How to make a home renovation budget — and stick to it

Before making a budget, you need to consider the following factors:

Wish list

The first part of any renovation is making a wish list for the space. Is it a simple update or an extensive rebuild? Remember any home-improvement project will be driven by the quality of the finishes, so be realistic about the result you hope to achieve.

The size

Pricing is often done by square foot, so you’ll need to have a good idea of the space being renovated in order to get a fair estimate.

The condition of the home

Keep in mind an older home that’s had few updates runs the risk of further problems hiding behind the walls. Be prepared for renovation surprises.

The value of the home

Part of deciding how much to spend on a renovation should depend on the value of your home and similar properties in the area. If you want to get the best return on your investment, you need to spend enough to make the right upgrades but not spend so much that you price yourself out of the neighbourhood.

If you have enough money saved to finance your renovation, great, you’re good to go. If, however, you’re one of the many people who can’t afford to pay for everything up front, you still have a number of options. If you’re planning to finance your renovation, you’ll find there are some great products available that are appropriate for home renovations, 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'll 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.

The last thing that comes with planning a renovation budget is a contingency plan. Renovation surprises can and will happen; it’s a guarantee. The only thing you don’t know is how severe they'll be. This is why having a contingency plan, or emergency fund, is so important. Some people suggest 10% of the total budget, but I highly recommend 20% or more if you can swing it. If you’re lucky, you’ll never have to use it, but if you discover something, such as knob-and-tube wiring or foundation issues, you’ll be glad you planned for it.

A renovation can be a great way to add value to your home and even improve your quality of life. The key to making it successful is all in the planning. Remember, if you fail to plan, you plan to fail!