Budget Right the First Time, part 2
If you have all the info from Budget Right the First Time part 1, the great news is that the bulk of your budgeting is done!
If not, don’t worry! These two blogs break down the parts of the budget in lots of detail. Your process might look a little different, and some of the steps might actually happen together. Our goal here is to give you an overview of all the parts of the project that affect its cost.
If you don’t consult an expert to get a ballpark figure, you should still do some research into average project costs before the final budgeting. Local newspapers sometimes report on these, as do mortgaging and financing companies. Many of these averages are reported in terms of square foot costs, so you can simply multiply the size of your planned project by the cost to get a rough figure.
Be cautious of advice that sounds overly optimistic about the “investment potential” of a renovation, and remember that HGTV and other reality show budgets rarely include labour costs for designers or contractors. Don’t use those budgets to ball park your own!
So, once you have the ballpark total, here’s how to put it together, and what to do if the project budget is too much.
Putting it together
Based on the assessments you did in Part 1, you should have the following information:
- What area(s) of the home you are renovating
- The riskiness of your project
- Your timeline
- What extra costs you will have for living during the construction period
- Whether you need permits
- Whether you need to hire contractors and/or trades people
- What you need to purchase
Armed with this information, you have the basic budget done! Note that budgeting (how much money you need) is different than financing (where the money comes from). There’s lots of great advice out there on financing, so we won’t be covering that here.
The total budget
The total budget is this:
Total Budget = Contingency fund + Extra living costs + Permits + Labour + Materials
Your project total is the total budget minus your contingency fund and extra living costs. You can use your estimated project total to assess labour quotes and material costs. Here’s how:
If your budget is flexible and you haven’t finalized a maximum, you can use your ballpark figure as the project total and a risk-appropriate percentage of your ballpark figure as your contingency fund. Otherwise, take your percentage from the total.
Next, remove any additional living expenses you expect during the construction phase.
This will give you a project total that can be used for permits, labour, and materials. Use this total to assess the quote from professionals.
The project budget
For any project large enough to require professionals, you will need to work out the details of the budget in collaboration with them. The first step will be hiring designers and contractors/trades people.
To do this, you will need to get quotes, and they will want to know your budget. This is why we emphasize getting a fairly clear picture of what you want to achieve with your project and figuring out ballpark totals to work with.
When you tell them your project budget, let them know the contingency fund that you’ve set aside, so that they don’t include that in their calculations, and ask them to include the cost of permits.
Hiring a Designer
Many designers would rather work within your budget than give you a specific labour quote. This is because designers need to be flexible with their hours in response to problems or changes that come up. One of the things that designers do is ensure that the scope of the project does not exceed the budget, and so this is not an unreasonable response to your request for a quote.
This does make it a bit confusing about what you should compare when hiring a designer, though. What we suggest is that you look for excellent and clear communication. These are some budget-related questions to ask your designer:
- How will you report on budget expenditures throughout the project?
- How do you communicate budget overruns?
- What is your billing schedule?
- Do you have a fee schedule, and if so, what is it?
Note that a billing schedule is the benchmarks or times that payments are due, while a fee schedule is the different amounts charged for different services or different people in the firm.
Hiring Contractors or Trades people
You will need to get an additional estimate for any contractors or individual trades you will hire.
When getting labour estimates, always get multiple quotes, ask for references, and pay attention to your rapport. Don’t go with someone you don’t feel like you can talk to. This is a major expenditure: you need to be able to ask questions and put on the brakes without feeling uncomfortable.
To make the most of your meetings, you may want to look at our articles on how to prepare for a design meeting and the renovation cycle as well. If you are getting started in the high season, you may have to wait a while before you can get a contractor to come estimate for you!
Step Three: Costing your purchases
For a larger project with a general contractor, they won’t be able to give you exact figures in the first conversation because they will be hiring subcontractors for the project. But, they should be able to give you cost ranges, and let you know if your estimated budget is reasonable. You should look for quotes that make clear what is covered, what will need to be finalized, and what is not covered in the contracting fees.
For smaller projects with no trades or with only one or two trades that you hire individually, you may need to price out all of the items you are buying.
In either case, it will be good to create a master list of necessary purchases. If you are working with a designer or contractor, you can ask them to help you generate the list; otherwise, you can use your analysis and any input you’ve had from consultations with experts to create it.
Creating a master list will help you communicate with your designer and contractor. You can organize their suggestions, and ensure that prices and styles meet your needs.
What if it’s too much?
Part 1 started by noting that most Canadians underestimate their kitchen renovation costs. Part of the reason is because the true cost of a kitchen renovation is a lot of money to part with! Not all of us have it, and if we do, we don’t necessarily want to spend it all in one place.
So, what should you do if your Contingency + Accommodations + Permits + Labour + Materials adds up to more than you want to, or can, pay.
There are a few ways to address this. The three main options are:
- Reduce the scope
- Find cost-saving measures in the design stage
- Postpone or break up the renovation into phases
Which you choose will depend on your needs, and to what degree the project can be changed and still meet your goals.
At this point, the problem-based analysis you did will come in handy. Review it and ask yourself if there is one key problem that can be solved with a smaller project, or if the project can be staggered over time.
It may also be worth consulting your designer to ask if they can suggest ways to achieve your goals using a smaller project. Many designers love this sort of challenge, and a good designer knows how to get the most change out of the least money. You may be surprised to find that changing an interior layout is a more effective way to solve your problem than creating an addition, or that certain materials can be reused for a major savings.
Budgeting pays off!
These two posts have been a lot! We hope you don’t feel overwhelmed. But, a solid plan is very doable, and it pays off down the road by anticipating problems before they arise, and making sure you don’t find yourself with half a kitchen and no more money!
None of this is absolutely necessary before your first meeting with a designer, so if you want some help in doing your analysis, defining your project, or any other aspect of this preparation and planning phase, don’t hesitate to contact us.