Want to do a house project? Save up.

You want to remodel your kitchen/landscape your yard/finish the basement. We’ll assume for a minute you’ve gotten all the estimates and it’s going to cost $15,000. So you head to your bank, and after a few steps you have a Home Equity Loan and your project is completed. You exhale. Except, wait, the project isn’t really over because you now owe $15,000 to the bank. For the next 10 years you will be paying the bank $163 a month. When you’ve finally paid off your kitchen/landscape/basement project it actually cost you $18,742.50.

If you have or have considered getting a Home Equity Loan, you aren’t going to like this post. But I’m okay with that. I’m not here to tell you what you want to hear, I’m here to give you solid financial advice.

“You’ve heard it a million times, and in case you haven’t, let me say it again: Your house is not a piggy bank. Removing equity from your home, even to theoretically increase the value of your home via home-improvement projects, is a bad idea. To start, home-improvement projects very rarely equal a dollar-for-dollar increase in home value. That $15,000 landscaping job you just completed did close-to-nothing for the value of your home.” (courtesy of the Indy Star)

But just because it doesn’t necessary make financial sense doesn’t mean you shouldn’t do the project. You want to landscape your yard, so you find a way to make it happen. The question is, how should you finance the project? The answer is easy, save up. I know your thinking it would take years to save $15,000, and maybe it will, but it would also take you years, plus more money, to pay off the loan. And in all honesty, I can give you this advice because I’ve taken it myself. Mrs. Planner and I saved for years to finish our basement and when the project was completed I could exhale because the project was truly completed.

“If the rule is that you can’t start the project until you save the money, then you will save the money aggressively, efficiently and quickly. The next time you think about borrowing money to make a major consumer purchase, consider trusting yourself, and the math, instead of a payment schedule.” (courtesy of the Indy Star)

Read the rest of my Indy Star column here.

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