Advice to Homeowners | Educational Presentations | Budget Secrets

Budget Secrets

1. Plan! Plan! Plan!

The most profitable businesses know it, successful government leaders know it, retirees with adequate finances know it...skilled planning reduces costs, reduces the stress of surprises and prevents you from committing to more than you can reasonably afford.

The biggest secret to saving money is simply doing things in the right order! Most think it’s about negotiating labor costs or finding discounted products. An example of doing things in the proper order is sequencing improvements so that a basement supporting column is fixed (bottom rotting and you can’t see it) before the kitchen is remodeled else the sinking basement beam creates cracks in the new kitchen walls .

Consider having BAC assess your home so that you can use the Planning Pyramid to sequence repairs and remodels in a way that saves you money. Just remember....ignore planning and you will have far higher costs in the long run. BAC has created this unique "Planning Pyramid" (pdf) providing the framework for sorting through the complex sequence of projects. The more you want to save, the better you need to plan!

2. Total costs are as important as initial costs

We all have the instinct to minimize costs. But it is better to minimize TOTAL costs instead of just considering INITIAL costs. Consider the purchase of a new water heater. INITIAL COST of option 1 is $600 while option 2 is $1200. The choice seems obvious except that Option 2 saves this family $200/yr in energy costs which are expected to rise 10%+ per year. At the end of year three, the cheap water heater has a higher total cost. And at the end of 10 years, the cheaper unit has a TOTAL COST that is almost $2,600 more while also having a shorter operating life!

3. Time IS money!

Generally, pushing a project to be completed in faster than average time will cost more. Tighter schedules mean more risks of various phases bumping into each other and causing inefficiencies.

4. Creatively use low-cost materials in low-risk areas

Lower cost materials hold promise for saving on project costs. Pick low-risk areas to use "non-standard" materials so that unexpected problems are easily fixed and do not affected many other phases. For example, reclaimed lumber for interior trim is less risky than using surplus metal beams under the main bearing wall.

5. Use professionals...but wisely

There are some phases of a project you can work on without help from a building professional. However under-use of professionals can add costs and/or result in problems. Like the home-handyperson that finishes off a basement at a lower cost per hour than a building professional. Yet the handyperson used fiberglass insulation and plastic vapor barrier on the foundation walls....quite possibly a big problem with condensation and mold that will cost thousands more to repair in only a few years!

BAC can help you figure out project phases that need building professionals versus ones that are less risky to tackle on your own. Regardless, you should consider the DOMINO rule: When something goes wrong early in the project, it usually affects all subsequent phases thus compounding the cost of the problem. So it is generally wise to maximize professional expertise in the early phases of a project.

6. Something else WILL come up

Unknown costs can easily come up that you will be responsible for. Even the best contractor will not know that you have a minor leak beginning in a lead drain section behind the bathroom wall that has not been opened up yet. You can certainly avoid the scope addition by letting the leak grow and then pay much more to have it fixed in a few months or you can accept a scope increase. Planning to pay for some unknown fixes will prevent you from going over budget.

7. Slice up that budget

Many of us still budget for things like we did when we were kids. For instance, when we wanted to buy a $95 bicycle with our $100 in savings, we realized that we didn't have enough to buy the lock and chain and the bike got stolen! OK...so your new kitchen won't get stolen but the lesson still applies. In the excitement of budgeting for the fun new home improvement, you will likely end up happier slicing up your budget using the following formula:

MAX BUDGET: XXXXX
SET ASIDES (at minimum):
Design — 10%
Unexpected Costs — 10% (bike lock and chain?)
Furnishings/appliances — 5%
CONSTRUCTION BUDGET: 75% of Max budget