside for items like a new roof, rebuild of deck, next car, etc., is safe and sound in their own separate savings account. It works well for car repairs, which I recently confirmed. I always put $100 each month into my "car repairs" envelope. I went about 6 months with no significant repairs and then got hit by two repairs within two weeks for a total cost of about $470. I must admit I really enjoyed the lack of stress over the bill. I simply paid the man his money and drove away still having $130 in that category and it'll continue to increase by $100 per month. The YouNeedABudget.com style of budgeting has immensely improved my financial situation. It's a Mac app with a companion iOS app, but a similar method is used by the good folks at everydollar.com [2]. Their app is web-based but they also have Android-based apps. Well. This post meandered about a bit more than I had intended :) [1] https://www.youneedabudget.com/ https://www.youneedabudget.com/ [2] https://www.everydollar.com/ https://www.everydollar.com/