Budgeting For Home Repairs: Lessons Learned Running A Billion Dollar Project

During the course of your career, you tend to pick up a few tricks that you can use in your personal life.  In my last job, I helped build, operate, and maintain a billion dollar civil infrastructure project.  I won’t leave you hanging on the details.  We built a twenty mile toll road.  Building the road was very expensive, but the costs didn’t end once the project was open to traffic.  After the project was complete, our next task was planning for ongoing maintenance and operations of the facility.

Even though roads are built from very durable materials like concrete and asphalt, they still fall apart over time.  Part of my job included developing a long term capital replacement program for every element of the road.  All the major systems – pavement, bridges, signs, lighting, landscaping, traffic signals, and tolling technology all deteriorate or become obsolete at different rates.  We didn’t know exactly when any of these systems or elements would fail, but we knew enough to plan for eventual replacement.  For example, concrete pavement would last around 30 to 40 years whereas asphalt pavement would need to be resurfaced at the ten year mark.

To develop the facility’s long term capital replacement program, we went through every part of the road that would eventually need replacement and estimated the service life and the cost to replace.  Those are the two parts of the puzzle I want to highlight: service life and cost to replace.

Since I doubt many of you are interested in the minutia of the full long term capital replacement program for the toll road, let’s switch gears and borrow the concepts of “service life” and “cost to replace” and apply them to developing a long term capital replacement program for houses.  It will be much more relevant to most homeowners and I can avoid technical jargon like “crack seal” and “mill and fill”.


Long Term Capital Replacement Program For Houses

First off, let’s identify what systems or elements might need to be replaced in a house.  Some are obvious like the roof, the air conditioner and furnace, and the major household appliances like the stove, dishwasher, clothes washer, and dryer.  Some systems are less obvious because they are out of sight such as the hot water heater, plumbing, and electrical system.  Other parts of a house that wear out over time include windows, doors, flooring, and interior and exterior paint.

For each of these parts of a house, I have estimated a service life and a replacement cost, as outlined in the following table.

House SystemSystem CostService Life (years)Annualized Cost
Roof $4,000 20$200
Air Conditioner + Furnace $4,500 10$450
Stove + Oven$50020$25
Hot water heater$70010$70
Plumbing $1,000 10$100
Electrical $1,000 20$50
Windows + doors $4,250 30$142
Carpet + flooring $2,000 15$133
Exterior paint $1,500 8$188
Interior paint $1,000 15$67

For the service life, I started out using my own judgment.  Some of these are rules of thumb I’ve heard forever like an asphalt shingle roof will last 20 years and HVAC units are good for 10 years.  For the major appliances in the kitchen and laundry room, I figured those appliances with moving parts like the dishwasher, clothes washer and dryer wouldn’t last as long as the fairly sedentary stove and oven.  Many of the rest of the items in the list often come with a manufacturer’s warranty that serves as a good general idea of how long these elements might last.

So far, the components in our house are doing a great job surpassing the estimated service lives in the chart.  But I don’t want to be caught off guard by the sudden failure of a few expensive components of our house.

If you want to develop your own service life estimates for the components of your house, consider regional variations that might cause longer or shorter life spans.  For example, if your air conditioner is rarely used, then it might last a lot longer.  Conversely, if you are near the ocean in a hot and humid climate, your air conditioner (or the condenser at least) might need replacing more frequently due to excessive use and corrosion from salty sea spray.

For replacement costs, I generally relied on historical expenses for projects at my own house and those of neighbors and friends nearby.  Across the US, construction costs can vary dramatically due to regional variations in labor and material costs and local regulations.  My cost estimates might appear low because I live in a moderate cost of living area.  For some components, I figured I could do the work myself and save a bunch of money – possibly with help from family and friends (or from inexpensive labor procured through Craigslist).  I also have the time to competitively shop around for the lowest bid for a given job or the best price for a given appliance (like my 50% off in-wall oven).

Once I estimated the service life and replacement cost for every component in the house, I then determined an annualized cost for each component.  I estimate the roof replacement will cost around $4,000 if I buy the materials myself and do most of the work with some help on certain parts of the job.  Roofs tend to last an average of 20 years in my area.  This leads to an annualized cost of $200 to replace the roof.  A refrigerator that costs $500 to replace every 15 years has an annualized cost of $33.

Adding up the cost per year for each component will result in the total annualized cost for all components in the house.  For my house, the total annualized cost is $1,571 per year.


Total Annualized Cost of Replacement – Who Cares?

If you want to properly account for all the big replacement expenses you’ll eventually face as a homeowner, you should care!  I used my roughly $1,500 total annualized cost of replacement as an input into the housing line item while developing my $32,000 retirement budget.  This $1,500 represents the large replacement costs of major components of the house.  It’s in addition to the $580 worth of routine home maintenance costs we have each year like repairing things that break and keeping the yard looking (relatively) spiffy.

Ordinary people might dismiss this detailed level of planning as foolish since no one knows whether a given component of your house will last two years or twenty.  Your brand new dishwasher might need to be replaced within a few years while your oven could keep chugging into its fourth decade and beyond (like my 41 year old oven that just died – RIP old friend).  In the aggregate, I bet you’ll end up pretty close to the averages.

When an appliance breaths its last breath and finally meets the big Repairman in the sky, it’s not an emergency or an act of God.  These are totally foreseeable events that you can easily plan for.  With six to eight major appliances in every household, all of which have service lives of 10 to 20 years, you are going to have an appliance die roughly every two to three years (on average).  It’s just math.  Plan for it.

If you hope to reach financial independence and retire one day and fund your living expenses from your investments, you need to have an accurate estimate of living expenses.  The big ticket items in your house are one of the more frequently overlooked areas of expenses.  These large expenses might show up infrequently, but that doesn’t mean you should ignore them.  Get a handle on the costs of replacing the major components in your house and budget for them.

If you are shopping for a new home, you can use the “annualized cost of replacement” concept to evaluate the houses you consider.  Once you narrow down your choices to a handful of potential houses, run through the major components and see what the annualized cost of replacement would be for each option.  You might find that fancy upgrades on one house will end up costing significantly more to maintain and replace over the long haul compared to a more simple house.  Housing costs don’t stop at the purchase price, even though that’s the most visible number when you are house shopping.  Considering long term housing costs in addition to the up front price is the most optimal way to shop for your new home.


On my billion dollar toll road project, the annualized cost of replacement ran into the millions of dollars.  For most residences in the United States, the annualized cost of replacement will probably run in the thousands of dollars.  Even though the replacement costs for a house are less than 1% of the costs on the toll road project, the methods of determining the annualized cost of replacement remains the same.  Identify the service life and cost of replacement for all major components, then do the math to figure out your overall annualized cost of replacement.



Have you replaced a major component of your house lately?  Did you consider it an unexpected expense?


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  1. Wow! What a great way to break this down to fit into your retirement budget. Plus, you have just become your own insurance company by budgeting for these repairs over time!

    1. You must have read my other article suggesting you can “be your own insurance company“.! You are basically accounting for the life cycle costs and turning it into a “premium” to be budgeted each year. Like an insurance company, some year you won’t have any “claims” while other years you might be on the hook for payments many times your annual “premium”. You know, the year your roof fails and your air conditioner dies in the same month.

  2. Hmmm. You got me thinking yet again Justin. My initial retirement budget was literally a best case scenario and didn’t include for things such as this. I may need to revise my estimates (upwards unfortunatley!)


  3. We just bought new kitchen appliances. We definitely splurged a bit (spent $2,300 on fancier-than-we-need, but fully-paid-and-budgeted-for stainless oven, dishwasher, fridge, and hood). We shopped around, got a price match plus 10% off and paid with discounted gift cards that we paid for with a cash back credit card, which saved us a little over $1,000 total. Pretty psyched by the savings, which left us money in our budget to hit a few things off the list.

    We’re budgeting for a few big-ticket items and doing a monthly home repair fund. The costs definitely add up, but it’s good to have a fund to draw from when things hit their useful life.

    1. Very smart, Nick! I did the same thing as you did with the 10% discount and buying discounted gift cards plus aggressive shopping when I replaced my oven.

  4. Great analysis, and these are definitely costs that should not be ignored.

    I think a lot of people just categorize these major household expenses as “emergency” expenses and don’t necessarily have funds earmarked specifically for them. But over the course of your life, and your home’s life, you can expect to have to deal with all of these issues.

    1. I think you are right. The financial novice can get away with calling these costs “emergencies”. I’m going to hold my readers to a higher standard though, since you can expect a major replacement expense to arise every two years or so. When something is reasonably predictable, it falls outside of the “emergency” category in my opinion.

  5. Fantastic advice for early retirees who, simply based on their short timeline to ER, might not have learned this lesson organically since, well, their working career might be shorter than their roof’s lifespan. I’m going to go ahead and budget $1500 extra annually for our home maintenance. Cheers!

    1. You’re absolutely right. Other than replacing an HVAC when we first bought our house (which we expected), we haven’t had any major replacement expenses (over $1000) during our 13 years of home ownership.

      Other than utilities, the $1500-1600/yr in long term replacement cost is our largest housing expense. It’s more than taxes and more than insurance. It would be a shame to ignore a very significant expense category!

  6. Its common knowledge you should consider saving 4% of what your house is worth for maintenance every year…I think thats a good rule. This applies for older houses, not brand new ones. We dont calculate when we should buy something new, we just have a budget to cover those expenses.
    Last year we had a leak from a roof we renovated 4 years ago. Normally it has a 10 year warranty on roof repairs where I live, but the leak was in the part where the main roof and the small roof come together. So no warranty. Does it suck? Yes! Can you calculate this sort of things? I dont think so. But luckily for us our home insurance will cover a part of the damage.

    1. I’ve heard 1-2%, higher after the initial purchase usually. 4% seems pretty high.

      I think the $1500/yr figure listed above is probably around 1%.

      1. Yes, $1500 is right around 1% of what the house is worth. Of course the land is about 1/3 that according to tax assessment. And I assume DIY on maybe half the expense. The insurance company says my house is worth $230,000 replacement value, so somewhere between 1-3% does seem right as a gross rule of thumb depending on what you use for “value” and how old the house is, and whether you can do any DIY (like sliding a new appliance in place, or painting your own interior walls).

        A brand new house should be zero for the first few years one hopes!

        With this article I was hoping to push the boundary past a rule of thumb and explore (with a sound methodology) what the costs actually will be in dollar terms, all things considered.

  7. This was my first step in budgeting after we decided on the house we wanted to purchase. Doing so really saved us some problems early on. After living there for 9 months we had to replace the water heater (were planning on it anyways) and the furnace (were not planning on it). Because my planning included a $5,000 “Aw Crap” set-aside we covered both at the same time without any fuss. We are now putting aside to ensure that we can cover our roof, a car replacement, new appliances, new AC unit, among the biggies.

  8. Great advice. This is something I don’t do, but should. We put a new roof on our house 2 years ago when we moved in and just put in a new dishwasher this past spring. Hopefully we won’t have to replace any other big ticket items in the near future, but I should probably sit down and plan something out for when they do start to go.

  9. When you allocate a certain expense like this in your retirement budget, do you withdraw it monthly when you have reached ER or let it grow in your retirement accounts until needed? Here, you allocate ~$1500/yr. Do you actually withdraw that amount or just leave it in the retirement accounts earmarked for this purpose?

    1. I just leave it in the retirement portfolio. If you follow the 4% rule (that says you can spend 4% of your portfolio each year in early retirement), it’s critically important to get your budget as close as possible to what you’ll actually spend. I know I’ll have an average of $1500 per year for these big ticket items, so I make sure I have enough in my portfolio to support $1500 spending per year (on average) for these expenses.

  10. I wish l could say a brand new house was problem free, but nope! House was built in 2007 and we moved in then. Since that times, we have had to replace the dishwasher (4 months ago), the microwave (1 year ago), the stove top ( 3 years ago). These were all built with G.E. Upgraded appliances! It’s like things are built to self destruct within 4 years or so so you have to keep buying new stuff. We also had to repair part of the roof thanks to Hurricane Ike, and the A/C unit went kaput like 1 month after the warranty expired. We did however have an awesome a/c guy who successfully argued with the company and got it replaced. New homes warranty by builders are like 2 years or something silly like that. We were however luckier than our neighbours to the sides as they had plumbing problems to boot in addition. Different builders the three, but same problems.

    1. I think appliances are “disposable” today because the cost to repair is so great compared to the cost to replace them completely. That’s the case with microwaves especially. The magnetron (a part that is often the culprit in a deceased microwave) can run $100+ for the part, plus $$ for labor to replace. A new unit might be $100 or 2-3x that price if it’s a built in model. I just learned this a few weeks ago when our microwave died. It lasted 13 years, and we replaced it with a spare microwave someone else wasn’t using. I still have the $65 replacement I bought from Walmart sitting in the living room waiting to be returned.

      Since you are 6 years into home ownership, a couple appliance failures isn’t too out of the ordinary. But you just have plain bad luck I think! 😉

  11. We had to replace the roof last year….after having it replaced 3 years ago. It turns out the contractor did a horrible job and it was leaking. Our air conditioner is on it’s last legs too, so I wouldn’t be surprised it went out this summer or next, but we are ready for that one.

    You did a great job highlighting many items in the house that needs replacing. This is certainly something that many people overlook when creating a budget.

    1. That’s my worst fear – hiring someone to do a job correctly and then having them screw it up. I think it’s why I end up DIYing so much. Or if I hired out the roof, I’d be out there watching like a hawk making sure they followed specs and delivered what was bargained for.

  12. This line of thinking is great! I keep an emergency fund, but I haven’t broken it down this far. I think failing to plan for these items is a huge reason people fall into debt. They fail to realize that its not out of the ordinary that things need to be replaced every so often. If its not budgeted, it often times goes on the credit card. I’m going to try this with my home. Thanks!

  13. Definitely need to do the math on major appliances. One option is to sign up for homeowners warranty. Yes it is an extra payment, but if something major fails, you are covered.

    1. I have always avoided home warranties. Some people swear by them, but I figure I can handle the repairs/replacements more easily myself (and for less money). The only experiences with home warranties that I have heard about (from people I trust) have been generally neutral to negative. One guy had a dishwasher that wouldn’t empty the water out completely, so called the warranty company and paid $65 for the service call. The repairman wasn’t that competent and couldn’t fix it, but suggested the homeowner could escalate and have another service call with a plumber to do something with the pipes (the guy dispatched initially was an appliance repairman, not a plumber). Plumber = second $65 service call. At that point, the homeowner gave up and replaced the dishwasher himself for a couple hundred bucks.

  14. This is a good rule of thumb for analyzing FIRE and the 4% SWR. It would also be a good rule of thumb for rentals as well, though partially covered by things like the 50% rule.

    Personally, we haven’t had a single appliance issue in 8 years and our HVAC system is a 20 year old unit that, thanks to the Theseus’ ship of upgrades, is effectively less than 5 years old.

    One error here is that very few appliances FAIL. Almost always you can repair it for a fraction of the purchase price of a new unit. In some cities, there’s an adjunct to the maker movement that even helps people fix appliances that wouldn’t be worth fixing (if you had to pay), like toasters.

    Unless there’s a major gap in energy usage or functionality, I try to fix everything.

    1. I agree with you about appliance failure vs. repair. We’ve had a lot of issues pop up in the 10 years we lived here, and so far I have repaired most of them. Except the 41 year old in wall oven that I gave up on because you can’t find parts for it (without forking over a king’s ransom!). And the microwave that died. The replacement magnetron was more expensive than buying a brand new replacement from Walmart (yay disposable appliances!!). Then there was the vintage dishwasher from the 70’s (??) that just didn’t work that well. So we replaced it with a mid-grade model that has worked pretty well for 7 years or so (at a load every day or 1.5 days).

      I’m with you on fixing appliances. Usually it’s quicker and easier than replacing. Since you have to research the new unit you’re wanting to purchase. But if you have no DIY skills, a repairman will often tell you it’ll be just as cheap to replace, or you’ll figure it out from the quote to fix (ie $400 to fix a $500 appliance). Just today I probably “saved” my in-laws $300 versus what a repairman would charge. Just from a couple hours of work and ordering parts off ebay. I’m a dryer expert now. 🙂

  15. Is it really that cheap to replace a roof there? If so I’ll fly a crew out here to do mine and still save money!

    1. Welcome to the South! Yes, it really is that cheap down here. When I put this estimate together $4,000 was probably a little conservative for 20 year shingles. I just replaced the roof in 2017 and the quote for the ~2000 square foot roof (20 squares) was $4,650 with 40 year architectural shingles. I ended up adding in a shed and porch roof replacement, some additional gutters on the 2nd story portion, replaced 6 sheets of plywood, removed an obsolete vent in the attic, installed some upgraded roof ventilation, etc and it was $5900 out the door I think. I chose a mid-range cost guy due to experience and reputation. Probably could have come in just roof for $4000 if I went 20 year 3 tab shingles and went with the cheapest guy without add ons. I also live in a lower income area, and that seems to factor in to these guys quotes 🙂 Live in a rich neighborhood and they know you’ll pay more.

  16. Great explanation. We do the same thing with out rental properties except for an additional wrinkle.

    Once we calculate the dollar amount of the annualized expenses for a house, we calculate the percentage that is of the rent. Then we set aside that percentage, not that dollar amount.

    Costs will go up over time due to inflation. By indexing those costs to the rent, which also goes up over time, we build in a bit of an inflation buffer. That $4,000 roof, after 20 years at 3% average inflation, will cost around $7,200.

    Or, of course, you could just divide $7,200 by 20 years by 12 months to get an annualized amount, but you’ll be front-loading your costs with expensive dollars instead of inflated ones.

    The key is to find a simple way that works for your income stream that includes inflation into those costs.

    1. I’m definitely seeing the costs go up over the years! And I think that $4,000 roof WAS about $7000 (insurance covered most of it so I had the contractor use up all the insurance money since it was “free” to me).

      Your method is good too. At some point it’s an educated guess, but I prefer to have some rationale behind the numbers. And the unit costs for most of these things are easy enough to discover. Especially if you are a landlord with multiple properties, so you know what this stuff should cost.

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