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The reason you have an axe is so you can chop up the branches and the tree stumps around your farmland and get lumber, so that you can get your house upgraded. Another way to get lumber is to buy it from Gotz, who charges 50g per piece. Once you get enough lumber and money, you can upgrade your house. To extend, talk to Gotz the Woodcutter who lives south of your farmland. Choose what extension you would like, and he will do it for you. This takes three days.
Upgrading your farm and your house is vital in the game. If you do not upgrade your house twice, you cannot get married, because that is one of the requirements. Upgrading your barn and your chicken coop is important as well - it allows you to make more space and buy more animals which will help you earn more money and improve your farm points.
Upgrade 1: Extends the size of your farmhouse.
Cost: 3,000g Wood Required: 200
Upgrade 2: Extends the size of your farmhouse.
Cost: 10,000g Wood Required: 700
Barn: Extends your Barn so you can have more sheep and cows.
Cost: 6,800g Wood Required: 500
Chicken Coop: Extends your Chicken Coop so you can have more chickens.
Cost: 5,000g Wood Required: 420
Vacation House: Builds a cottage in the empty lot in town
Cost: 100,000,000g Wood Required: 999
After getting the 2 house upgrades, some remodeling opportunities will also become available.
Window: (choose 'square with screen', 'square without screen' or 'round')
Cost: 25,000g Wood Required: 300
Doghouse: (choose 'red', 'blue' or 'strange')
Cost: 25,000g Wood Required: 500
Mailbox: (choose 'red', 'blue', or 'strange')
Cost: 10,000g Wood Required: 200