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Analyzing the Perception vs. Reality of Common Life Expenses

Life is full of the unexpected. Few among us could predict a tree falling on our roof, let alone how much it may cost to repair. Estimating life’s expenses — both the ones that take you by surprise and those you can see coming — is like trying to guess how many jellybeans are in a jar. Even if you know the exact dimensions of said jar and a jelly bean, it’s nearly impossible to get it right.

People often incorrectly estimate some of life’s common costs. From kitchen remodels to health care expenses or the cost of starting a business, many have trouble accurately estimating the cost of these expenses and many others that may come up. We surveyed 969 people about how much they thought some of life’s common expenses really cost and compared their estimates to the reality. The survey showed that respondents underestimated these expenses by an average of 34 percent. The below details some of the most common misestimated costs by our survey respondents and ways to manage these major expenses that you may not have accounted for.

Home Improvement Project Costs 

Many people struggle to accurately estimate how much their home improvement projects will cost. To illustrate, an average of 78% of the people we surveyed underestimated how much it would cost to remodel a kitchen, based on average costs from HomeAdvisor. Many may underestimate because one renovation may turn up other necessary projects. Whether you just underestimate the project from the beginning, decide to fix other areas as part of the project or upgrade for more expensive materials, home improvements can exceed renovation budgets for many reasons. And sometimes the reason is simply not understanding how much labor and materials actually run for this type of project because it’s not every day that you remodel a kitchen.

The most underestimated home improvement project by cost was a kitchen remodel, underestimated by an average of $9,532. In terms of smaller projects, cabinet re-facing is thought to cost 74 percent less by survey respondents than the actual average cost.

One common budgeting pitfall is forgetting to account for the cost of labor. Labor can account for over one-third of your total cost. In recent months, a labor shortage appears to be driving labor costs up. Likewise, rising costs of materials are pushing many homeowners over budget.

Overall, the homeowners we surveyed underestimated the renovation projects included in our survey by an average of around 46 percent. To make up for these underestimated amounts, homeowners sometimes look to another source of funds to bridge the gap.

Saving for Home Projects 

Given how far homeowners’ perceived home improvement costs can differ from actual costs, it may be difficult to accurately budget for such projects. And many may not even think about saving for the unexpected, major home repair. This may be why only 37 percent of homeowners we surveyed set aside a part of their monthly budget to save for home repairs and improvements.

So when they’re faced with a major repair or are ready for a home improvement, how would they pay for it? From those surveyed, the top average home improvement projects respondents said they would use a personal loan to pay is a new roof or deck. For other projects, however, like a kitchen remodel, new windows or a bathroom remodel, people said the top average payment methods they would use are a credit card, home equity loan or line of credit, with their savings or cash out an investment to cover these projects. For small scale home renovation projects, an unsecured, fixed-rate personal loan could be an ideal financing option.

Discover Personal Loans offers loans up to $35,000 to finance your remodel, with no origination fees. Your money can be sent as soon as the next business day after acceptance.

Funding a Startup 

Some say it’s the era of entrepreneurship. On average, people are reportedly starting their own business around the age of 27, down significantly from the baby boomer generation. While starting a business may seem to be increasing in popularity with people choosing to be an entrepreneur as their profession earlier in life, that doesn’t mean it’s perceived to be affordable now.

The highest percentage of respondents at an average of 25% chose the highest-cost answer choice of $60,001 or more when asked what they think the average cost of starting a business is. Of course, the real cost of opening a business depends on the type of business being opened, but MileIQ estimates that retail business can expect an average of $32,000 to start, finance businesses can expect $52,000, and real estate business can expect $75,000 in average in startup costs.

When asked how they’d fund such a big endeavor, an average of 64 percent said they’d use personal savings to start their business. But just behind personal savings in popularity were personal loans: an average of 59 percent would use a fixed rate personal loan to start a business. Discover offers personal loans with no origination or pre-payment fees.

Around an average of 26 percent of our survey respondents said they’d fund a new business by taking out an even more personal type of loan: borrowing from a friend or family member. Almost as popular as personal borrowing was the idea of cashing out an investment. More than 20 percent would put their business start-up costs on their credit card.

Health Care Expenses Examined 

Medical bills are one of the most notorious surprise expenses. Not only is health care expensive to begin with, but it’s hard to predict when medical emergencies may strike. It can also be difficult to find out how much your medical care might cost beforehand.

It’s no surprise then that people incorrectly estimate the true cost of health care. Take, for instance, a three-day stay at a hospital. The actual cost of such care is around $30,000, but our respondents on average thought it cost closer to $11,000, meaning a $19,000 difference. Similarly, on average people expected knee replacement surgery and appendectomies to cost 34 and 32 percent less, respectively, than they typically do.

Cataract surgery was on the other end of the spectrum: People overestimated on average the cost by $2,491 over its actual cost. Additionally, people perceived both the cost of giving birth in a hospital and IVF on average to each be 26 percent over the average.

Covering Life’s Expenses

Life can be expensive. Sometimes it costs more than we think, and at other times, it costs less. But even if our perceptions are worse than reality, it doesn’t change the fact that major expenses can take a big chunk out of your nest egg if you aren’t prepared.

Discover Personal Loans can help cover life’s expenses, big and small, with loans available up to $35,000. With fixed-interest rates and various repayment plans to choose from, you can design your loan around the amount and length that best suits your needs.

Here are just a few of the things people from our survey said they’d consider using a personal loan for:

  • Debt consolidation
  • To cover the cost of pet medical bills
  • To pay for their child’s private elementary school tuition
  • Pet emergencies
  • Weddings

Whether you’re trying to renovate your home, start a business or cover medical bills for you or your pet, personal loans can be a helpful solution.

 

Methodology and Limitations

All figures, unless otherwise stated, are from a survey that was conducted by Fractl on behalf of Discover Personal Loans. The survey was conducted on February 14, 2019, with a total sample size of 969 residents of the United States (18+) Questions were asked on their perceptions of how much certain items cost when it comes to home improvement projects, business start-up costs, health care costs and more. The maximum margin of sampling error was +/- 3.15 percentage points with a 95 percentage level of confidence.

As with most surveys, it is possible that responses are affected by self-reported data, telescoping and attribution. We did our best to ensure the quality of the data by excluding respondents that did not pass our attention check and their responses to questions previously answered were omitted from the final results.

Responses were weighted by state and gender using populations from the U.S. Census Bureau to more accurately reflect demographics U.S. population. They were used in place of raw respondent counts to determine the percentage of people who set aside budget per month, as well as to determine all questions surrounding starting a business or startups. Weighted averages were not considered in the average perceived costs, though to exclude outliers, we omitted the top and bottom 5 percentiles of responses for each cost estimate. All figures shown in the project are not exact and have been rounded up or down to the nearest percentage point or dollar amount.

The prices we used to compare in the Reality vs. Perception graphics were sourced as follows:

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