A large number of people spend more than they plan during a renovation. Sometimes it’s because of unexpected problems that come up, sometimes it’s because someone changes their mind about what they want during the process, and sometimes it’s a direct result of poor planning and not having an proper renovation budget.
If you don’t plan your renovation budget appropriately the process can become stressful and unpleasant. So before you start envisioning your dream space, I recommend determining how much you can afford to spend, and then breaking it down into sections so that you can figure out how much of your money needs to go into each part of the project. Then you can determine the quality of the finishes you can put in the finished space.
Savings VS Borrowing – How Much Can You Afford?
Some people will have enough money saved that they can pay for their renovation up front, while others will need to borrow some of the funds. If you’re planning to finance your renovation you’ll find there are some great products available that are appropriate for home renos, and because your home is an asset, most institutions have a series of options available. You may want to look at financing the renovation with a secured line of credit or perhaps roll it into your mortgage to ensure you get the lowest interest rate on the funds. The key here is affordable financing. Instead of putting things on a high-interest credit card you can use a home renovation line of credit that has a much lower interest rate. But whatever you choose you must remember that the total of what you’re going to spend MUST include the interest you will pay over the course of the loan. When you don’t factor in the cost of borrowing it can throw the total cost of your renovation off by quite a bit. I highly recommend speaking to someone at your financial institution about what options are available before you make a decision.
How to Make a Home Renovation Budget
It’s impossible to say what any one renovation will cost. Your basement renovation can vary drastically in scope and price than that of your neighbor’s, so you need to consider the following:
- Wishlist for the finished space – what do you want out of the finished space? Is it a simple update to bring everything up to code and increase the value of your home, or is it a luxury space designed just for you? Remember that any renovation will be driven by the quality of the finishes, so be realistic about the ultimate result you hope to achieve.
- Condition of your home – this is a huge factor in determining the cost of a renovation. An older home that hasn’t been updated in a long time runs a greater risk of discovering problems that will need fixing – ie knob and tube wiring
- Size of the area being renovated – pricing is often done by square foot so you need to know how big the space is in order to get a fair estimate of what you’ll need to spend.
- Priorities – a wishlist is a great place to start, but if you’re like most people your wishlist likely exceeds your budget. Look at your wishlist and then prioritize the needs vs wants.
- Value of your home and neighborhood comps – if the purpose of your reno is to create a space just for you this isn’t as important, but if you’re trying to increase the value of your home and get the best ROI when you sell, you need to spend enough to make the right upgrades, but not spend so much that you price yourself out of the neighborhood.
Create a Renovation Budget Spreadsheet
Create a budget spreadsheet with the item/project, estimated cost, and actual cost. Before you start this will help you to figure out how your money will be distributed throughout the reno, and during the process it will help you to make sure you’re still on track budget-wise. If you find you’re not on track you can make adjustments as you work your way through the process.
When creating the spreadsheet and trying to determine the estimated costs you’ll need to do some research. Be wary of online renovation cost calculators because they’re rarely updated and they can vary wildly by a number of factors. Your best bet is to ask around and get a variety of quotes. Also, do your own research. Go to your local home improvement store and check out the prices of the various materials you’ll need.