Here’s how to budget for a major home upgrade
As excited as you are about renovating your home, you’re (probably) also a bit concerned because all of those ideas probably cost a lot of money, leading you to the question, “How will you pay for it all?”
Nobody’s telling you to start clipping coupons, but rather to build a financial plan that’s rock-solid.
Don’t think that’s possible? Think you’ll have better luck with coupons?
Keep reading.
The plan
| In 2023, the avg. renovation spend in the U.S. was $24,000 (USD), a 60% increase from 2020. – National Association of REALTORS® |
Let’s get right to it:
Be clear about the scope of the project
Your vague idea needs to become a specific plan, so that’s the first thing on the agenda.
What’s all this for? Do you prefer big parties or quiet mornings? The size and materials you pick, like basic wood or composite decking if you’re building a deck, for instance, will make a huge difference in the overall cost of the project.
A simple 10×10 deck and a multi-level oasis with a pergola are two completely different projects when it comes to money.
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Assess your finances
Get real about your money. If you have an estimate, always go with the bigger number just in case. You don’t want to be blindsided by extra costs and not have the budget to cover them.
Whatever your budget is, always add another 20% to that.
That doesn’t mean you’ll spend it. It’s there just in case you need it. There could be ‘X’ reasons why the initial cost would go up, and we’d have to make an extremely long list to cover all those reasons. But the reality is that budgets sometimes get blown, and unfinished projects never end up being completed because of that. So, let’s not be one of those cases. Add the 20%.
Check your whole budget, how much you’re earning. Is it a stable job? How much are you spending monthly on things like food, bills, and gas? See how much you’re comfortable setting aside as an emergency fund.
If that’s not an option, check for credit/loan options at your local bank or online.
The goal of this is to set a final budget that’s realistic and that won’t stress you out 24/7 because it’s too tight or it’s too much.
Research & understand cost components
Now you need to know exactly where your money will go.
Your budget is a sum of several parts:
- Materials – the biggest variable.
- Labor – the most expensive part (most likely).
- Permits – can’t work without them.
- Site cleanup
- Contingency fund – 15-20% for ‘just in case’.
Explore & compare financing options
Unless you’re very well off, you’ll need to finance a big project, like most people do. If you can pay with cash, that would be ideal.
If not, a home equity loan offers lower rates, but you can also get a personal loan. That one’s faster, but it has higher interest rates.
Whatever you decide to do, don’t fund a major renovation with a credit card. Credit cards have the highest interest rates, and what you’ll end up paying for the whole thing will give you the biggest headache of your life.
Prioritize your project wishlist
Your dream vision probably costs more than you might be able to afford right now, but that’s okay.
All you need to do is choose what you absolutely have to have and what would be nice but you can do without for now. Focus on what gives you the most bang for your buck and what you’ll enjoy the most.
Remember that it’s better to build a high-quality core project now and add on to it as time goes on than to stretch your budget so thin you end up eating noodles for the next 6 months.
Get professional, relevant estimates
At this point, you’ll want to consult with a pro, but make sure they’re someone who lives in your area and not someone random you found online because you need local prices.
So, if you live in HdG, you need to contact a custom deck builder in Havre-de-Grace because the one in, say, L.A., won’t give you a relevant estimate, so you’ve got to go with a local contractor.
Keep in mind that the cheapest price doesn’t necessarily mean it’s the best choice, which is why you need to understand the value and the specifics.
For example, Havre-de-Grace (Harford County) is in the Baltimore area:
| In the Baltimore are, the avg. job cost for a wooden deck is $17,183 (USD), with a 85.7% recoup on resale value ($14,727). For a composite deck the average is $27,043, with only a 66.7% recoup on resale. – Journal of Light Construction |
Now with that in mind, you might be thinking that wood is MUCH cheaper, plus the resale value is higher – it’s an obvious choice. Right?
Hold on, not exactly. You’ve got to think big.
A wooden deck will typically last you 10-20 years (and this is without it being destroyed by things such as thermites, mold, wood rot, etc. Plus, wood is prone to cracking and warping.
A composite decking will last you 25-30 years! And it’s resistant to all those issues.
On top of that, warranties for composites are MUCH larger (up to 50 years in some cases), there’s less maintenance costs on composite, plus if you care for the environment – composite is also sustainable.
So yeah, once you factor in all these, the composite decking might be a higher upfront investment, but you get a MUCH better product in return.
Make it all official
Now take everything you’ve learned and lock it into one final budget.
Take the quote you chose, add in any costs for permits if they weren’t included, and then (and this part is non-negotiable!) add your 15-20% contingency fund on top of that entire total.
The contingency fund is here for those pesky surprises renovation projects usually have; it’s not a slush fund for you to decide you want a more expensive light fixture in the middle of the project.
Conclusion
And there’s your step-by-step guide that’ll help you turn a project that’s way too overwhelming into something that can actually be done.
Good luck!