Ongoing Pain in the Costs
You’ve done the math, compared the options, and finally settled into your dream home. Or perhaps you’ve acquired that sleek, new car you always wanted. You know the one-time fee, but do you truly understand the ongoing cost? It’s easy to overlook the continuous financial and time investments required for the maintenance of your possessions. Join Matt Robison and I this week as we delve into planning for the ‘not-so-one-off’ costs of upkeep.
The dream of owning a home is often painted with idyllic scenes of family gatherings and cozy evenings by the fireplace. Yet, behind this picturesque facade lies the reality of constant maintenance. On average, home maintenance and upkeep can account for 1-2% of your home’s value annually. Think about it – for every $100,000 your home is worth, you might spend $1,000 to $2,000 every year just to maintain its current condition.
But it’s not just about money. It’s about time, too. The larger your home – in terms of lot size, square footage, and price – the more time it takes to manage it. Ignore it, and you might soon see your investment plummet in value.
Consider the various components of your home that demand constant attention. From heating and cooling systems (furnace, dehumidifier, ducts, vents, AC unit, portable heaters) to electrical appliances (lights, outlets, generator, fridge, stove, microwave, dishwasher), plumbing (well pump, water filtration, sinks, faucets, toilets, copper plumbing), and the structural elements (roof, radon systems, vents, shingles, gutters), the list seems endless. if these items generally last around 25 years, you’re looking at potentially one significant replacement every year. It’s a cycle that doesn’t end, and you need to plan accordingly.
How to manage this pain in the wallet
Understanding that every possession you acquire comes with an ongoing cost is the first step. Don’t let these expenses catch you off guard. Here are a few practical steps you can take:
- Budget Wisely: When you make a large purchase, factor in the ongoing costs of maintenance and repairs. Create a budget that accounts for these expenses.
- Educate Yourself: Learn the basics of home and car maintenance. Small repairs that you can handle yourself can save you both time and money.
- Regular Inspections: Conduct regular inspections of your home and car to catch potential issues early. Preventive maintenance often costs less than emergency repairs.
- Emergency Fund: Have an emergency fund set aside specifically for unexpected repairs and maintenance.
- Get Professional Help: Don’t hesitate to call in professionals when needed. While it might seem costly upfront, it can save you from more extensive and expensive repairs down the line.
It is essential to recognize the ongoing responsibilities and costs that come with one-time purchases. By understanding and preparing for the continuous costs – both in terms of money and time – you can enjoy your investments without the constant stress of unexpected expenses. Expect maintenance, be proactive, budget wisely, prepare, and remember – it’s not just the price tag; it’s the ongoing commitment that truly defines ownership.
Transcript
Mike, I have a sneaking suspicion that there are all these forces in my life that are bleeding me dry. Am I right to be suspicious?
Mike:Yes, and wait, how come? Are we still with the cold open? I feel like we've done it every time now.
Matt:Because it just happened, that was the cold open. And this is financial life planning, I’m Matt Robison with my co-host and our resident expert on all things financial and otherwise, Mike Morton, you're sort of an expert on life. You are an expert in the sense that you have one. That's right, yeah, you're a practicing liver, good for you. Alright, besides accomplishing the fact that you are still alive…You have a topic today that is really interesting. Do you know the ongoing costs? What do you mean?
Mike:So it struck me in a number of ways recently, in my own life, how we have these purchases that you might have, you know, a home, a car, a dishwasher, anything that's a little more expensive. And it's not just the upfront fee, however much that costs, there's a lot of ongoing costs that keep hitting you over and over and over again. And so I really think we need to be more aware of this, I need to be more aware of this upfront going in understanding, it's not going to be just a $10,000 thing, or $100,000 thing it's going to be, there's going to be maintenance, ongoing costs, etc, that I need to budget for, and be prepared or make a different choice.
Matt:You're talking about kids, right? That's basically what we're really trying to get to is do you realize it's not just the hospital bills? You've got years decades ahead of you.
Mike:Oh my goodness. I wasn’t even going to go there. Yes, it's funny. Oh, my gosh, it's so expensive. Yeah, I do have friends that are having kids, Matt, and I have kids that are slightly older, but we have friends that are like still having babies. And you just look at him like, man, do you have any idea how much this is gonna cost?
Matt:That was devious and I actually I have to say this in the best possible way. The most obnoxious moment in my relationship with my brother in law came when he showed up to be helpful to our house. We're living in New Hampshire at the time, he drives up with a big pickup truck, because he's a farmer. And he's got one of these things and it's filled with stuff for the kids because his kids are older than my kids. And the whole time that he's unloading stuff, he's cracking himself up. He's laughing and it took me a little while, like, till maybe like later that night when he left to realize he was laughing at me, because now all this stuff is mine. And I'm like, thank you. I'm not trying to be ungrateful because, hey, I am grateful to get stuff, believe me we're lucky in this world to have stuff. But that was an act of kindness. I'm just not sure for, anyway.
Mike:Even that's a good even that's a good Matt, because you got this stuff. It costs you nothing. Except…
Matt:Ah, I got to fix it and store it. I got to get rid of it all, which turned out to be not as easy because I'm not a farmer and I don't have one of those trucks. Well, you're really, what you're really talking about here is your home, your car, your stuff. This sounds like a George Carlin routine. You've got stuff and you need places you need to put your stuff.
Mike:That's right. That's right. So let me but let me tell you a story about a small way that this comes up because at home and we'll get to the home example because that's a really good one you need to budget for and I work with my clients all the time on like, the ongoing costs of home so we're definitely going to talk on that. But here's one that you don't really think about. So this is going be a personal story, I live in a pretty nice house Matt's been to our house it’s nice.
Matt:I’m a little bit concerned about the height of your ceiling, in your living room. It's cavernous. But otherwise, A+ house.
Mike:There you go, so let me describe it a little bit so you get a picture, it’s fall New England. It's gorgeous outside right now as I come up the road leaves are falling orange and red. My house is 100 year old barn that's been redone in my small New England town. It's been in this town for a long time and it was a brand new house like 15 years ago. You come in off the lawn the outside is this sort of craftsman meets Japanese, there's a beautiful pergola out front with blacks and deep reds and forest green on the outside. And as Matt described, you come into the house, and it's this very large barn two stories high with the original ceiling. And the floors are just this beautiful Tiger maple striped maple flooring.
Matt:I think that was illegal but go on.
Mike:It's this gorgeous, gorgeous home that I get to enjoy. Now upstairs, we have a bathroom that needed some redoing a little while ago. And so we did all that and we put in this really nice valve so you get a picture of the house and kind of the inside, and we put in this really nice shower valve that's got these little press buttons, there's two different places that water comes out in the shower. And it's got these really nice little, press it on, press it off, inset in the wall, just like gorgeous silver, right?
Matt:Well, now you're doing a bathroom envy man, you’re making me feel bad.
Mike 5:18
Now, here's what we're going hold on. The valve was not inexpensive, but it was like, I don't know, hundreds of dollars, instead of sort of like 50 or 80 bucks, okay, not a big deal. Because you're like, hey, it's really nice looking, you know what I mean? Then you got to install this thing and we did this five years ago and it doesn't fit that well on the wall. And we had to redo the plumbing so you're opening the wall so the installation was probably like $1,000 bucks, getting the plumber in there to install this really nice valve. And then it's all in there, it's been great. We recently had to redo some of the bathroom. Right? We spent money redoing stuff, and because I had this nice valve, a higher end valve, it doesn't quite fit. And I had to get the plumbers back today, this happened today, Matt this morning. And they're like, yeah, we're gonna have to move it an eighth of an inch, and redo all the plumbing, to get the valve to work to fit where it should be. So now it's going to cost me another, whatever 500-800 bucks to get the plumbers here for a day to redo all the plumbing again. So what I'm trying to get at here in this story, I spent one time a few hundred dollars for a very nice thing. And now it's costing me a lot more in ongoing costs, maintenance costs for owning something that's a little bit higher end. And so going into it eyes wide open, these things are not a simple $300-$400 decision versus an $80 decision. It might kick you down the road.
Matt:Much like your your kids, which you know, also will do that. Yeah, you're right. You're right, you're right. You cured me of my bathroom envy with that. And it reminds me a few years ago, I was really into the idea of pitching a book to a publisher called ‘Why is Everything a Pain in the Ass’ this is like the scenic like yeah, everything is ultimately a pain in the ass. But this kind of thing does come up a lot. I'm always talking to my wife about it, this fallacy, this mental trap of, oh, we had an extraordinary expense this month, who could have foreseen that we would have to fix the shower valve who could have foreseen that this is the one month we get the property tax bill. The reality is that individual things like that are hard to foresee. But taken over time, this is what you do. And the kind of probabilistic whole portfolio sense for sure, it's 100% that you're going to have a portfolio of all of these expenses, and they're somewhat predictable, I think is what you're getting at.
Mike:Two comments, first, yeah, I laugh because all of my clients tell me that, oh, yeah, we should work on your you know, let's predict the future, how things are going to work out, you know, income and expenses. So pull some actual expenses from a few months or the last year let's see what your expenses look like, Oh Mike, here's my expenses. But don't think of these three things, because they were one time expenses that we're not going to have those again, and I'm just laughing, I'm like, sure, okay, sure.
Matt:But what about the ones that happened six months ago? That's right, a year ago, that will come up again, from time to time.
Mike:Yeah, come up all the time. So we'll talk about that. And then, yeah, these things. It's the ongoing expense, right. And so I gave a small example. But the home is one that we get back to all the time, right? So your home, there's always things going on in your home, it needs maintenance. And so we budget in what I do, the typical the average is 1 to 2% of the value of your home is going to be the ongoing cost.
Matt:Oh, is that is that like the rule of thumb? That's really useful.
Mike:Yeah, that's the rule of thumb. So if you have a million dollar home $10,000-$20,000 a year in upkeep and maintenance. Now, this gets back to what I was saying about the shower valve. See if you've got a $500,000 home, it's a nice home. I'm speaking in my area, okay, I live in New England, Mid Atlantic New England area, we have expensive stuff. We're outside of Boston. If you have a $300,000 to $500,000 home, it's very nice. But you can get away with spending $5,000 to $10,000 a year just upkeeping stuff. As you ratchet up, and things are nicer on the outside of your home, the inside of your home, the neighborhood you're in, things get pricier and I'm telling you, it's just more carrying costs. So again, these are the kinds of things going in with eyes wide open. Hey, I can afford a $800,000 home. Yeah, and $8,000 to $16,000 a year of maintenance, and that's not insurance, property tax, any of that just literally maintenance.
Matt:This comes up all the time as a budgeting matter in the realm of cars. I used to run a congressional office and we would you could actually get reimbursement for your own vehicle miles traveled. And there's a federal rate for this, this isn't like a special permit for members of Congress. Okay? Like their staff. This is like anyone who works for the federal government who's doing official business can get this, okay? Don't send us don't send us letters. Send them to Mike's barn. He has plenty of headroom he can store them in his attic. Yeah, that's right. I was shocked to discover that the rate of federal reimbursement per mile is like, at that time it was a decade ago is like above 50 cents a mile. Turns out that in 2016, according to triple A, the cost of operating and an owning an average Sedan was about 57 cents per mile, about $8,500 bucks per year. That's $713 per month. That's staggering. And it just, I never made the connection in my mind. I used to do like a household budget. I kind of did it like I would budget for gas, but I never really included in the budget hey, you know what things happen? Cars need repairs. And with certain cars, they constantly need repairs, they're more like things you pay to keep in a shop. And yeah, 57 cents a mile. That's pretty predictable. So says AAA.
Mike:One of the reasons this has come up for me recently, again, is because I'm in the car buying business, I have to replace a car. So we will be talking about that on a future episode. I'll give you some insight into that experience, but it's the same thing, the ongoing costs of that car. And it also reminds me like EVs, right? We're not paying for gas. So your gas budget goes out the window, but people don't really mentally appreciate that, right? That it's this ongoing expense. And so EVs you see it right there, hey, it'll be $5,000 a year, right? They just show you like right there at the very top, they add it up and give you the whole thing for the whole year, not 50 cents a mile, you're like, whatever, 50 cents, no big deal. No, it's gonna be like 3,000 bucks every year, and they even do it over like a five year you're going to own this car for six years, and you're gonna save $15,000. So they know that we don't mentally add up the little little drops, you know, kind of throughout the year, but you got to put it into bigger terms.
Matt:It's, at least with homes and cars, it sounds like there's a well developed shorthand that we can use 1 to 2% of your home value. That's super easy, I ever knew that. I'm going to start reckoning it in, and then cars.
Mike:Yeah. And that's, that's a really good one, too. So let's talk about the home one. And then we'll kind of move on to some other aspects. But sure what I love about the home, you think, now wait a second, let's spend $10,000 a year on my home, but just add it up man a little, like an appliance needs replacing, you got to get a repairman out for something, you need a handyman to fix this or that. You've put in some time and effort you know, it adds up throughout a year. So yeah, I mean, it's definitely 1 to 2%.
Matt:Well, and there's another piece of this that I know you want to get to here. But there's the saying in economics, that there's no free lunch, meaning like, at some point, you have to pay the piper, there is a an expense to everything and when it seems like there's not, it's an illusion, so you could tell yourself that I can find a way around this I guarantee you that's not true. Because you could, for example, skip some of these things. But what you find over and over again, and I'm sorry, this is a bummer. It's just it's a fact of life, what you find over and over again, is that you defer maintenance on things it costs more later, we're already cringing about, we're not planning to sell our house anytime, like we want to essentially grow very old in this house, our model is grow as old as we possibly can in this house. But if we ever had to sell it, we're like, the windows, the windows are tragic. You know, it's like thousands and thousands of dollars. Maybe if we don't look at them, they will go away.
Mike:You look out them, you look right through them.
Matt:That's true. See, there you go. The other way it comes out. So I mean, you can take that mindset, but you're gonna have to pay for that eventually. The other way it comes out is in your time. And you can tell yourself, oh, you know what? I'm going to find a way, think about the car examples. I could probably reduce this, if I really shop around for insurance. As a guy who just switched insurance. I went from the lizard to the Pepe lady, as a guy who just shifted insurance. I can tell you, that took me about four hours, it was about four hours of my time. And at the rate that I'm paid in some of my other work, not here. Not here, here my rate is through even your roof it’s too high. But that is a significant imputed cost. That's a big deal. So there's just, I don't think there's a way out of this.
Mike:Yeah. And that's the other point about this is some of these purchases that we have decisions that we make to bring into our lives have a time component as well, right? So you can think of a car, if you want to save some bucks and get a slightly used car older car, it might take you more in taking it to the garage, which has a money component, but also a time component like that's a hassle. You've got to do that and certainly when it comes to your home, I can tell you firsthand man, I've owned a couple of different homes. And the larger the property, the home, the property and everything, the more time it's going to take you to deal with it, whether it's your own, hey, I'm going to go and mow the lawn and clean things up. Or you have to go and hire people and you've got to find those people and make those calls just like you're insurance changing example. Oh, sure. I know I'm going from A to B but it still just takes a lot of calls and clicking and figuring out and decision making decision fatigue, like Hey…
Matt:Right because everything is a pain in the ass.
Mike:Because everything is a pain in the ass. When are you writing that book?
Matt:You know what, it's, it's the best idea I've never followed up on. You know why? Because I have insufficient time.
Mike:It's a pain in the ass.
Matt:But it's also because I have insufficient time. And it does kind of go back to your core point here, which is I've talked on the show before about the fact that we made the momentous decision to move our kids from a public school to a private school that has a financial cost, very easy to calculate. You know why I know it's easy to calculate? Because I get the frickin bill every month and it bites. Okay. But…
Mike:It's easy to calculate, because it's all your money.
Matt:That's it. Why did they ask for my paychecks to just direct deposit? What I didn't figure at the outset and became painfully clear to me leader was, this school is just under half an hour away from me. That means that unless I've got carpools going, it's an hour a day, for every day that I'm doing the back and forth, that adds up to a lot of hours a week and all joking aside about my pay rate, those last hours, there's no free lunch, it's got to come from somewhere. And it's an opportunity cost of money I'm not making or other things that I'm not doing it all, the squeeze comes out somewhere. It's like one of those toys when you're a kid like those, but you could squeeze those little tubes that were meant to shoot out of your head. What were those things called? Like, when you could just balloon out.
Mike:Like the snake or something? Because it would like…
Matt:Yeah, like the snake or something cause you can make it balloon out. And it's right, yeah, the squeezes going to happen somewhere.
Mike:It's a good point. And we talked about that before, remember, we talked about the logistics of your job. In this case, it was a job, if you're looking for a new job, the logistics of that are really important. And it's the same and it's hours and hours, some of these decisions, we had a similar one, one of our kids, we drive them to school. And it was definitely part of the thinking it's, I want to do the best thing for my kids, of course, but this is gonna be a pain in the ass to drive each way all the time. And it's important and it is important I do think to put that in the context of yes, you want to do the best for your kids, but for your family. And if it's going to, some decision is going to add a lot of stress to the parents and therefore to the family situation don't just say oh, this is the right thing for my child to make this decision, whether it's a sporting event, or a club or a school or whatever. Think about in the context of your family life, and how much that's going to impact everybody and their way of growing up. So I think all of those things are really important. Are you ready to create your ideal lifestyle? Let's discover what's most important to you and design a plan to have more of that in your life. Go to meet Mike morton.com all one word meet Mike morton.com.
Matt:Can I inject what I hope you're going to agree with as a piece of good news about this because I feel like we're we're really piling on here. The hate mail that people are going to send me or maybe the lizard people are going to come out because that's what I went with. Yeah, I fear the lizard people. I think this is a situation where being forewarned is being forearmed and there are things you can do. Simply by knowing I've already learned a rule of thumb here that's helpful. For one thing, the good news about the yeah, I spent four hours of my time ultimately making this switch and I'm on the phone with customer service people and their problems and I have to make 15 calls and get letters and all that crap. But given the amount I saved, it actually works out to more than my pay rate. I saved a lot of money now I should be, we should be getting sponsored by progressive. And there are like with all of us, We all live busy lives, right? There are sometimes solutions at least if you can look ahead and see where the pinch points are and playing around them if you're not surprised there are generally right answers here. It doesn't make the fact that there are all these ongoing costs go away, it just means they're manageable if you plan for them and you're in, you're aware of them in advance.
Mike:Exactly, I think to two big things, two takeaways from this. One is the budgeting exercise you mentioned the home or the car, whatever it is, really make sure that it's part of your ongoing budget, to support all the things that are part of your life, and you need to keep them up and whatever it is. And with that in mind, so knowing one, I've got this budget, here's how much things cost, because people tell me all the time like, why is everything so expensive, and I'm like, look at all the items in your life. They're expensive. There's that budgeting aspect, but then the secondary piece is knowing that trying to make smart decisions in the future. And I don't mean just tomorrow or next week, but 5 years from now, 10 years from now, is this the home, you're thinking about moving homes, you're thinking about getting a new car, you know, put it all together and say, is this really is this really what you want? You're thinking about getting a pet animal, is this really like a commitment, you know, that I want to make for time and money? And really kind of think it through knowing, you know, look backwards and say, well, last time I did this, here's all the things that it took me in time and money, and do I really want to make that kind of decision again, or do I want something a little bit different?
Matt:Oh my god getting a pet, getting a family pet is like that, that is, let me just put it this way. Can I interest you or anyone in our listening audience in an adorable rabbit that our kids have lost interest in, did you know that and this is from the internet so take it with a grain of salt but owning a dog cost between $610 and $3,555 per year?
Mike:But that's easy. Hey, Matt, do me a favor, whatever you do, don't look up the cost of owning a horse or two horses as might be the case in my family.
Matt:That's Hey, this is your fault, because you moved into a barn? Maybe the horses came with the house.
Mike:Yeah, I mean, you gotta heat it somehow they stay downstairs, the animals are downstairs, you live upstairs, you know, that kind of thing.
Matt:I ask you this, tell me how you handle this with your clients. I've kind of, maybe this is a bad way to ask this because you might be about to tell me like now this is done that don't do it this way. But what I've tried to do is I've tried to kind of, I think you could drive yourself crazy trying to break down all of the costs of every last item in your house for example, like, how often will I need to do maintenance on my shingles, but that kind of thing, you could really drive yourself up a wall. So what I tried to do is for major items, and now that you've given me this 1 to 2% rule of thumb, I'm definitely using that for major items. You know, I've tried to proceed like I know what my property taxes are per year. So I try and keep track of the big stuff. And then for the small stuff, what I've really done in the past, if you're interested in knowing what your outgoing is, as a budget matter, I just do a running aggregate average, just a running average of this is just what it costs. This is what our life costs. And I decide, does it work for the money we have and the savings we want to achieve? Or does it not work? And I don't dig into all of those nitty gritty details. Unless the answer to that first question is no, is that how do you handle with clients? What do you tell them?
Mike:How much time you got? Are we doing like another episode here?
Matt:Is my approach reasonable or you know?
Mike:You’re approach is extremely reasonable. So it really it all depends on what you want and where you want to go. And your question is, hey, if I take the total income and total expenses, and it fits my life, then yeah. Don't worry about that, don't worry about it, then the answer is like clearly, yes. As long as you're saving some money for the future as well. Yeah. So yeah, that's got to be part of it, but oftentimes, we run across like, man, things are expensive, and I'm not saving as much as I need, then you might need to get to the second part of your questions. Like it's not quite fitting so we need to go a little bit deeper. But I do agree with you. We don't get so crazy with the granularity. So let's take the home example one more time I just have a home maintenance budget. And it's everything just fits in there. Hey, I got to buy water filter three times a year. Yeah, that's in the home, upkeep maintenance 10 grand budget. I need to do whatever replace some light bulbs. Yeah, it's in the home maintenance. I have to hire a contractor like it all goes into one bucket. And that could be $5,000 a year $10,000 a year. So you track that over time. So yeah, you don't need too many buckets and the best thing, Matt, don't have a kids bucket because yeah, it's just gonna balloon out of control.
Matt:There's a hole in the bucket. Yeah, no kidding. But what I do take away from this is you might, if you do the overall exercise: Am I making enough? Am I saving enough? Can I cover my expenses. And the answer that last part is, ooh, my expenses are higher. At least what you've just run down here gives you the first go to of okay, I'm probably not accounting for ongoing costs enough and that that's the first place you can look to start to get forewarned. Yeah. 100%. Alright. I think that takes us out of here, important show note here. People if you're listening to this in the beyond politics, podcast feed, I have no control over what major corporations place ads, I promise you, I did not intentionally have us sponsored by progressive. It may have just worked out that way. Alright, for Mike Morton, I'm Matt Robison. We will see you next time.
Mike:Thanks, Matt. Thanks for joining us on financial planning for entrepreneurs. If you liked what you heard, please subscribe to and rate the podcast on Apple, iTunes, Google Play Spotify, or wherever you get your podcasts. You can connect with me at LinkedIn for Morton financial advice.com. I'd love to get your feedback. If you have a comment or question, please email me at financial planning . Until next time, thanks for tuning in. This recording is for informational purposes only and should not be considered for investment advice or opinions expressed as our of the date of recording. Such opinions are subject to change. We do not guarantee the accuracy or completeness of the data presented here.
