We asked Albertans what they’re saving for and received an overwhelming response from across the province. Paying for home renovations, family vacations, children’s education funds and starting a business were the top four reasons to save.
Throughout this four-part series on “What are you saving for?” we’ll provide a few tips and tricks to help you achieve your savings goals.
Unless you’re a DIY genius with a lot of time on your hands, home renovations don’t come cheap.
A typical bathroom renovation can cost around $10,000. A new kitchen costs an average of $25,000 or as much as $50,000, if you go for high end appliances and cabinets.
Installing a new roof will cost at least $5,000. Replacing all your flooring with that hardwood you love will set you back around $10,000. And swapping out those ugly windows will set you back at least $5,000, if you don’t discover rotten frames.
It makes sense, then, that home renovations are among Albertans’ top reasons to save.
Why it pays to save
You could always take out a loan or pay for your renovations with your credit card. The problem is the interest you’ll pay will add a huge amount to the end cost.
Let’s say, for example, that you put the cost of your $15,000 kitchen reno on your credit card, at an interest rate of 19.99%.
If you want to pay that off in three years, you’ll need to make monthly payments of over $557. But here’s the real kicker: you’ll pay $5,071 in interest. Suddenly, your new kitchen actually cost you over $20,000.
If, instead, you saved up $557 per month, you would have the money you need to renovate in just under two-and-a-half years. You’d be paying for your kitchen faster and saving yourself over $5,000.
Even if you paid for your renovations with a lower interest loan, the same equation applies. It will take longer to pay back and will cost you considerably more.
How to save for your home improvements
A tax-free savings account (TFSA) is a good place to start saving for your home renovations. It offers the combination of a place to build your savings tax free along with the ability to withdraw your money any time.
You can build the money up within your TFSA through interest payments, stock dividends or capital gains, and pay no tax on those earnings.
If your savings are likely to take several years, you could consider investing in a Guaranteed Investment Certificate (GIC). You need to commit to a predetermined time frame, but the interest rates are typically considerably higher than average savings accounts.
Tips for successful saving
- Devise a plan: work out exactly how much you’ll need. Get at least three quotes for the work before deciding on your preferred contractor.
- Be realistic with the budget: don’t be surprised if the quotes are considerably higher than what you’ve seen on home reno TV shows. Add around 20% to your quote to cover any unexpected costs that might arise once work begins.
- Calculate your monthly savings: decide on when you want to start renovating. Divide your budget by the number of months remaining. Then, make a pre-authorized contribution for that amount so you save without having to think about it.
- Use a separate savings account: having a “reno account” makes it easier to track your progress and harder to “steal” cash to pay for other expenses.
- Apply for grants: installing energy-efficient windows and insulation could qualify you for rebates of between $1,500-$3,500.
Let’s get started
We can help you work out the most efficient way to save for your renovation budget. We’ll help you calculate your monthly savings goals and devise a plan that helps you reach your target quickly