If you’re budgeting for future home improvements or medical expenses, you may want to put a bit more money aside than you planned, as a new survey suggests those are two areas where consumers often underestimate the costs.
Determining how much to allot for expenses that don’t occur every day can be challenging. Discover Personal Loans, a division of the financial services company Discover, surveyed 969 people to gauge how much they thought they would need for certain major expenses. They then compared those estimates to real-world costs and found that many consumers are in danger of falling short financially.
Medical costs can be tough to project since many consumers don’t know what health issues they will face in the future. The survey showed that consumers also have little knowledge about how much certain procedures actually cost.
For example, survey respondents on average thought a three-day stay at a hospital might cost about $11,000. However, survey researchers pegged the actual cost of a three-day stay as being closer to $30,000, almost triple the average expectation.
Along the same lines, survey respondents underestimated the cost of knee replacement surgery by 34% and the cost of an appendectomy by 32%.
On the other hand, there were a couple of examples where respondents overestimated medical costs. For example, those surveyed believed the cost of giving birth in a hospital to be 26% higher than average costs typically are. Respondents also overestimated the cost of in vitro fertilization by 26%.
Consumers aren’t just stumped about unexpected expenses, but also with expenses they take on themselves, such as home improvements. Respondents underestimated home renovation projects by an average of 46%, the survey found.
The most underestimated home improvement project by cost was a kitchen remodel. Survey participants expected a kitchen remodel to cost, on average, $10,388. However, the actual cost was estimated to be about $19,920 — a $9,532 difference, or 48%.
Other underestimated costs for home projects included cabinet refacing (underestimated by 74%), air conditioner installation (off by 42%), deck construction (undervalued by 35%) and bathroom remodels (misjudged by 31%).
Not only were respondents uninformed about actual home improvement costs, but most weren’t preparing for them at all. Among survey respondents, only 37% of homeowners reported setting aside a portion of their monthly budgets to pay for future home repairs or improvements.
Creating an effective budget requires not only planning for everyday expenses but setting money aside for events that occur infrequently, as well as those that are unexpected. When it comes to medical expenses, keep in mind that the health insurance plan you choose plays a major role in what costs you will be expected to pay for out of pocket.
It’s also a good idea to make saving for home improvements a priority. Allotting money for home improvements and renovations can not only keep you from experiencing a financial setback due to a necessary repair, but it can also help you build wealth, since some renovations can increase the value of your home.