Meaningful Returns

If you’re about to remodel a kitchen, say, or perhaps planning a wedding or a European vacation, you would be wise to recognize this: it is part of human nature, deeply seeded in our decision-making processes, that we often go about making these plans or forecasts taking routes that are unrealistically close to best-case scenarios, even when there is evidence available that would perhaps dramatically improve the nature of the plan if we stopped to consult it.

Here’s a sobering statistic from Thinking, Fast and Slow: “In 2002, a survey of American homeowners who had remodeled their kitchens found that, on average, they had expected the job to cost $18,658; in fact, they ended up paying an average of $38,769.” For those of you keeping score at home, that’s more than double the original estimate. And, guess what? Contractors know this and “routinely make most of their profit on additions to the original plan.”

Welp.

This is a terrible case of burning the candle at both ends, because our initial baseline plan is too much of a best-case scenario (i.e., limited interruptions, ideal conditions, no upgrades), setting us up for failure, and then we often completely fail to account for how much and how quickly our wants and wishes for the project will increase over time (creepy).

1. Set your upper spending limit first.
2. Then do your research, figure out what other people are spending on kitchens.
3. Don’t get caught thinking your kitchen (or wedding, or vacation, or whatever) will be the exception to the rule. This ain’t Lake Wobegon.
4. Do the project, because you value it and can afford a realistic estimate of what it will cost. Or, don’t do it, because, maybe you value it, but realistically you don’t have the kind of dough it will take. At least for now.