Money Management

My new roof is going to cost me around $34,000. Discover how the costs of homeownership don’t stop at your mortgage loan. 

I am buying a house very soon. The home is a bit of a fixer-upper, and one of the first things that we will be doing once we move in is adding a new roof. The existing roof does not have much life left.

This is coming at a huge cost. Fortunately, we knew about this upfront and have budgeted money to pay for it even as we begin making our new mortgage payments. But the high cost just demonstrates why it is so important to be prepared for big expenses as a homeowner.

The roof costs how much!?!

We wanted to find out how much the roof would cost us before we decided to move forward with purchasing the house. To do that, we got quotes from four different roofers. Amazingly, our least expensive quote came in at $34,800.

This is above the average cost of a new roof, which is typically between $8,500 and $14,300 (according to This Old House). The cost is high due to some complicating factors including strict Florida building codes (due to hurricanes), HOA rules that require a certain roofing material, and the unusual shape of the roof of our home.

But even when a roof costs closer to the average, this can be a huge financial burden if you aren’t prepared for the expense.

Homeownership costs go well beyond a mortgage alone

The reality is, if you are buying a home, a new roof is just one of many big expenses you might incur during the time you’re living there. New air conditioners, new siding, and window replacements are among the biggest expenses you might face, each of which would come at a cost of thousands or even tens of thousands of dollars.

And that’s just for big-ticket items. You’ll also have routine maintenance costs to deal with for things like new HVAC air filters. Mean spending on maintenance, repairs, home insurance, and other expenses comes in at $2,559 annually among all consumer units, according to the Bureau of Labor Statistics.

You’ll have to make sure you’re prepared to cover these additional costs beyond a mortgage loan before you buy a home — including paying for very expensive repairs should they become necessary. Your best option is to assume that you’ll need to spend around 1% of your home’s cost per year in maintenance. So if you buy a $400,000 home, you’d want to plan to put an additional $4,000 into it each year.

You may not spend 1% every year, but you should save that money in a high-yield savings account for years you don’t incur big repair costs — so you’re ready when your roof needs to be replaced like mine does. And to avoid becoming house poor, you should be sure that even with this cost in place, your total housing expenses won’t exceed around 25% to 30% of your income.

By planning ahead for roof repairs or other big ticket items, you can avoid financial disaster if something goes wrong with your home. Do this before you buy, so you aren’t left facing unpleasant surprise expenses that you have no way to pay once the keys are in your hands.

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Your credit score does more than just give you borrowing options. Read on to see why it’s important to keep yours in good shape. 

Your credit score says a lot about you as a borrower. It speaks to how timely you are with bills and how risky it is to lend you money.

If your credit score is in great shape, you’re more likely to get approved for a loan or credit card when you apply for one. And you’re more likely to snag a more competitive interest rate on the sum you’re borrowing, too.

But what if you have no plans to borrow money anytime soon? You might think you can just ignore your credit score. But actually, having great credit might come in handy even if borrowing isn’t in your future.

When you need to rent a home

Some financial experts (such as Dave Ramsey) will tell you that “you don’t need a credit score to get through life.” But the reality is that having a credit score — and a good one at that — is very helpful not just in the context of borrowing, but in the context of being able to put a roof over your head.

It’s common for landlords to run credit checks on tenants before agreeing to give them a lease for a home. Even though landlords aren’t lending out money, they’re handing over access to a home whose purpose, for them, is to generate income. So if your credit score isn’t in great shape, you may find that it’s tough to secure a rental.

Now, this isn’t to say you can’t work around a poor credit score in that situation. Your landlord might overlook a less-than-stellar credit score if you’re able to put down your last few months of rent as an added deposit.

But let’s say you’re trying to rent a home that costs $1,000 a month. It’s common for landlords to ask for $3,000 in that scenario — your first and last month of rent plus a security deposit equal to one month of rent.

With poor credit, you might need to hand over $4,000 or $5,000 to get that rental. Seeing as how 63% of Americans don’t have enough money in the bank to cover an unexpected $500 expense, according to a recent SecureSave survey, chances are, you don’t have that kind of money just lying around.

How to boost your credit score

You might need a strong credit score even if borrowing money isn’t in your future. And there are different steps you can take to boost yours.

First, pay all bills on time, since your payment history carries more weight (35%) than any other factor when calculating your credit score. Next, if possible, pay down some existing credit debt. That will lower your credit utilization ratio, another big factor that goes into your score.

Additionally, check your credit report for mistakes. It’s possible that yours might list you as being delinquent on a debt you settled on time. Credit bureaus are required to investigate disputes you bring to their attention.

Having a great credit score could make it possible to borrow money when you need to. But even if that’s not your plan, it still pays to do what you can to get your credit score into good shape.

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Your emergency savings should give you the option to cover essentials. But read on to see why you may want to save beyond that. 

A recent SecureSave survey found that 63% of workers today can’t cover an unplanned $500 expense. Hopefully, you’re not in that boat, but rather, are close to having a fully loaded emergency fund. Many financial experts will tell you that means having enough cash to cover three months of essential expenses.

The purpose of having an emergency fund is to be able to cover your essential bills should you lose your job. It’s also important to have money in your savings account in case an unplanned expense arises that your regular paycheck can’t cover. And the logic is that if you have enough cash banked to pay for three full months of essential bills, you probably (or at least hopefully) have enough to cover an unexpected home or car repair.

If you sat down to calculate your emergency fund, you may have included expenses like your rent, car payment, utilities, grocery bills, and medications — basically, the things you need to function and can’t do without. But you may want to include some non-essential expenses when calculating your emergency fund for one big reason.

When you want to buy yourself more options

Let’s say you spend $4,200 a month, only $3,000 of that is essentials and the remaining $1,200 consists of things that aren’t, like cable, streaming services, activities for kids, and leisure. You might tell yourself you’ll aim for a $9,000 emergency fund, since you could conceivably just not spend money on non-essentials in the event of a lost job until you’re working again.

That logic certainly makes sense, and it’s consistent with what financial experts will often tell you. But you may want to include some non-essential expenses when calculating your emergency fund, too. So in this example, instead of saving $9,000, you might aim for $10,800, or $3,600 a month instead.

The reason? Let’s say you’re out of work for three months. Is it really reasonable to not have access to any sort of TV or streaming content for entertainment? When you’re out of work, it can be a tough thing mentally. You might need the release of a funny TV show or thriller to alleviate some stress.

Similarly, let’s say that as part of your $1,200 monthly non-essential spending, you pay $100 a month for your child to take karate lessons. Would you really want to pull your child out of that program the minute you’re out of work?

That’s why it could pay to save up for more than just essential bills in your emergency fund. Going beyond just essentials gives you and your family more options when you need to actually live off of savings for a while.

A gradual effort

Setting large savings goals can be daunting. In this example, we talked about saving $10,800. That’s a lot of money.

So if you’re in the process of building up your emergency savings, don’t stress if you don’t hit your goal right away. It could take months or years to get there.

Also, it’s okay to take a two-tiered approach where you first aim to save enough to cover three months of essential expenses, and you then try to tack onto that with money to cover non-essentials. So in this example, your first goal would be to aim for $9,000 in savings, and from there, you’d try to get to $10,800.

Remember, too, that having some amount of money in the bank is better than having none. So even if a three-month emergency fund for essentials bills only is out of the question for you, save $500, or $600, or whatever you can. That way, you have some cash reserves to tap in a pinch, and you can work your way up as circumstances allow.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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If you have too little money in your brokerage account as a retiree, you could struggle to make ends meet. Read on for some problems you could face. 

When you retire, you’ll likely need to rely on distributions from retirement accounts like a 401(k) or an IRA held at a brokerage firm.

But what happens if you don’t have enough money in these accounts when the time comes to leave the workforce? There are a few scenarios you could face.

You could drain your account

One huge risk of not having enough money in your retirement accounts is that you might run out of money entirely.

See, you need to maintain a safe withdrawal rate. You can’t take out more than around 4% of your account balance each year or your balance will fall too quickly, you’ll no longer earn the returns that you need, and you may find yourself looking at a $0 balance.

Let’s say, for example, that you have $200,000 in total in your brokerage accounts and you need your accounts to produce $20,000 in income to supplement your Social Security the first year of retirement and will adjust your withdrawals upward by 2% each year to account for inflation. If you earned an average annual return of 6.00%, your money would last about 12 years before it ran out entirely, assuming you were in the 22% tax bracket.

There is a very good chance that you will live longer than 12 years after you retire. If you did, you would be looking at empty retirement accounts that would no longer provide any support to you.

You could end up having to drastically reduce your standard of living

Having too little money in your brokerage account as a retiree could mean that you must live on far less than you’re comfortable with.

Social Security benefits are designed to replace about 40% of pre-retirement income, and that’s just not going to cut it for most people. If you were making $60,000 and you ended up with just about $24,000 to live on after leaving work, that would be a huge adjustment, and chances are good you wouldn’t be able to continue covering your rent or mortgage along with all the other bills you’d have to pay.

If you took enough money out of the limited funds in your IRA to cover the shortfall and replace another 40% or so of your pre-retirement earnings (since most experts recommend about an 80% replacement rate), then you’d risk running out of money too soon and having nothing at all left. And if you didn’t take enough out of your accounts to do that, then you’d struggle to have enough money over time.

So, basically, you’d be facing the choice of whether to have too little money throughout your entire retirement, or to live comfortably for a few years and then end up with no extra funds to supplement Social Security. Neither of those are good outcomes.

What can you do?

You don’t want to find yourself with too little money in your brokerage accounts or 401(k) when your time to retire arrives. Be sure to set a detailed savings goal by assuming you need to end up with an investment account balance equal to about 10 times your final salary.

Once you know how much you’ll need to invest, estimate projected future returns (around 10% is reasonable), and your timeline for how long you have until retirement. You can then use a Savings Goal calculator like the one on investor.gov to figure out exactly how much to invest each month so you don’t end up with too little. Make sure you’re putting this money into an investment account every month as it’s far better to sacrifice a little to do that now than be forced to make uncomfortable sacrifices as a retiree.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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