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Poor remodeling plan can gut your wallet

Planning to update your house? Before you start home improvements, TODAY Financial Editor Jean Chatzky shares tips to keep you from diving into debt.
/ Source: TODAY

I don't know about you, but I've recently caught the remodeling bug. It can be hard to escape at this time of year, when a little spring cleaning easily turns into talk about updating your bathroom or finishing (finally!) your basement.

Because of the state of today's housing market, many people have decided to simply improve on the home they have rather than trade up for a different one. Not only do renovations add value to your home if done correctly, they also can cure that nagging need for change.

What many people don't realize, however, is that remodeling projects (particularly the major ones) aren't something to be taken lightly. Before you start tearing down walls, you need to have a clear vision of what you want for the space, and perhaps an even clearer idea of your budget. All too often, people dive into renovations, only to drive themselves deep into debt with unplanned expenses and costly mistakes.

Here, a quick guide that aims to keep you on track, both mentally and financially, during your next home renovation:

Get some help
First step? Decide if you need an architect or designer. Depending on the scope of the project, how much time you have to devote to it, and your city or town's regulations, you might. According to Eric Messer, president of Sunrise Building and Remodeling in Briarcliff Manor, N.Y., your local building department will be able to tell you if your project requires an architect. If it does, or you decide you want to employ one to save yourself a few headaches, check out the American Institute of Architects ( for referrals. Then you can hire a contractor, best found through word of mouth and then double and triple checked by calling referrals and the local Better Business Bureau. Start talking to your neighbors, friends, and co-workers, and then ask any referrals with potential to show you copies of their insurance and license. "Talk to as many contractors as you need to until you feel comfortable," said Messer. "Once you narrow your search down to three reputable contractors, you give them the plans and whatever specifications you have for the project." Solicit at least three bids
Basically, line-by-line descriptions of what the contractor's portion of the project is going to cost. To avoid going over budget, as so many projects do, really understand from the onset what's included in the bid and what's not. "Once they have the proposal from their contractor, most people look at the bottom line number and assume that's their budget. That's a mistake — you need to add to that any items that were left out, like material purchases, painting, landscaping and building permit fees," Messer explained. Once you've chosen a bid, you can work out a payment schedule with the contractor. Depending on the scope of the project, you might put 10 percent down and then make payments progressively as work is completed. The most important thing? "You need to make sure that you're holding enough money at the end, so that he's motivated to come back and finish things up," said Robyn Roth, co-author of the new book "Remodel This! A Woman's Guide to Planning and Surviving the Madness of a Home Renovation" with Laura Meyer.Save money where you canThe best way to make cuts in your budget without sacrificing quality is to eliminate overhead wherever possible. If you have the time, purchase as much of your own finished materials as you can, advised Messer. If you buy your own kitchen cabinets, shower doors or plumbing fixtures, you'll cut out an entire level of the mark-up — a savings of anywhere from 15-50 percent. When you're on the market, always, always shop around and do your research for the best deals, and remember that you're going for quality. If the things you purchase don't hold up over time, you're wasting money, not saving it. One caveat: Let the contractor bring together any trades needed for the project, like the plumber and electrician, Messer suggests. That way, he or she becomes fully responsible for the job, and therefore the warranty. If you have a contractor complete an addition to your home, but hire your own guys to install the roof, no one's going to accept responsibility when it springs a leak.

Create a cushionOnce you've accepted a bid and you have your complete budget, including costs from the contractor and anything extra, you want to build in a buffer of about 15 percent. Why? Because you can be incredibly cautious, but you're probably going to go over a bit. Trust me on this. If you have a cushion, you'll be able to incorporate those more expensive tiles you didn't plan for but just have to have, or add a top of the line dishwasher instead of the one you found on sale.When making impulse changes like these, be sure to understand the full cost of the extras -- $5 additional per square foot for those tiles doesn't sound like a lot, but it can really add up fast if you're working on a big space.Communication is keyIf you're taking on the project as part of a duo, be upfront with your spouse or partner about costs — especially if one person is managing the project. "It is important to communicate things that you're doing and what you're changing, especially with big things — if you're making major changes that are over and above what you were originally going to do, you should talk about it. But not every night — it's very easy for remodeling to consume a marriage," says Meyer. Do what works for you, but one idea is to set aside time each week to go over the project's progress, and where you are as far as budget.

With reporting by Arielle McGowen.

Jean Chatzky is an editor-at-large at Money magazine and serves as AOL's official Money Coach. She is the personal finance editor for NBC's "Today Show" and is also a columnist for Life magazine. She is the author of four books, including "Pay It Down! From Debt to Wealth on $10 a Day" (Portfolio, 2004). To find out more, visit her Web site, .