Is Your Housing More Than 50% of Your Take-Home Pay?

A Home Renovation Can Make Your Housing Expenses to be More Than Half Your Take-Home Pay

If your home renovation has caused your monthly housing expenses to more than or close to 50% of your take-home pay, you need to reassess your living conditions.  It may mean that you need to move to a less expensive home or you may need to make a spending modifications in order to stay.

This article will discuss two different examples of home renovations that caused both families to overspend and have out of control bills.  They are both based upon real client scenarios that have sought my financial counseling advise.

Story #1: One million plus addition to their home

Background

A couple with two teenage children sought my advice on their budget. They could not understand how they were unable to pay their monthly bills. And their credit card debt was rising.

They had spent over a million dollars expanding their home.  In order to pay for the home renovation, they took out a home equity loan and charged many purchases related to the construction on their credit cards. After the renovation, they paid off the credit card balances by refinancing.

Solution

I suggested that they should consider selling the home to stop the huge monthly drain.  Frequently, making one large financial decision is better than having to make smaller financial decisions every day.

The couple was very reluctant to even think about selling. They felt it was important to keep their status in the community. They ultimately decided to accept financial help from family members.

Takeaway

This is not an isolated situation. Before making any home improvements, have a clear idea of your current financial situation.  If you are struggling to make ends meet, then any construction will only make the situation worse.  As a note, many people rely on upcoming promotions at work.  Never make financial decisions based upon potential income and or bonuses. Click To Tweet

Story #2: $750,000 home renovation

Background

I worked with another couple who had young child and their mom living with them.  They had purchased a modest home with the intention of expanding it.  This couple planned ahead for the home renovation by saving for several years. Their updated home had three full and one half-bath, five bedrooms, family room, living room, and extensive landscaping.

They were fine paying their new monthly mortgage.  However, they were finding that they were spending more in general and sought my help.

Solution

I helped this couple review all of their monthly expenses since the renovation. I was looking for any expenses related to owning a larger home.

They had overstocked on everyday items like light bulbs, toilet paper, and cleaning supplies. These items were scattered throughout the house and they had no idea how much they had bought. We also discovered an increase for their housekeeper and they hired a landscaper.  They were purchasing furnishings and decorating the home.

I asked them to organize their supplies into one location.  This allowed them to return redundant supplies.  They also slowed down the purchase of furnishings, linens, curtains, and other decorations for the new space.

Takeaway

This situation is fairly common, i.e. forgetting to include new and increases to your monthly expenses.  Being organized and clutter-free can also reduce your spending.

In Summary

Solutions to your financial challenge related to your housing expenses will vary based upon the situation.  Before committing to any home renovation, look at your financial situation and clearly understand all the current expenses directly related to your housing.  Cutting back on expenses may or may not be the solution.  Moving, while in the long run, can dramatically cut down on expenses, is not always the best solution for you and your family.  Consider all options before making your decision or seek professional advise if you cannot sort it out yourself.