1. Identify the project. Will it be a new home, an addition to your existing home, a kitchen or bath remodel or some combination of these? Each has its own budgeting method. While a simple "per square foot" cost may work for a new construction project, it definitely won't work for kitchen and bath remodels. And for something like an addition or renovation to a historic home, toss out any sort of cost guidelines. The best approach to establishing a budget for projects like these is to talk to professionals with experience.