What to budget for non recurring costs - ie auto replacement, medical and repair

[MMMdude]

I have a super good handle on my recurring expenses.  These are ones that put food on the table and pay all the house bills.  These are pretty easy to budget for as they are generally pretty consistent. 

I am wondering though if others are budgeting for non recurring expenses to the same $ tune I am.  Basically there are three major expense items that are not really distcretionary...you can really only defer these expenses.

For home repairs and interior furniture/appliance replacement I am budgeting 1% of home cost or $4500 per year.

For auto repairs and replacement I am budgeting $2000 per year with the thought that $20000 every ten years should be more than enough to buy a 1 or 2 year old used car + repairs during time of ownership - trade in value at the end of its useful life

For medical...being in Canada I don't have to worry about anything catastrophic, but we are on the hook for optical, dental, prescription drugs (currently on no drugs...knock on wood).  I am estimated $2500 per year for that stuff

So all told $9000 per year should be budgeted for this stuff and in theory put in a bucket and never touched until you need it (I don't actually do that, but I could see value in having a separate account for it).  Does this seem reasonable.  Too high or low?

[Paul der Krake]

The right amount is whatever will make you sleep soundly at night. Without knowing your age and health, the condition of your vehicle and home, how quickly you can could come up with cash, and a bazillion other details specific to your unique situation, there's little for other people to find flaw with. :)

[cgc007]

Our plan is to have a healthy emergency fund (3-6 months of total expenses) and that usually fixes those problems as they arise, as long as your don't lose your job, the car breaks, the roof blows off, and all your teeth fall out at the same time. Planning for catastrophes by planning for the absolute worst case is very difficult, and it may cause you to save less than practical for early retirement.

Once we have our home paid for, we may use the MMM method of establishing a line of credit on the house for such emergencies, but I refuse to do that until we have 0 debt.

It really is what makes you sleep easy. It sounds like you have an excellent handle on it though!

[Gin1984]

Our plan is to have a healthy emergency fund (3-6 months of total expenses) and that usually fixes those problems as they arise, as long as your don't lose your job, the car breaks, the roof blows off, and all your teeth fall out at the same time. Planning for catastrophes by planning for the absolute worst case is very difficult, and it may cause you to save less than practical for early retirement.

Once we have our home paid for, we may use the MMM method of establishing a line of credit on the house for such emergencies, but I refuse to do that until we have 0 debt.

It really is what makes you sleep easy. It sounds like you have an excellent handle on it though!

But the line of credits are normally cheaper than the mortgage rate, so why did you make that choice?

[MMMdude]

The right amount is whatever will make you sleep soundly at night. Without knowing your age and health, the condition of your vehicle and home, how quickly you can could come up with cash, and a bazillion other details specific to your unique situation, there's little for other people to find flaw with. :)

That's the thing though - age of my car and condition of my home are irrelevant IMO.  Since both are long lived assets there will be costs each year but they will be 'lumpy'.  Better to set aside a set amount each year cuz you know that in any given year you could be spending significant $'s while in the next year may spend absolutely nothing

The reason I really would like to see what others are doing is that I basically see my retirement costs in three different buckets.

1. is my day to day expenses which are about 20K per year
2nd is the stuff in my original post which is say 10K per year
Thirdly are totally discretionary costs like hobbies and vacations.  I am factoring 10K per year for that

So 20/10/10k for a total of 40K in today's dollars.  If bucket #2 is costing alot in one year I could defer bucket #3 and skip a vacation or play less golf, etc.  You can't do much about bucket #1 if you want to keep feeding yourself.  Bucket #2 has some variability in that you can put off a car or home repair for abit, but eventually you will have to make that outlay.

[MMMdude]

Our plan is to have a healthy emergency fund (3-6 months of total expenses) and that usually fixes those problems as they arise, as long as your don't lose your job, the car breaks, the roof blows off, and all your teeth fall out at the same time. Planning for catastrophes by planning for the absolute worst case is very difficult, and it may cause you to save less than practical for early retirement.

Once we have our home paid for, we may use the MMM method of establishing a line of credit on the house for such emergencies, but I refuse to do that until we have 0 debt.

It really is what makes you sleep easy. It sounds like you have an excellent handle on it though!

And what happens when those emergencies come?  In my mind they are not really emergencies.  Furnaces and roofs don't have an indefinite lifespan.  Nor does your car.  Do you then set up another 6 month emergency fund?  I guess what my approach does is recognize that there is a cost every single year.   Hell, every second that goes by is costing you $ as your house and car slowly degrade.  I'm not sure your approach is taking that into account

[kimmarg]

I have multiple online savings account for these things. Works great for me. Each payday I auto transfer a set amount. Then if the need arises I transfer from the on line savings back to my checking. It takes a few days to clear, but I have a credit card that could cover anything that immediate until the transfer cleared. Currently my accounts are for 1) car repair/replace 2) major home repairs (roof, furnace, etc 3) gifts/Christmas (a very small amount but I just love being able to enjoy my prepaid Christmas shopping and feasting) 4) heat. (I live in the northeast where oil heat to the tune of $3k/winter is common. I pay in every payday all summer so I don't stress in January when an $800 bill shows up)

[bacchi]

I save $450/mth for house and $150/mth for car expenses. For medical, being in the US, I have a large $25k HSA balance that increases by the maximum ($3300+) each year. Part of the house ($150) is for an upcoming remodel of a garage apartment, which will become mostly self sufficient until it's converted to a base of operations for travel (and we'll then rent out the main house, which will cover the costs for both).

Having tracked my spending for about 15 years, I should really go back and figure out the actual costs for car and house. I may do that this coming weekend.

[MBot]

For our old house worth 130k (but with updated plumbing/electrical) we save $100/mo or $1200/yr for repairs/maintenance. Almost in line with yours.
In a year of living here we've spent some on removing 2 enormous unsafe trees and mostly left the rest.

For our 2008 Honda Fit we budget $100/mo for oil changes and repairs.  We hardly touch this so far.

There's already a $50/month Christmas/summer travel to see family fund (includes the gas for an 8 hour drive away twice a year and gifts for close family at Christmas)

The last category we just started is called "irregular" to include a slew of summer weddings the end couple years.  (including one brothers this summer and one the next), end-December professional credentialing with 5 associations between the 2 of us, and the occasional 20% payment towards a medical thing not covered by insurance. Thats not often used yet but they are the big "irregular" things that pop up.

Edited to add: I bank with PC Financial in Canada and have several separate savings accounts. They are free so I transfer a set amount to each every month. I would automate but I like the reward of being able to put it in savings myself.

[JustTrying]

We put $200 per month into a special savings account for car replacement - when we need to replace a car, we'll take the money out of that account to do so. We've got pretty good insurance, so we don't have to worry much about medical, but right now we're putting $200/month into a maternity-leave account so that I can take some time off if we choose to have a child. Right now we're still not sure that we'll have a child, so I guess that money might end up going towards something else!

[Travis]

I do my budgeting with YNAB so I don't have a separate bank account, but rather a line item in my budget.  I have lines for fuel, maintenance, and vehicle replacement that I put into each month.  Our monthly driving is highly predictable so we spend the same amount give or take a few dollars a month.  For maintenance I calculated how much the next major event should cost (120,000 mile service) and how much tires cost and gradually save up for that which at the moment is $25-$50 a month.  I'm aiming on the high side, but that's also a cushion for unexpected repairs or if I have a deductable to pay.  My car replacement line is trickier since my car should last a very long time, but right now I'm putting in $100 a month because we might have to get a second car when I get back to the States next year.  If the budget line grows above what I think is reasonable I transfer that money into my Vanguard account.  Uncle Sam pays my medical so I can't really help you there, but if I was in your position I would probably take my most likely annual medical bills and divide by 12 and save for those plus 10%.