How to set a budget for home renovations

Published On : 08/22/2024

Home renovations can completely change the look, feel, and functionality of your home. However, they aren’t cheap. And unless you have unlimited financial resources, you’ll need to take some time to create a budget.

The why of a home renovation budget

A home renovation budget basically tells you the maximum amount of money that you can spend on your renovation projects. It influences the materials, services, and products you’re able to use.

“Your budget will act as a guiding light as you begin to piece together the fine details of your renovation,” KHB Construction explains. “Knowing your budget in advance is important because it will determine how your renovation planning session goes. If you don’t know your budget, you will require more time with the contractor team, which might add more expenses to the home renovation costs.”

Without a budget, you’re sort of left in the dark – hoping things work out. But as you probably know by now, things rarely go well when there isn’t a concrete plan in place.

Tips for creating your budget

There are plenty of different ways to approach building a home renovation budget, but here are a few simple pointers to get started:

• Define What You Want to Do. Before you dive into picking out tiles or tearing down walls, you need to clearly define what your renovation project will involve. Are you looking to remodel the kitchen, add a bathroom, or perhaps extend the living room? Write down everything you want to change and be specific. This list is your project scope and it’s crucial because it will guide your spending and help you avoid costly last-minute additions.

• Research and Estimate Costs. Once you know what you want to do, it’s time to figure out how much it might cost. You can start by doing online research to see what similar projects cost. Websites and forums where people share their renovation experiences are gold mines of information. Also, you can visit local home improvement stores to get prices on materials. This initial research gives you a rough idea of the expenses involved, helping you set a preliminary budget.

• Get Quotes from Contractors. If your project needs professional help, which most do, get quotes from several contractors before making a decision. Ask friends or family for recommendations to ensure you find reliable and fair-priced professionals. When you meet with contractors, show them your project scope and ask for detailed quotes that include costs for materials and labor. Comparing these quotes will help you understand the market rates and choose the right contractor for your job.

• Set a Contingency Fund. Even with the best planning, unexpected costs can arise during renovations. Maybe the materials become more expensive, or a hidden problem like faulty wiring or plumbing is discovered. To handle these surprises without stress, set aside a contingency fund. A good rule of thumb is to add 10-20 percent to your estimated budget. This extra money can be a financial lifesaver, ensuring that your project continues smoothly, even when unforeseen expenses arise.

• Get Creative. Everything doesn’t have to be 100 percent custom or 100 percent “off the shelf.” Sometimes, there’s power in finding hybrid solutions. If you’re renovating an outdoor kitchen, for example, you can choose RTAoutdoorliving which are basically a blend between prefab and custom).

• Prioritize Your Spending. With a clear idea of the costs and your total budget, it’s time to prioritize. Begin with the must-haves — these are things that are essential for the renovation to meet your needs. For example, if you’re renovating a bathroom, new plumbing might be a must-have. After you’ve budgeted for the essentials, use what’s left for the nice-to-haves, like luxury fittings or designer tiles. Sometimes, you’ll need to make tough choices to stay within budget, but prioritizing ensures you spend money on what’s most important.

• Explore Financing Options. If your savings won’t cover the entire budget, consider financing options. Home equity loans are popular because they offer lower interest rates and are secured by your property. Another option could be a personal loan or, if the renovation is energy-efficient or eco-friendly, you might qualify for government grants or rebates. Compare different financing options to find one that suits your financial situation and offers favorable terms.

• Track Your Spending. As the renovation progresses, keep a close eye on your spending. Use a spreadsheet to track expenses as they happen. Record everything from material costs to payments made to contractors. This tracking helps you see if you’re sticking to your budget and alerts you early if costs are running higher than expected, allowing you to make adjustments.

• Be Flexible and Patient. Renovations can be unpredictable. Delays can happen, costs can fluctuate, and sometimes you might have to compromise on your original plans. Being flexible and patient will help you manage these challenges without too much stress. Remember, the goal is to improve your home in a way that enhances your life, so keep your eyes on the prize and don’t let the bumps in the road derail your plans.

Create the right budget for your renovation project

Having the right budget – or really any budget at all – can help you avoid making some of the costly mistakes that many homeowners unintentionally fall for during a long home renovation. And while it might seem like just another step to add to the process, it’s a very important one that’s worth prioritizing. Use this article as a guide for getting started!

Wanda Rich

Wanda Rich has been the Editor-in-Chief of Global Banking & Finance Review since 2011, playing a pivotal role in shaping the publication’s content and direction. Under her leadership, the magazine has expanded its global reach and established itself as a trusted source of information and analysis across various financial sectors. She is known for conducting exclusive interviews with industry leaders and oversees the Global Banking & Finance Awards, which recognize innovation and leadership in finance. In addition to Global Banking & Finance Review, Wanda also serves as editor for numerous other platforms, including Asset Digest, Biz Dispatch, Blockchain Tribune, Business Express, Brands Journal, Companies Digest, Economy Standard, Entrepreneur Tribune, Finance Digest, Fintech Herald, Global Islamic Finance Magazine, International Releases, Online World News, Luxury Adviser, Palmbay Herald, Startup Observer, Technology Dispatch, Trading Herald, and Wealth Tribune.