Here’s how to set a budget … (& stick to it)

By Carl & Jo Violetta

Over the past (almost) two years, many Victorians have spent more time at home than ever before. Spending so much time within our four walls will inevitably make us crave a change. You might start thinking about home improvements to turn your space into a sanctuary.

More and more of our clients are looking to either move house or renovate their existing home. When it comes to renovating your family home, it’s important to sort out your budget before you so much as lift a hammer.

Your budget sets realistic boundaries for your project and will guide every decision you make when it comes to your renovation.

There are five steps to creating and running a budget for your reno:

1. Understand how much cash you’ll have access to

2. Get clear on exactly what you want to do

3. Estimate costs

4. Create your buffer

5. Track and review

Step 1: Understand how much cash you’ll have access to

There are a few ways you could fund the project. Here are some of the most common methods people use:

Access your savings

If you have savings, you may want to use them to fund your renovation. The benefit here is that you avoid paying interest and amassing more debt.

Refinance your home loan

Another option is to refinance your mortgage. Interest rates are exceptionally low at the moment. By refinancing your mortgage to a lower interest rate, your monthly repayments decrease. Then you can put those savings towards the renovation.

Be aware though that refinancing can sometimes attract fees, such as exit fees.

Access your home’s equity

Equity is the difference between the bank’s valuation of your house and the amount you still owe on your mortgage. Your bank may allow you to borrow up to 80% of the value of the home.

If you access your equity, you’re essentially increasing your mortgage. That means your repayments will increase and it could take even longer to pay off the mortgage.

But your mortgage broker may be able to help you access your equity and, at the same time, refinance your home loan to a lower interest rate. If that happens, it may actually reduce your repayments.

Use your redraw facility

If you have a home loan redraw facility set up, you could use the extra payments you’ve made on your home loan to fund your reno. There may be a limit on how much you can withdraw though.

We recommend you seek professional advice to decide how to best fund your renovation.

Step 2: Get clear on exactly what you want to do

Next, you’ll need to estimate how much the project is likely to cost. You can use either an Excel spreadsheet or a Google Sheet for this.

These are the columns we recommend including on your spreadsheet.

Product/trade/material
Estimated cost
Actual cost
Supplier details
Notes
Difference (between the estimated and actual cost)

List everything you’ll need for the project, including trades, products and materials. Be as specific and detailed as possible. Try to think of everything you’ll need to change or update, all the way down to the doorknobs and kitchen cabinet handles.

Step 3: Estimate costs

Next, start researching costs. Get quotes for trades and shop around for products. If the total estimated cost is more than the funds you have available, you’ll need to review your budget.

Check if there’s anything you can safely DIY instead of hiring a tradie and see if there are any items you can upcycle or repurpose rather than replace.

For example, we recently did a cosmetic renovation on our home. The kitchen cabinetry was looking dated so we had the cabinetry resurfaced. The result was stunning and it cost a fraction of what we would’ve paid to replace the cabinetry altogether.

Step 4: Create your budget buffer

When it comes to home renovations there are almost always going to be things you won’t have anticipated.

Sometimes things go wrong. You may discover termites. There might be pre-existing faulty plumbing. Timber prices could increase.

You need to plan for any (almost inevitable) unforeseen circumstances by building a buffer into your budget. Once you’ve tallied your estimated costs, add a 10-20% buffer on top.

Step 5: Review and track

So, you’ve organised your funds and set up your initial budget (with your buffer built in). Now it’s time for the fun part – starting the actual renovation!

Don’t throw out the budget yet though. Your spreadsheet will be your trusty companion and guiding light throughout the renovation process. It will also be a living document you’ll use to track your expenses and constantly review.

Keep a running tally of what you’ve spent and compare the actual cost to the estimated cost. If you notice the actual costs are starting to exceed the estimate, it’s time to review your budget and make some changes.

Stick to this plan and you’ll have beautiful renovations and the sanctuary you dreamed of without the nasty shock of overspending.

Jo and Carl Violeta are self-confessed numbers nerds, parents of two, and co-founders of the award-winning business, Violeta Finance. They’re a husband and wife team who are passionate about empowering their community with financial education, love the odd glass of wine, and get a kick out of helping families achieve their homeownership and financial dreams.