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Why I’m Doubling My Emergency Fund After Becoming a Homeowner

Becoming a homeowner changes many aspects of your life and your finances. Your living expenses will usually increase as you pay for more than just a monthly rent payment. You’ll have to worry about (and budget for) things like maintenance and property taxes. But perhaps the biggest change is how you’ll plan for emergencies.

Before homeownership, the term emergency typically encompassed job loss, a high vet bill, or perhaps an emergency flight home to visit an ailing family member. Although none of these emergencies are pleasant, they can usually be dealt with if you have a few thousand dollars tucked away in a savings account. None of them will ruin your finances.

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But when it comes to homeownership, emergencies can be a lot more expensive. Here are three types of emergencies that caused me to double my emergency fund:

Emergency repairs

If I say home emergency, the first thing that probably comes to your mind is expensive repairs. Home emergencies tend to be a lot more expensive than regular emergencies, and situations like flooded basements, damaged roofs, or cracked pipes spewing water into your kitchen can cost tens of thousands of dollars to repair. While your home insurance will cover the cost of some of these emergencies, it won’t cover everything. For example, if a weather event ruins your roof, your home insurance will probably cover it.

But what if your home heating system dies and needs to be replaced? A heating system is essential to your home but isn’t covered by insurance.

Special assessments

If you own a condo you might think that you are immune to emergency expenses – that’s what condo fees are for, right? While condo fees do cover regular expenses and are supposed to fund the condo corporation’s reserve fund, you may occasionally have to pay for extra repairs, and you’ll usually do this through a special assessment.

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Special assessments are one-time fees charged by your condo corporation on top of regular monthly fees. Special assessments can be charged without permission from condo owners and are usually levied to pay for an unforeseen expense that can’t be covered by the condo corporations reserve fund. You may also have to pay a special assessment to make up for under-budgeting, where condo fees are set too low and aren’t enough to pay for the building’s expenses.

If you own a condo, your condo corporation could levy a special assessment in the tens of thousands of dollars. Special assessments of this size are rare, but they do happen, so it’s best to keep funds in reserve for this type of emergency and attend your condo corporation meetings regularly to stay up to date on the financial management of the organization.

Climate change

Finally, as climate change starts to affect our country in a more significant way, I keep money in reserve to ensure that I won’t be caught off guard if a natural disaster affects my home. I live near the ocean; so, for me, the three biggest concerns regarding climate change are tropical storms, forest fire, and severe winter weather. These three events could easily cause us to incur huge expenses through either having to evacuate, flooding, smoke damage, or ice damage. Home insurance may cover some of these expenses, but reimbursement takes time, so we always make sure to keep extra money on hand to cover these costs, should they incur.

Where to keep your emergency fund

These potential costs have proven to me that doubling my emergency fund is a good idea, but I’m not crazy about keeping huge amounts of cash on hand. Even though interest rates for high-interest savings accounts are higher than they’ve ever been, I’ll only keep around $10,000 in cash. The rest I’ve divided up between short-term guaranteed investment certificates and investments in the stock market.

When you become a homeowner, life gets more expensive, and it might be tempting to drain your emergency fund so that you can do some pressing renovations or furnish your new space. You should be doing the complete opposite. Bulking up your emergency fund to reflect the extra expense of homeownership is the smart thing to do.

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Photo by Nathan Fertig