Here’s Why Your Lack of Home Budget is a Financial Time Bomb – and How to Fill It Up

Editor’s Note: This story originally appeared on Penny Hoarder.

Home improvement projects aren’t as exciting as those remodeling projects you see on HGTV.

Jobs like cleaning your HVAC ducts or replacing your roof aren’t as glamorous as a high-end kitchen remodel. And in real life, you face the burden of paying to get the job done – you have to shell out hundreds or thousands of your hard-earned money.

Many homeowners end up financing expensive home repairs, but budgeting for home improvements can prevent you from increasing your debt burden.

Planning ahead for all of your home improvement needs (or wants) gives you time to save on expenses.

Here’s what to consider when creating a home improvement budget.

1. Think About What You Have To Do

As a homeowner, you will deal with things that require regular maintenance work, such as removing leaves from the gutters or cleaning your sump pump. You may also have a good idea of ​​problems that will need to be addressed soon, such as a leaking roof or an A/C unit on its last leg.

Start preparing for these expenses by making a list of all your upcoming projects. Think about everything you plan to do in a year’s time, but also think about the work you intend to do in a few years after you leave.

The longer the timeline you give yourself to save, the less money you’ll have to stash away each month.

Consider how much wiggle room you have in your capital budget when planning what projects need to be done.

If you have a large income, you can set aside a few hundred dollars each month. But if you live paycheck to paycheck, give yourself more time to save.

2. Prioritize What You Need to Treat First

Chances are you don’t have just one project on your to-do list. When creating your home improvement budget, prioritize repairs that are more important than upgrades that are nice to have.

Another thing to consider: Will you need minor repairs or a complete replacement? Having a plumber come out to fix a problem with your toilet, for example, will cost less than installing a new toilet.

When it comes to non-essential projects, like replacing the backsplash in your kitchen or upgrading the appliances, prioritize the work based on what will give you the most satisfaction — or whatever will give you the most resale value, if you plan to sell your home in the near future.

3. Get Multiple Quotes to Determine Cost

You may have an idea of ​​how much you can comfortably spend on the project, but you won’t be able to make an accurate budget for the job until you get quotes from potential contractors.

Seek bids from at least three different sellers so you have options – and so you know you’re getting a fair price.

You may even be able to negotiate a lower price than your preferred contractor by letting him know that a competitor is offering a better deal.

Jill Emanuel, a financial coach at Fiscal Fitness Phoenix, told The Penny Hoarder that she got five quotes when she got her entire air conditioning system and ductwork replaced this past spring.

She also recommends checking home improvement blogs and podcasts, watching YouTube tutorials and asking friends and family for recommendations as part of your research.

4. Set Up a Sinking Fund to Save Costs Over Time

Once you know what projects you need to do and how much they will cost, it’s time to make a plan to save on those costs.

Instead of getting a loan and paying it back over time (with interest), start putting money aside little by little until you can pay the expenses directly and not get into any debt. That’s called contributing to the sinking fund.

Say you plan to replace your old refrigerator with a new model that costs about $1,200. By saving $200 a month in your sinking fund, you’ll have the money to buy your new refrigerator in six months. If you can save $300 a month, you will have money in four months.

Even if you don’t have a specific home improvement project on the horizon, homeowners should always set aside money for future repairs and maintenance work. A general rule of thumb is to save 1% to 3% of your home’s value each year.

“If we can get into the habit of putting in even a few hundred dollars [into] to save every month, the label accounts for the maintenance of houses and projects,” said Emanuel.

5. Keep Money in an Emergency Fund

Despite our best planning, there are always things we can’t prepare for – like a bad storm flooding the basement or the neighbor’s kid hitting a baseball through the window.

That’s why it’s important to keep money aside in an emergency fund (and have adequate home insurance).

Personal finance experts recommend having three to six months’ worth of expenses in an emergency fund. This is not money you can tap into for routine home maintenance or fixed expenses, such as remodeling.

Money from your emergency fund should be used for urgent, unexpected and necessary expenses.

The cost of owning a home can go far beyond the down payment and regular mortgage payments, but with proper budgeting and savings, you’ll have the money to keep your home in good shape for years to come.