Saving for a house and renovation on less than $40,000/year

I got a question today about how we were able to afford the renovations that we’re doing in the new house, and because I love sharing knowledge, I thought I’d write up a post on how to save for a major project like a whole house-reno. While Adam and I are sharing the monthly costs of the house, I paid for all of the down-payment, closing costs, and renovations (with a couple exceptions down below!) while earning less than $40,000/year.

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Now because we’re doing the majority of the work ourselves, the renovations that we’re doing upfront are costing somewhere between $7,000 and $10,000 (I haven’t totaled up all the receipts for the little stuff yet, so I left a wide margin). If you’re hiring out contractors to do the work, you’d probably end up paying about $20,000-$50,000 for an entire home reno. The labor costs for some of these projects are INSANE (often double or triple the material costs). So that’s the first tip for paying for a home renovation: go DIY whenever possible. The only things we contracted out were an emergency plumbing repair, raising the living room floors, and demoing the tile in the entry, hallway, and hall bathroom. Sometimes it’s worth the time and effort saved to hire a professional to do it quickly and correctly.

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My next tip may seem like a “duh” tip, but it’s save early and often. I started saving for a house in college, when I was making about $25,000/year. I took advantage of birthday money, tax returns, and any sudden windfalls whenever possible, and set up my bank to automatically take $25/week out of my checking to put into savings. That automatic transfer alone is $1,200/year. My first year out of college I was leasing apartments making a little over $30,000/year. I worked on hourly and commission, and splitting the bills with Adam I was able to comfortably support myself on the $12/hr I was making so that I could save every commission towards the house.

A big reason that I was able to save so much while making so little was my commitment to a debt-free lifestyle. My dad taught me Dave Ramsey’s 7 Baby Steps to financial freedom when I was a teenager, which for me meant never getting myself into debt. I pay cash for all my big purchases and that frees up several hundred dollars a month that would other wise go to car and credit card payments. For some people, that may mean using the Debt Snowball method to get rid of existing debt before committing to spending thousands to a home that could get foreclosed on if you get in over your head. It was important to me to also have an emergency savings fund ON TOP of my money for down payment, closing costs, and renovations, so that if anything major went wrong with the house, our cars, our jobs, or our heath, we wouldn’t be up a creek.

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I also took advantage of a government program that was available in my state (Texas) called SETH. The program offers 4-6% down-payment and closing costs assistance to Texas homebuyers who make less than a certain yearly income (varies by county from about $40k-$90k) and who have a credit score higher than 640. I received over $8,000 to put towards my down payment and closing costs and only paid a couple thousand out of pocket to get into the house. This left a lot of money leftover for renovations and my emergency fund. Check into programs in your area to see if you can free up any extra money for savings and or renovations.

I also had help from family members on paying for some of the projects. My grandma offered to pay for my floors (we got ours on sale from BuildDirect.com for about $1.60/sqft), my mom and grandma helped pay to raise the sunken living room, and my dad bought us a new fridge for the kitchen. I also had a couple family friends/mentors give us some Home Depot gift cards to pay for a few little things. I recognize that not everyone will have help from family and friends, but if they offer to help, accept it!

I’m selling whatever I can that’s reusable from the house, like the old laminate that was in the kitchen and dining room. The $100 that I got for that paid for our gorgeous new dining room light! There’s a few other light fixtures and materials that I’ll put up on Craigslist when I get time. You can even try and find some of your own purchases off Craigslist. Every drop in the bucket helps.

My last tip is employ some sort of savings tool to help keep track of your budget. I use Simple Bank, which is amazing for separating savings from spending money. You can set up as many individual goals as you like, either moving all the money over at once, or setting a date that you’d like to complete the goal by and it’ll automatically move a daily amount over until you reach your goal. I use it to itemize my budget, so I set up separate goals for things like lighting, paint, vanity, front door, etc. That way I know I have the money set aside for the purchase, and when I buy the item or complete the project, I move the money over to spending. Another benefit of using Simple is the “safe-to-spend” feature, which lets you know how much extra money you have for free-spending when your goal money is set aside. That way you can quickly decide if you can afford those cool looking candle-sticks for the mantle or not :p. Even if you don’t want to use it as your full time bank, you might consider it just for keeping track of your renovation budget.

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Here’s what Simple goals look like

Those are my tips for affording a home purchase and renovations even when you’re not making the big bucks yet! Do you guys have any other tips/tricks that helped you afford your projects?

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