Reserves for house renovation

[phylomeno]

Hi everyone,

The information on this blog and the forums has been incredibly helpful and enlightening. It has significantly contributed to improving our family's financial strategy. Thanks a lot for all of that!

I have one question I'm still unsure about: how to manage reserves for future house renovations.

Context: Our house was built in 2019, so we don't anticipate any major renovations in the next 10 years. My spouse and I are around 38 years old, and we have three kids aged 3 to 9.

If, for example, our heating pump fails 10 years from now, we could cover that with our emergency fund. However, looking 20-30 years ahead, we might need to undertake significant renovations such as the roof, facade, windows, and doors all at once. These costs could exceed what we have planned in our emergency fund.

From the information I've gathered from banks, HEV, and GVB, it seems wise to start building up reserves, ideally saving up to 1% of the house price yearly, to ensure we have enough funds when renovations are due.

My questions are:

1. What's your strategy for building reserves for future renovations?
2. Do you invest these reserves, and if so, how?
3. Have you considered using your 2nd or 3rd pillar funds for this purpose, given they can be used for value-conserving renovations as long as you continue to live in the house?

I'm looking forward to hearing your thoughts and strategies on this topic.

Best regards,
Roman

 

[Baptiste Wicht]

I think it makes sense to have some reserves for the house renovations. More broadly speaking, it always makes sense.

Using the 2nd or 3rd pillar seems like a bad idea honestly. This will reduce what you will get in your retirement and for many, retirement is difficult enough. If you have the financial means to do so, I would recommend keeping this outside of the retirement, while keeping to fill up at least your 3a.

I don't really have a strategy. We save as much as we can anyway. So in the case of a large renovation that would not be covered by our emergency fund or a few months of savings, we would use our stocks.

If you are looking for 20-30 years, it makes sense to invest it. The emergency fund is short-term and liquid. But in your case, your have a good confidence that you will not need these reserves for a long time. So, if you can invest 1% of the value of the house each year into a broker or robo-advisor, I think it makes total sense.