Should You Have a Separate Emergency Fund for Home Repairs?

Home repairs can pop up out of the blue. Should you have a dedicated savings account for them?

This summer, my husband and I were really unhappy when our air conditioning system decided to break -- out of nowhere -- on the hottest day of the summer. Because the system was older, the repair company said fixing it made no sense. A lot of the parts we'd need would have to be special ordered, and for the amount we'd spend to fix our system, we could fork over a little more money and get a brand-new one with a lengthy warranty.

We decided to replace the air conditioner altogether. But at a price tag of almost $7,000, it was a harsh blow to our finances. Thankfully, we had money in savings to pay for it, so that repair didn't drive us into debt.

In fact, my husband and I actually have a dedicated savings account to pay for home repairs. Here's why you may want to have one, too.

It's all about managing emergency cash reserves

You'll often hear that it's important to have an emergency fund with enough money to cover three to six months of living expenses. That way, if you lose your job, you'll have cash reserves to dig into in the absence of bringing home a paycheck.

Your emergency fund can also serve as a cash source when other unplanned expenses arise, whether it's medical bills or home repairs. But here's the thing about home repairs -- they can be pretty extreme. You might easily go from having no issues at all with a given component of your home to having to pay several thousand dollars to cover a fix. And that's why having a separate emergency account for home repairs makes a lot of sense.

By keeping our repair fund separate from our general emergency fund, my husband and I know that we still have a good nine to 12 months of living costs available in the bank, just in case of job loss. (We're pretty aggressive with our emergency savings because my husband is the sole provider of health insurance in our family and I'm self-employed.) And that financial cushion gives us the peace of mind we need.

What's the best setup for you?

Let's be clear -- having enough money in the bank to cover several months of bills plus some home repairs is a good goal to have. And if you decide to maintain a single account with enough money to cover everything from a layoff to medical bills to car repairs to home-related issues, that's fine.

I like having a separate emergency fund for home repairs because I know how costly they can be. And I like the idea of having separate funds to cover my family in the event of job loss even after having to take a big withdrawal for repairs.

Now, in an ideal world, repairs like the one we faced wouldn't happen out of the blue, and we'd have an opportunity to save up for them rather than dip into savings. But that's not the way homes work, and so I figure it's better to be prepared.