A couple I know is downsizing. Though this new house has “good bones,” it needs some renovating and a great deal of updating.
The wife wants a to-the-penny budget in advance. The husband maintains that since they can’t predict everything they might need or want to do until they get into the project, any budget they create now is just a wild—and likely inaccurate—guess.
When the couple asked my opinion, I had to look at Mr. Downsizer and say, “She wins this one, pal.”
I told him that unless they’ve got an attic stuffed with cash, they need to do some serious planning before they let workers rip up even one inch of that ugly, avocado green shag carpet.
Author Stephen Covey offers some wisdom for people in this situation. He reminds us that things are created twice—first in the mind, and then in reality. He notes that the better job we do creating the thing we want in our mind, the better chance we have of actually seeing that thing come to be.
Here’s what I recommend for this sort of improvement project. After you’ve listed—and prioritized—all the upgrades you’d like to make, take these four wise steps:
- Start with the bottom line. Settle this question, “Once this entire project is complete, what’s the maximum amount of money we’ll be comfortable having spent?” If you can’t agree on or identify that number, you’re not ready to begin the renovation process. Next…
- Divide the cost. Using your “project priority list,” bounce around this question: Given our wishes and overall budget, what should our spending limit be for each portion of this project?
This exercise will remind you—as you are getting estimates from various contractors—that you can’t afford to blow your whole budget on painting the outside of the house. (If you do, you won’t be able to remodel the master bath or make the fancy upgrades you’d like to make in the kitchen.)
- Divide the time. One of the things we dislike about budgeting (i.e., planning ahead) is that it often brings us face-to-face with an unpleasant truth: We don’t have enough money right now to do everything we want to do.
Most folks who find themselves in this situation don’t bat an eye. They simply drive up to the bank and take out a loan to finance their dreams.
The problem with this decision? While borrowing money to BUY a home can be very sound decision, being forced to take out a last-minute loan in the middle of a costly home improvement project often leads to long-term financial pain and regret.
This may be a classic case of “having champagne dreams on a beer budget.” If so, you’ll need to break your home improvement plans into smaller projects you can afford over time. It’s called pay-as-you-go.
- Anticipate and don’t waffle on your spending limits. By far the biggest cause of cost overruns on home improvement projects are impulse decisions.
To avoid this trap, budget a little extra money for a few unanticipated “change orders.” But here’s the rule you need to follow: Once you’ve spent all the funds in a certain portion of your project budget, you’re done. No excuses. No whining.
In a nutshell…the more time you spend on your first creation (i.e., crafting a reasonable construction budget), the more you’ll be able to enjoy your second creation (i.e., your upgraded, snazzy new home).
P.S. If big home renovations are behind you, your “next thing” may be planning for your retirement. If so, I have a free resource I’d love to give you. It’s called the RISA (which stands for Retirement Income Strategy Assessment). It can help you figure out how to turn your retirement savings into regular retirement income in a way that aligns with your personality and lifestyle. The inventory takes less than ten minutes. There’s no obligation, and you can access it by emailing me (bmoore@argentadvisors.com).
Argent Advisors, Inc. is an SEC-registered investment adviser. A copy of our current written disclosure statement discussing our advisory services and fees is available upon request. Please See Important Disclosure Information here.
