Talking Dollars and Sense

A few weeks ago, I was interviewed by a national newspaper (more details on that when the article comes out in February). The writer was looking at how the economy has impacted spending on renovations. Turns out HandyMan and I seem to be prudent and a bit of an anomaly. When we bought our house last July, we set aside a hefty renovation budget. We chose to make a smaller down payment and take on a bigger mortgage… in exchange, we’d be able to pay for most of our renovations in cash instead of taking out a loan to pay for them. We knew we’d be making changes right away and spending that cash in the short term so taking on a longer term loan + interest didn’t seem wise. Most other folks, it seems, take on loans or borrow against their equity to make renovations. With the slowing down of the market though, the question was whether a loan (interest rates are still relatively low) was still the financing source of choice for renovations?

I’m not sure what my neighbours are doing, but HandyMan and I will continue along our conservative track. By spending only what we have, and spending it slowly (we’re doing a room by room renovation), we’ve discovered a few benefits:

• We are able to save and contribute to the budget at the same time as we spend it
• We can earn some interest on what’s left in the budget
• We are better able to prioritize what we want to spend our money on and don’t feel the pressure to “do everything at once”
• We can take the time to find good deals

As the economy continues to worsen, there’s even more reason to keep to our plan. Losing our jobs is a small but growing concern so sticking to a cash budget minimizes our risk of not being able to pay down any outstanding debts. The housing market in Toronto has also slowed considerably… while houses in my neighbourhood still sell relatively quickly it is not the same as even six months ago with multiple bids and prices way above asking. One house on my street (exact same model) sold for 32% more than the price we paid 10 months earlier! I wonder if those folks are regretting their purchase now that prices have fallen back down to earth.

I’m guessing there are many others out there who have had to reconsider their renovation plans. Has the current economic situation affected you? Are you holding back on spending or not? Or do you consider your home a long-term investment and choose to spend now and reap rewards later?