Home Renovation: Step 2 – Budget

Jul 12, 2018Personal Lending0 comments

Now that you have planned your home renovation project by considering what fits your taste, how long the project will take, and when you need to do it, it’s time to turn your attention to your budget.

It is easy for home renovation projects to get out of hand and end up costing you hundreds or even thousands of dollars more than what was originally quoted or budgeted for.

Set Your Budget Early

This is really the golden rule for budgeting. Unless you have a bottomless supply of money – and let’s face it, very few of us do – then you simply have to get an idea of what you’re going to spend before you get started.

Why do you want to set your budget early?

  • So you know whether you can afford to do everything that you want to do.
  • So you can decide how you are going to finance your home renovation projects
  • So if you are undertaking the project yourself you know what you should buy and avoid spending unnecessarily
  • So you don’t overextend yourself financially by adopting a “let’s wait and see” attitude
  • So contractors agree to a budget for your project and are accountable for delivering the work at this cost

Whether you are looking at a relatively small project costing a few thousand dollars, or are looking bigger and at spending $30,000 or more, use these budgeting tips to help ensure you don’t overspend.

Remember to Factor in Yourself vs. a Contractor

You go to the kitchen showroom and you get a quote of $25,000. You then contact a supplier who will fit your kitchen and suddenly the cost is $35,000.

Remember that there will be a difference in cost when you choose to do it yourself vs. using a contractor, because you’re paying for the time of the contractors, too.

However, you should still perform your due diligence here. If a contractor provides you just one number as your quote, ask for a breakdown of the price. What you’re looking for here is whether they’re charging you the correct cost of the materials. The same kitchen should cost $25,000 regardless, but are they charging you $28,000 as part of the quote? If so, why?

If you receive numerous quotes you should also compare the labor costs, along with projections of how long the project will take, to get a true picture of how best to make use of your budget.

Account for Everything

When you’re getting quotes or working out the cost to do everything yourself, ensure you account for everything.

Some contractors will give you a quote but not include things that will be essential parts of the project. If they quote to fit your new bathroom, the quote should include the cost to re-tile any areas that the new suite will leave exposed, for example. The contractors should know exactly what is required, so beware of being given an attractive looking quote that doesn’t include everything that needs doing. After all, once your bathroom suite is fitted, what choice do you have but to have the tiles done if the work is needed?

Sometimes this can feel like a hidden cost that you’ve been lumbered with, but sometimes it’s simply the case that the contractor didn’t think to include it on the quote. Either way, this is inexcusable and won’t help you if you budgeted a certain amount only to be told you actually need a couple of thousand dollars more to complete the project.

Take ownership of this and make sure every last eventuality is covered. Even if you have no prior experience of home renovations, you can avoid nasty surprises later by being savvy now.

Think About What You Want Most

When budgeting, it pays to have a list of essentials for your project, followed by some “nice to have” features that you might not necessarily go through with.

Like planning a wedding, when it comes to organizing your home renovation there may be some things you need to compromise on.

If realistically you were thinking of spending around $30,000 but everything you’ve asked for or want comes in at $38,000, then you may need to drop a few things depending on how you plan to finance the project.

Often the best way to budget for your home renovation is to do this in reverse. Get the basic cost for your project, and then add on to work up to your budget. It feels much better to add on new features and work up to what you want to spend rather than have loads of grand ideas that you have to remove from your plan.

Prioritise the essentials, and then add the “nice to haves” later.

Keep Contractors Accountable

If you’re using a contractor, manage your costs by:

  • Getting a concrete, committed quote that they will charge you
  • Keeping track of any additional costs using Excel or a budgeting app (Additional costs meaning something they’ve suggested or could not have expected when providing the original quote)

Experienced contractors these days tend to give you a maximum expected cost and will often deliver just under the budget. Look for an individual or company that works in this way. Far better budget for $35,000 and get an invoice for $32,500 when the work is done than budget for $28,000 and get the same invoice as a nasty surprise at the end of the project.

From your perspective, ensure that you’ve given the project due thought. If you start asking for new things or something different once they’ve started, you’ll likely have to pay.

In the Long Term, Think Value

If increasing the value of your home is one of the reasons you undertake home renovation projects, ensure you keep this in mind as you embark on different projects over the years. Just the sheer love of renovating your home can see you spend thousands of dollars that won’t make much difference to the value of your property. View your home renovations as an investment. If you need to borrow $25,000 for a home renovation, will repay $32,000 when interest and fees are included, and the project increases the value of your home by $30,000, you should consider whether you really want to go ahead.

At the same time, if you’re not immediately planning to sell your property, then you can allow for the lifestyle benefits and comfort you’re going to enjoy from the project.

Budgeting for Your Home Renovation

Keep these tips in mind when budgeting for your home renovation. You’ll ensure you get more for your money and find the whole home renovation process less stressful as a result.

Once you have an idea of what your project is going to cost, you can move onto considering finance options for funding your home renovations.

Disclaimer:  This article contains general comments and recommendations only. This article has been prepared without taking account of your objectives, financial situation or needs.  Before taking any action you should consider the appropriateness of the comments made in the article, having regard to your objectives, financial situation and needs. If this article relates to the acquisition, or possible acquisition, of a particular credit product you should obtain and consider the relevant disclosure documents before applying for the product.

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