If you’ve ever lived in a property run by a strata corporation (or HOA, same thing) you know that they can be, well……annoying. Very very annoying.
I have a hard time asking someone else permission to make trivial changes to my own property. I get the whole concept of wanting everything to look similar and streamlined, but I don’t feel like I should have to apply for permission when I want to change the colour of my window coverings or put a planter in my back yard. As a constant DIY’er, after my 3rd strata property I came to the conclusion that strata’s and I just don’t mix well.
But, what I do love about strata’s, at least ones that are well run, is how they plan for ongoing and future maintenance, repairs and improvements of the property. It’s a concept I believe more home owners should adopt on an individual level.
When a strata is run by a capable board, they generally have at minimum a five year plan for the future maintainance, improvements and repairs to the building(s), along with a structured budget for the estimated costs. This is an approach I think every home owner should be employing, particularly if you are pursuing Financial Freedom.
Housing costs generally represent the biggest portion of anyones monthly/annual expenses, and those costs can grow exponentially when you suddenly have emergency repairs to pay for. Often those types of repairs simply aren’t optional, and can’t be put off until you’ve saved the money to make the required purchases. If your roof is leaking, or your hot water tank breaks down, you are going to have to take some action to repair it, or run the risk of further damage to your home and even bigger repair bills.
But, should a 25 year old roof starting to leak, or a 12 year old hot water tank breaking down really be an unexpected expense? If you find yourself struggling to foot the repair costs for those types of incidents, or even worse, draining your emergency fund, you have only poor planning to blame.
Certainly things can and will go wrong with homes that we simply won’t anticipate, it’s an almost unavoidable reality of being a homeowner.
But your emergency dollars should most definitely not be used to fund things that were easily forseeable with only a basic level of consideration and planning. And realistically, much of what goes wrong or breaks down in most homes comes along at pretty predictable time frames. AND it can generally be significantly delayed with proper care and maintenance.
Being able to forecast your costs accurately in retirement is a huge part of succeeding at Financial Freedom. If you err in making these calculations, you may find yourself back in the job market all too quickly. So rather than just dealing with housing issues when they arise, and potentially throwing your retirement budget into mayhem, have a structured plan for how you are going to maintain your home, when you are going to replace key items within the home, and most importantly, how you are going to pay for it.
Start by taking a hard look around at your current home. Is it where you plan to live in retirement? If so, make a list of the repairs that are most likely to arise over the next 10 years. Set aside some time when you (and your spouse) can take a walk around your house. Go through every room, and consider the lifespan of the materials/contents of each room. Do the same thing around the entire outside of your home (and any outbuildings if you have them).
If there are any really big ticket items on the list that will need to be done in the near future (roof, window’s, siding etc) plan to make those repairs, or set aside the money for them, before you fully retire. Yes this means diverting some funds from your goal of Financial Freedom, but you’ll feel a lot better moving into your retirement if your home is in solid condition.
Once you have your list, sit down with your spouse and prioritize based on the time frame of when each item is most likely to require replacement/repair. Then look at what type of annual maintenance you could be doing to extend the life of what you currently have. IE: having your roof and gutters cleaned regularly can extend their life substantially, as can having regular maintenance of your furnace, air conditioning, hot water tank etc. Regular maintenance keeps things running well, and also means that you are much more likely to catch a small issue (inexpensive) before it turns into a big problem (costly).
If you plan to do any home improvements now or in your retirement, this would also be the place to include that planning, which means ensuring you have an accurate understanding of what any future renovations are likely to cost.
When building your plan, try to spread your repairs/maintenance and home improvements out in such a fashion that you are spending a similar amount annually. This will allow your savings rate to be consistent over a long period of time. For instance, if you plan on budgeting $10,000 for housing maintenance, repairs, and improvements annually, but only anticipate spending $2000 on maintenance/repairs in the 1st, 2nd and 3rd years, then those might be good years to plan for some of the home improvements you’d like to do.
Also consider allowing for upgrades in the budgeting of your future repair costs. Perhaps you have an expected 5 years left on your kitchen appliances, but you’d like to upgrade to a better model when the time comes. Don’t just budget for the replacement cost of your current appliances, add a sufficient amount to allow some freedom of choice when your current ones are on their last legs.
Based on the expected repairs/maintenance and improvements, establish an annual number that is both feasible in retirement, and sufficient to do the required work.
Now, just as you would have to make a monthly payment to your strata corporation to fund their maintenance/repair plans, set yourself a savings rate solely dedicated for your future maintenace/repairs. One that will steadily build throughout your retirement and fund the annual costs you have forecasted. If that’s $10,000 annually, start setting aside roughly $200 per week to fund that amount. If it’s $2500.00, start saving about $50.00 per week.
Start saving now, but don’t start drawing from those savings to implement your plan for about 3-12 months (depending on what’s in your plan for the 1st year) . This will allow you to establish a sufficient “operating budget” to fund each project as it arises.
If the weekly savings rate you arrive at is too high to be doable on your anticipated retirement income, you may have to trim your plans for future home improvements. If it’s too high even after home improvements have been reduced or eliminated, either your annual retirement income needs to increase, or you need to downsize your home in retirement.
If you are a home owner, maintenance and repairs are a continuing cost that won’t disappear in retirement, and they should be treated and budgeted for as such. The maintenance of your home should be comfortably affordable on your retirement income, and if you are struggling to save sufficiently to fund it, then somewhere along the line your calculations for what you will need in retirement have been incorrect.
The time to find that out is well BEFORE you retire. So if the numbers aren’t working, adjust your plan for Financial Freedom accordingly, but don’t leave the future plans for caring for one of your largest assets to chance. Make sure you have a solid plan that works for you now, and into your retirement years.