How to Build a Realistic Budget for Your Home Improvement Project

Over the time you live in your home, you’ll do work to improve its functionality, appearance and value. For the more complex projects, such as a kitchen remodel, you need a budget.

Setting aside a lump sum for your project may not be the best approach. Instead, use contractor estimates to understand how a project is priced and use that information to build a realistic budget.

1. Make a wish list for the project. Make an outline or list of all the things you wish to accomplish in the project. If you want to exapnd the master bedroom or add a family room, for example, the wish list may include items such as the desired size of the room, a fireplace and built-in bookcases.

2. Expand the list to include structural requirements. This would include foundation, framing and moving walls, and roofing costs for an addition, as well as electrical and heating and cooling connections. For a kitchen remodel, this may include costs related to plumbing, gas lines, and electrical work.

3. Obtain at least three estimates for the project from reputable contractors. The bids should include everything you want from your wish list. Even if you are considering acting as your own contractor in the home improvement project, the estimates will help you gauge costs.

Of the three bids, toss out the one that is extremely low. This contractor may be using cheap materials or inexperienced labor. Obtain another two bids to provide a reasonable comparison.

4. Examine the bids closely to understand how each contractor priced the items you asked for. Use the estimates to edit your wish list. Consider alternatives to reduce costs, such as reducing the size of the addition or eliminating the built-in bookcases.

5. Build a rough estimate of your own, based on the estimates you received from the contractors and your edited wish list. Determine if the cost is more feasible in accordance to your income.

6. Obtain three more estimates based on the rough budget you’ve created. Consider asking two of the contractors you’ve already obtained estimates from to work up a new estimate based on the new requirements. You may need to pay for these second estimates, to cover the contractors’ time, but the cost is worth it to avoid overages during the project.

7. Add 20 percent to the budget. After you determine the actual costs of the project, build in an extra 20 percent to account for unexpected expenses, such as code required upgrades to plumbing or electrical.

8. Determine how you can pay for the project. You may need to finance the project through a home equity loan or other type of loan. You may prefer to avoid debt by doing the project in stages, in which you pay for each stage from personal available funds.

The larger and more complex the project, the more likely you’ll need to finance it. The risk in paying from your regular income lies in availability of funding. Your project may be delayed should you need to redirect your personal money during the project.