Plans for Capital Expenditures during FIRE

[mamagoose]

For those of you who are already living the FIRE life, how do you account for future capital expenditures (replacing things like the roof, car, appliances)? I think Root of Good did a good job of breaking this down into a monthly set-aside in the budget. For us it's close to $340/m into perpetuity for maintaining/replacing these things: roof, solar PV panels, air conditioner + furnace, refrigerator, microwave, oven, gas range, dishwasher, washer, dryer, water heater, plumbing, electrical, windows & doors, flooring, paint, landscape, and the family car).

http://rootofgood.com/budget-home-repairs-billion-dollar-project/

I can't help but think of this when I see FI bloggers write about how "this month our passive income/dividend stream covered our spending so we're golden" - and then wonder what happens in the month when your fridge bites the dust? Yes, we have months where technically our spending is so low and our investment returns are so high that the math works out instantaneously well for us too. My main question is... do you do some sort of accounting set-aside in your plans for replacing these things? Do you track it as a monthly "ghost expense" or just keep a giant lump sum set aside in investments (similar to a college chunk) earmarked for that? Am I overthinking this?

[Playing with Fire UK]

As long as you've been tracking expenses for long enough to pick up on a reasonable smattering of these then saving 25x that should be fine.

I get nervous when I see people stripping out 'one-offs' from the budget that they are using to calculate their stache from. I take them out of the monthly numbers and count them in annual numbers, but the costs need to be somewhere.

[Maenad]

We've had to replace our water heaters and our dishwasher fairly recently, but the other capital items mentioned are still looming.

We also have a likely driveway replacement and a couple other things, and our estimated costs are significantly higher than RoG's. I do recommend some web research on estimates, I was unpleasantly surprised at how much appliances cost these days. Better to know and be prepared!

[SpreadsheetMan]

I am still pre-fire, but I have done the same for my target budget estimates - there is a maintenance/replacements/one-offs annual capex allowance.

[Cherry Lane]

I've made up a replacement schedule and estimated costs (most are things I've replaced already, so have good estimates, others I've researched/guessed) and turned that into a yearly figure that I've added to my annual planned expenditures (I look at everything on an annual, not monthly, basis).  Anything I don't spend from this in a given year will be banked for when I do need it.

With new roof two years ago and new HVAC today (!), I hope to be saving for a while before the largest expenses come around again.

[Gone Fishing]

Interestingly enough, our number is $333/mo ($4k/12).

[twell1]

I read somewhere that 1% of the value of the home is a good yearly estimate for reserves, although it may have been from a real estate investment article.  $400k home would equate to $333/month?  Is this realistic?

[Gus_Smedstad]

That sounds like a bad rule of thumb, since house values are largely driven by location, and repair costs aren't. Well, not as much, anyway. I'd go more by size of the house.

We live in an 1800 square foot house. Stuff that we absolutely had to do over the last 10 years:

Replaced the roof. This ran $10k.
Replace the water heaters (we've got 2, running in parallel). $2k.
Replace a damaged gutter. I overpaid for this with covered gutters, I'm not sure what the minimum cost for regular gutters would have been.
Remove a dead tree that was threatening the garage. $900.

About $12,000 over 10 years is for small stuff. $50-$100 expenses for little things like fixing a doorbell.

I'd say we had about $2,600 / year in expenses that were unavoidable ($220 / month).

By way of comparison, our house cost $465k when we bought it in 2003, and is worth roughly $650k-$700k today according to Zillow. Expenses have not climbed as the house value climbed.

[Ozstache]

I run a 10 year rolling budget and expense spreadsheet for major/infrequent expenses like these. For major known expenses (eg. car update) I incorporate the current year's estimate into my normal spending budget. For infrequent/unknown expenses (eg. my dog needed unexpected surgery this month), I retrospectively add it in to my normal spending budget then deduct it off the 10 year budget running total. Obviously, I need to have enough of a cash buffer to cover these infrequent/unknown expenses, so I keep aside at least 1/10 of the rolling budget total (ie. 1 year's worth). This method has worked well in the the four years I have been FIREd.

[soccerluvof4]

I have put a home maintenance budget of 500$ a month. At the end of the day after a couple plus years its the overall number I am concerned with but I still like to try and beat each catagory number that is not a fixed number i.e. my cell phone bill or YMCA bill its just set.