10 Steps to Budgeting for Your Kitchen Remodel

1. Decide how much you want to spend, and stick to it.

Setting a budget for your kitchen remodel and staying within it sounds so obvious and simple, but it's harder than you think.

The average cost of an upscale kitchen remodel is more than $80,000, but three factors should determine whether you want to spend that much. The first is how much you can afford to spend. Take a look at your finances to determine this number.

The second is how long you plan to stay in your house. If you are planning on selling the home within five years, then your kitchen renovation should be viewed as an improvement on a real estate investment. Only spend what you think you will get back when you sell the house. If you plan on living in your home longer than five years, you should do a remodel that will make you and your family the most comfortable.

The third factor is your neighborhood. Is it modest, or upscale? If you put a ruling class kitchen in a middle-class neighborhood, you'll lose money on your investment when you sell your house. Don't over-improve.

2. Know how the costs will break down.

Labor will consume anywhere from 20 to 35 percent of your project costs. Cabinets can also devour a big chunk of your kitchen remodel budget.

Here's how it breaks down, on average:

35 percent: cabinets
20 percent: labor
20 percent: appliances
10 percent windows
5 percent: fixtures
3 percent: fittings
7 percent: other

3. Set aside 20 percent of your budget to handle the unexpected.

You're going to encounter surprises in your kitchen remodel, especially in an older residence. There are all sorts of budget-busting surprises lurking behind the walls or under the floor. Like when you rip out your walls and discover your electrical wiring is out of date. Or you pull out your dishwasher and discover the floor beneath it is rotten thanks to a water leak you didn't know about. Leave some wiggle room in your budget to cover these surprises.

4. Make a list of your renovation priorities.

What's most important to you? New appliances? New cabinets? Write down your priorities so if unexpected costs hit your budget, you'll still get the top things on your list done.

When setting your priorities, think about how important the little goodies like crown molding and a super-luxe faucet are to the overall look and function of the kitchen. The little things add up. There may be a cost-saving alternative, or you may be able to do without the item entirely.

5. Know the details of how you will pay for this project.

There are many ways to pay for a kitchen remodel, but home equity loans are the most popular because they're tax deductible. Other options include refinancing, taking out a personal loan or taking a loan against a retirement plan.

Even if you have cash in hand, borrowing money at a low interest rate may be smarter than pulling your money from an investment account getting a higher return.

If you're getting a loan, factor in costs like interest and loan origination fees. Also, find out when you'll get the funding from your loan. You'll need to make deposits with your contractors, and you'll need to pay for materials up front.

6. Decide whether you’re going to stay in your home while renovations are taking place.

Living someplace else while the work is being done is a good idea and will lessen your stress. Take into account the cost of an apartment or hotel, storage fees and moving fees.

If you stay, there will be a cost to your sanity. You could also set up a temporary kitchen in an adjacent room, and you should add in the cost of doing this.

7. Factor in the cost of eating out.

Face it, you will be eating a lot of meals in restaurants or bringing home take-out food while your kitchen is torn up. Fit this expense into your budget at the outset.

8. Create a spreadsheet for your budget and check it often.

Put your budget and how much you’re actually spending on spreadsheets so you can keep tabs on how much you are actually spending. If you see a cost overrun starting to happen, you can stop it.

9. Do some of the small work to lower your costs.

You don’t have to pay someone else to do all the work. Demolition – taking out the old cabinets, appliances and flooring – is easy to do.

10. Avoid extras. Don’t be tempted to deviate from your budget mid-project.

If you catch yourself saying “It would be so great if we added (fabulous kitchen feature here),” stop yourself. This is how budgets get blown. Go look at that remodeling budget you made in step 1, and repeat the number like a mantra. You can live without the little extras.