The best way to prepare for hidden costs is to ask the contractor upfront which costs he expects to rise.

To prepare mentally, you can ask the contractor's references whether the final costs of their projects exceeded the estimates, and by how much. Those references can also tell you what the hidden costs were. If a contractor has a history of estimating too low, you can either find another contractor, or you can anticipate and prepare for a higher final price.

Also, make it clear at the beginning of the project that you want the contractor to let you know the minute he knows the project will cost more than expected so you have time to get your finances ready.

Do-it-yourself dues
Do-it-yourselfers aren't immune to hidden costs. They, too, can find themselves paying more for a project than they originally anticipated.

One hidden cost that many homeowners don't think about is permit fees. Depending on the type of work you're doing on your home, you may be required to apply for a work permit. For example, a building permit is generally required from local building-inspection authorities for work that changes or adds to the structure of your property. Other permits you may need, depending on the project, are for electrical, mechanical and plumbing work. Often, you must pay an application fee in addition to the cost of the permit. Permit costs are generally based on the estimated construction cost of the project.

Another place a DIYer might underestimate a project is when coming up with all of the supplies and tools needed. Unless the job is one that you've done before, chances are pretty likely that there is a piece of equipment you'll forget to list or there is a tool that might make the job easier. If you're doing a task for the first time, always give your budget some breathing room for supplies you didn't think about.

Unfortunately, another hidden cost could arise from breaking something and having to fix it.

"If you're renovating your bathroom and you mess it up, you may have water all over the place and you have to pay for them to rip up the wall," says Demian Faunt, senior editor at DoItyourself.com.

For that reason, it's important that you be very knowledgeable about a project before attempting to do it yourself.

"Look up how to do the smaller projects that not only are in your budget but your expertise level so you don't have to call and have a contractor come in" to clean up after you, Faunt says.

A home-improvement project can be one of the most rewarding investments you can make. But when coming up with your budget, make sure you include room for the unexpected costs that are likely to arise. That way, you can spend more time enjoying your improvements and less time worrying about how you're going pay for them.