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Benefits of a Home Emergency Fund

Updated Nov 18, 2022

Updated Nov 18, 2022

Home > Maintenance & Renovation > Benefits of a Home Emergency Fund

About 40% of Americans can’t come up with $400 for an unexpected expense, such as a sudden car or home repair, without selling something or going into debt. Unfortunately, this situation puts many Americans at risk if something in their homes breaks or a natural disaster or accident occurs.

A general emergency fund can be a good start to give you a buffer for unexpected expenses. Most experts recommend saving enough money for three to six months’ worth of basic living expenses, such as mortgage payments, utilities, medical bills, car repairs or payments, groceries, and more.

However, a specific home repair fund is an essential part of financial planning because, as a homeowner, these repairs shouldn’t be unexpected. We often think of pipes bursting or our refrigerator needing to be replaced as “unexpected,” but you shouldn’t consider these expenses emergencies or unexpected because they’ll inevitably happen.

Instead, develop a home repair fund separate from your regular emergency fund to cover these unplanned expenses. No matter how well-maintained your home is, you’ll need to replace things at some point or deal with damage from bad weather conditions or burst pipes.

Below are some benefits that building an emergency fund and home expenses safety net afford you.

Save Money By Keeping Up With Maintenance

Prevention is always better than repairing a major problem later. Home emergency savings give you the funds to immediately make minor repairs or maintain your home better with regular home maintenance by professionals, such as gutter repair and cleaning.

For example, hiring professionals to clean your gutters twice a year can prevent you from needing to replace your gutter system prematurely. Regular roof maintenance is critical to keeping your home free of leaks and pests. If roof repairs aren’t immediately addressed, it can lead to expensive repairs and even roof replacement, which is easily one of the most costly replacements homeowners will face.

dirty home gutters
Image Source: Canva

Home repairs are not inexpensive, which is why having a high-yield savings account dedicated to home expenses is crucial so that you can immediately address problems before they worsen, saving you money and frustration.

Peace of Mind

More than two-thirds of Americans report experiencing financial anxiety, which can be draining and, in some cases, debilitating. We can all agree that stress accomplishes nothing for us. Stress can harm our physical and mental health, hurt our energy levels and motivation, and make us feel defeated.

Imagine having peace of mind knowing that you’re working toward a savings goal that will cover important home repairs. This provided financial security can reduce your stress levels. For example, think about a home repair expense and being able to immediately cover it with your home repair fund without a second thought instead of panicking about how you’ll cover these costs.

A home emergency fund can also protect you if you suffer from huge life-changing circumstances, such as a job loss or if you experience other sizable expenses, like large medical expenses, deductibles, or financial emergencies.

Instead of waiting around for the worst to happen, take action to build a savings account with high interest rates that will protect you in the case of unexpected events related to your home. Get started today by committing to saving $50 a month. Even smaller amounts of money will add up over time.

Preserve Your Home’s Value

Your home is a significant investment. Protect this investment by building a safety net that allows you to preserve your home’s value. Your home emergency fund allows you to protect your home’s value by avoiding loans for unexpected expenses to cover home repair costs. Your funds will enable you to keep your home value as high as possible, especially if you need to sell your home in a short period. Your home emergency fund can compensate for lost equity in your home. Your savings also help you take care of repairs and replacements, which decrease your home’s value.

Keeping Your Normal Routine

Having an appliance break down can immediately throw your home and routine out of whack. For example, having your washing machine or dishwasher break down will quickly create piles of dirty laundry and dishes.

Your home emergency fund provides a buffer so that you don’t have to worry about waiting months to replace the appliance or going into debt to replace it right away.

Likewise, costly repairs like repairing your water heater, AC system, or burst pipes often need to be dealt with immediately for your sake and the health of your home. If you don’t have the rainy day fund to cover the cost, you’ll likely take on debt through credit card payments or a payment plan set up by the company. Avoid debt and upsetting your regular monthly costs and personal finance goals by avoiding debt with your emergency fund.

home maintenance on AC unit
Image Source: Canva

How Can I Build a Home Emergency Fund?

Start by using NerdWallet’s emergency fund calculator to get an idea of how much you should aim to put aside for your general emergency fund. Then, create a secondary savings goal for your home repair fund. Experts recommend putting aside around 1% to 4% of your home’s total value.

Here are a few tips for building your home emergency fund:

  • Set up an automatic direct deposit from your checking account to your dedicated bank account for home repair costs. It can be easy to forget about transferring money to your savings account, and before you know it, the money will be spent. Most banks allow you to create automatic transfers, so schedule one of these for a set amount of money to transfer every time you’re paid.
  • Use your tax refund to build your emergency fund. We know it’s tempting to go on a shopping spree and purchase that new TV you’ve been dying to get when you receive a tax refund. Take part of your tax refund and use it to pay down any debts and contribute to your home repair fund. Even a few hundred dollars can jump-start your fund and give you a cushion. Likewise, if you receive unexpected income, such as inheritance money or a work bonus, use this to cushion your home repair fund and reach your goal faster.
  • Track your savings. Create a specific goal with an end date and plan how you’ll reach it. For example, if you’re saving $5,000, make a plan to reach that in one year by contributing $417 a month. An alternative plan could be contributing $1,000 from your tax refund, then $333 monthly for a year. If your goal seems overwhelmingly large, create several smaller goals, such as hitting $1,000, $5,000, then $10,000. Give yourself small rewards for each milestone and celebrate your met financial goals.
  • Find a savings account with a high interest rate. Maximize your savings by finding an account to help grow your money with a higher interest rate.
  • Earn a little extra money. If you’re struggling to find money in your budget to contribute to your savings account, consider taking on a new job part-time for a month or two and take all of that earned money, and add it to your account. Part-time, remote work options may be a great choice, or delivering for a flexible gig on the weekends can help you quickly earn a few thousand dollars for your fund in a few months. Alternatively, you can sell items around your home that you’re no longer using or temporarily cut back on eating out or other less necessary expenses while you build your fund.

Closing Thoughts

An emergency fund for your home protects you, your finances, and your home’s value. While it may seem overwhelming when considering how much money you’ll want to put aside, take time to break your goal into more bite-size pieces and create a plan to tackle this financial goal. Small amounts of money can quickly add up and give you well-deserved peace of mind.

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