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When it comes to affording a reno Bruce Sellery says the slow and steady approach often works best.
Question
My wife and I have just bought our dream house. Well, it will be our dream house when we’re done renovating it. Right now it has a hideous kitchen, psychedelic paint and floors that desperately need refinishing. Our back of the napkin estimate is $80,000 to pay for everything. Can you help us figure out how to pay for the upgrades? I have a nice car, worth about $30,000 if I sold it, but no other assets.
Answer
I don’t like budgeting. It isn’t a very effective process for most people in their day-to-day lives and usually devolves into tracking expenses from the past instead of providing helpful guidance now. While you still need a budget I think you’re asking the wrong question. Instead of ‘how do we pay for upgrades?’ I would ask, ‘how do we set priorities?’ You need to think about this fantastic house in the context of your whole life. Here’s what I mean:
Create a renovation budget
Start by developing an actual budget for the renovation. You can use that napkin to wipe the tears from your eyes as you see the costs add up. A budget is the best way for you to create your dream house on paper and it sets you up to make the tough call on what work you are going to do first. It will also help you to distinguish between what is a need and what is a want—which is no easy task. I have seen way too many people overspend on renovations, leaving them so stressed about debt repayment that they can’t even enjoy the soaker tub they pined for.
There’s more to life than a reno
While this house is clearly your focus right now, priorities can change with time. Perhaps you want kids, a vacation, or the ability to retire one day. Putting everything you have, and then some, into a renovation will leave you with nothing for anything else—and there can be consequences for making that choice. For instance, if you focus on paying for your renovation at the expense of you retirement savings you might find that you have a nice roof over your head when you retire, but no money to heat it.
Take a look at your cash flow: How much money is coming in, and going out each month? How have you accounted for other goals within that? Is a monthly RRSP contribution in there? Vacations? Sure interest rates are super low today and your bank might be more than willing to give you the $80,000, but in the context of everything you want in life, does it really make sense to do it all at once?
List your renovation must-haves
Remember that your priorities may not be the same as your wife’s. Here are some questions to guide your thinking on setting priorities:
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