Here’s How to Budget for Home Improvements, Rather Than Rack Up More Debt

A woman paints a wall in her home blue. She has her hair tied up in a blue ribbon and is wearing a navy blue shirt.
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Home improvement projects aren’t nearly as fun as those renovation projects you see on HGTV.

Tasks like cleaning the HVAC ducts or replacing your roof aren’t as alluring as a fancy kitchen remodel. And in real life, you’re faced with the burden of paying to get the work done — having to shell out hundreds or thousands of your hard-earned cash.

Many homeowners end up financing expensive repairs around the house, but setting up a home improvement budget can prevent you from increasing your debt load.

Planning in advance for all your home improvement needs (or wants) gives you time to save up for the costs you’ll face. Here are five things to consider when creating a home improvement budget.

1. Think About What Needs to Get Done

As a homeowner, you’re going to run into things that need maintenance work on a routine basis, like removing leaves from the gutters or cleaning out your sump pump. You also probably have a good idea of issues that will need to be addressed soon, such as a leaky roof or an A/C unit that’s on its last leg.

Start preparing for these expenses by making a list of all your upcoming projects. Think about everything you plan to have done within a year’s time, but also consider work you intend to have done a few years out. The longer timeline you give yourself to save up, the less money you’ll have to stash away each month.

Consider how much wiggle room you have in your main budget while planning out what projects need to get done. If you have plenty of disposable income and can easily put aside a few hundred dollars each month. But if you live paycheck-to-paycheck, give yourself extra time to save.

2. Prioritize What You Need to Handle First

Chances are you don’t just have one project on your home to-do list. When creating your home improvement budget, prioritize the most important fixes over nice-to-have upgrades.

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

When it comes to nonessential projects, like changing the backsplash in your kitchen or upgrading appliances, prioritize the work based on what will give you the most satisfaction — or what will provide the most resale value, if you’re planning on selling your home in the near future.

3. Get Multiple Quotes to Determine Costs

You may have an idea of how much you can comfortably afford to spend on a project, but you won’t be able to accurately budget for the work until you get some quotes from potential contractors. Seek out bids from at least three different vendors so you have options — and so you know you’re getting a fair price.

You may even be able to negotiate a lower price from your preferred contractor by informing them that a competitor is offering a better deal.

Jill Emanuel, a financial coach at Fiscal Fitness Phoenix, told The Penny Hoarder she got five quotes when she got her entire air-conditioning system and ductwork replaced this past spring. She also recommends checking out home-improvement blogs and podcasts, watching tutorials on YouTube and asking friends and family for recommendations as part of your research.

A kitchen remodel is done in a person's kitchen.
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4. Set Up a Sinking Fund to Save for the Cost Over Time

Once you know which projects you need to tackle and how much it’ll cost you, it’s time to create a plan to save up for those expenses.

Instead of getting a loan and paying over time (with interest), start putting money aside little by little until you can pay for the cost outright and don’t have to go into any debt. That’s called contributing to a sinking fund.

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

Even if you don’t have any specific home improvement projects on the horizon, homeowners should regularly put aside money for future fixes and maintenance work. A general rule of thumb is to save about 1% to 3% of your home’s value each year.

“If we can be in the habit of putting even a couple hundred dollars [into] savings every single month, label that account for home repairs and projects,” Emanuel said.

5. Keep Money in an Emergency Fund

Despite our best planning, there’s always stuff we can’t prepare for — such as a bad storm that floods the basement or a neighbor’s kid who whacks a baseball through a window.

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

Personal finance experts recommend having three to six months worth of expenses in an emergency fund. This isn’t money you’d tap into for routine home maintenance or a planned expense, like a remodel. The money from your emergency fund should be spent on expenses that are urgent, unexpected and necessary.

The costs of homeownership can greatly exceed a down payment and regular mortgage payments, but with proper budgeting and saving, you’ll have the funds to keep your home in good condition for years to come.

Feeling overwhelmed? Create a budget that works for you with our budgeting bootcamp!

Nicole Dow is a senior writer at The Penny Hoarder. Staff writer/editor Tiffany Connors contributed to this article.