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Money-Ramblings-of-a-Financial-Underdog

Sad and depressing

You know what's really sad and depressing?

No, it's not the fact that in less than a month, people down south will have to choose between Hilary Clinton and Donald Trump.

I don't care much for politicians except for times when they're handing out free sandwiches in my general vicinity. The rest of the time they're fairly useless in improving lives of the general population, so why bother pay attention to them?

No, what's really sad and depressing is rising real estate prices in Canada.

Even though prices seem to be stabilizing and in some places going down, real-estate prices in Canada are still outrageously high. The average price of a detached house in Vancouver after a major sell-off is sitting at cool $1.5 million.

Oh, my, what a bargain. Not really.

Doesn't get much cheaper if you pick Toronto.The average detached house will set you back roughly $1.3 million. Calgary? Around one million.

Kelowna, where we call home — about $700,000. Yes, much cheaper than Vancouver where we lived for a bit, but keep in mind that income levels around here are much lower as well.

So, we're a young couple in mid 30s. Both working, both handsome. Household income slightly higher than average Canadian. Financial habits much better than those of average Canadians.

Net worth also much higher than average Canadian. We already own a town house which we're planning on paying off in the next eight to 10 years depending on how things go.

But even we look around and can't quite figure out how we're supposed to be able to afford a house without going completely broke.

Let's say we decide we'd like to buy an average house in our neighborhood for $600,000

Traditional financial wisdom calls for a house to be worth roughly three times your household income. This house therefore is out of our reach since we do not make $200,000/year and neither do average Canadians.

Technically, we can afford it if we buckle down and stop saving money (right now, roughly 40 per cent of our income is being put away and invested for the future in hopes of creating extra income that can replace our work income down the road).

So, let's say we go against financial wisdom and shop around for $600,000 house. 

What does $600,000 buy us in Kelowna?

This 60-year old house on a busy street next to a hospital.

Absolutely charming, am I right? As a bonus, not only do you get yourself a bird house, but you also get an ongoing hobby of fixing it and making endless trips to Home Depot because at this age everything inside of it is falling apart.

And if we've decided to move back to Vancouver area to shop around for a house of the same value, we would not even get close Vancouver and had to settle in Surrey — notorious for drug trade. But, hey, for $600,000 you can move there and live in a house with rich history of ... well, drug trade from the looks of it:

We could also hop across the channel and call Victoria home. Victoria is a charming, vibrant community on Vancouver Island. Great place to raise a family and complain about ferries schedule.

Having been there a few times, I must say it's a very appealing location. But for $600,000 you can only buy a house of this nature:

It looks completely normal size if you're a single little person who doesn't like spending more than 10 minutes cleaning the entire house, but how an average family is supposed to fit in there?

If you're a family of four, you'll have to take turns being inside it.

Still not depressed yet? But wait, there's more

Let's see what this $600,000 will buy us some place overseas. For example, for roughly the same amount you can live in this house:

This five bedroom character house in France can be yours for the same amount. It comes with high ceilings, courtyard garden, and your own personal white flag in case of yet another German invasion.

But let's say you hate Europe and everything about it but do like fried food and country music. So instead you look down south to United States. Same amount of money will buy you these giant houses in Texas and Nevada:

Look, I know some things are bigger in Texas, but I thought it mostly applies to people, guns, and vehicles. Apparently houses too. Make all the jokes about their presidential candidates, but look at the size of these houses.

So now that you're all good and depressed, let's think about solutions

How can an average young family like ours solve this problem without playing lottery or dancing exotically on weekends?

1. Wait for the prices to lower

  • Recent news stories do point out the fact that house prices are retreating. Unfortunately, I don't see them going anywhere near what they're supposed to be in order for average Canadians to be able to buy a house for three times their income.
  • For this to happen, prices would have to go down almost 60 per cent. While there is a slight possibility of it happening, the consequences of it on Canadian economy would be very drastic. Real estate is a huge chunk of our economy and prices dropping by 60 per cent would turn Canadian economy landscape into a set of Walking Dead series. Total annihilation.

2. Double the income

  • If an average family in Canada doubles their income technically they can afford these prices. If our paycheques doubled, we would feel much more comfortable buying a house and still being able to save for our future and even buy food once in a while.
  • But how realistic it is for an average family to double their income? Paycheques do increase as you move through life and advance your career, but not nearly at needed speed.
  • Slight minority of general population can double their income by starting a business or rocket-jumping up the corporate ladder, but far from everybody is able to do it. If everybody became CEOs, nobody would be left to work at assembly lines.

3. Wait. Then wait a bit more. Then ,wait some more.

  • Yes, we can also wait. We can pay off our current residence in eight to 10 years. Then sell it, take out an additional mortgage and finally buy a detached house of fair size.
  • We'd finally have a backyard I've been dreaming about. We could finally plant our veggies, have space to work on bike project, let kids and pets run around. Oh boy, it will be glorious. But we'd have to wait a long time for it, and that's depressing.

4. Dial down the expectations

  • May be people of our age are not supposed to be buying houses. Yes, we live in a fairly spacious town house, and perhaps we should be grateful for it.
  • People in the past were able to afford houses in their twenties because practically all of their income would go toward it without having any joy in life and their houses were much smaller than today's houses.
  • Have you seen houses built in 1950s and 1960s? Most are only slightly larger than today's garden sheds.
  • So far we've been sticking to "all of the above" approach. We'll keep paying off our current residence, keep trying to increase our income, and wait till we feel comfortable financially to move into our own house.

But overall, the situation doesn't look good for average Canadians

The average incomes are not in sync with average house prices. Forget about "three times your income" rule if you're aiming to buy a house.

For an average Canadian household owning a house means going deep into debt and becoming a slave to it for years to come. 

In fact, for every dollar average Canadian makes, he/she owes $1.70 to a bank largely due to extremely high real estate-related borrowing. House prices are at all-time high, and average incomes are increasing at very slow speeds.

And even if you do buy a house, it will be nowhere near as nice as what money can buy you in France.

Not to mention their croissants.

Sorry for bumming you out, y'all.

I hope you enjoy my column. In case you’d like to discuss this article, feel free to leave a comment by visiting this link.

Also, let’s chat on twitter.



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Education isn't the key

Here's something that really upsets me sometimes — people saying that education is the key to financial success.

“How come basic financial education isn't offered in high school? So many problems could have been avoided for us average people if teachers showed us how to budget our money and avoid high interest debt of credit cards.

"Everybody would be responsible with money, nobody would go into debt, and payday loan outfits would go out of business! Right?”

Wrong

Honestly, can you really blame lack of information for our pathetic collective personal finance savvy? And I do mean it's pathetic on average.

  • We borrow too much
  • we spend too much
  • we don't invest enough
  • we rely on our government come retirement.

Judging by the recent news stories, we’re borrowing more money than ever before and there’s no sign of stopping it.  

But we're literally swimming in the ocean of information on how to improve our finances. Millions of books are being printed every year that tell us not to borrow, spend less, invest like pros, and you won't have to eat cat food in your golden years.

There are thousands of websites that will walk you step by step through creating your first budget. Hundreds of blogs will tell personal stories of people who changed their lives financially by making positive changes.

We have TV shows about good financial habits, radio shows, podcasts, entire sections in Chapters and local libraries, even computer games. How can anyone blame lack of education for our sorry state of affairs?

Yet, without fail, somebody always says the magic words: "This wouldn't be a problem if people were more educated. Education is the key."

Education isn't the key. Motivation is the key

We all know what to do. We all know that if you borrow money, one day you'll have to pay it back with interest, yet we borrow.

We all know we have to have an emergency fund strictly for emergencies, but we fail to save up because something more important comes along, like the need for a new BBQ for your backyard.

We all know that paying yourself first is important. None of the books about personal finance really tell us anything new. We already know what to do, we just don't do it.

Lack of education isn't the real problem, lack of motivation is.

Just like we all know how to stay in shape and not get fat. Since last year, I've lost almost 50 pounds by hitting the gym a few times a week, and eating proper nutritional meals (although funny tasting since kale is involved).

I even started jogging here and there, and that's coming from a guy who never run in his life except maybe this one time I heard free pie.

Now, do you really think I didn't know how to lose some weight till my mid thirties and suddenly became aware of it?

No, I knew that eating properly and staying active will get me there. I simply didn't want to do it and lacked motivation until one day.

Lack of education was never an issue.

If anything, we have too much information. Should you pay off the credit cards or should you buy your own home? Millions of people will tell you one thing; another million will tell you the other. Should you put your money into TFSA or RRSP?

Five thousand contradicting news stories will compete for your attention until you give up and run away screaming, thus resorting to doing nothing.

It’s becoming harder and harder to blame lack of financial education, don’t you think?

So why do people keep chanting "Education is the key" mantra over and over again?

Sadly, I think it's because by blaming lack of education, people shift the blame to someone else.

We love the idea of someone else being responsible for our wrongdoings. Cause if it's not someone else, we have to face the fact that our sorry state of financial affairs is our own fault.

And we can't simply stomach this idea. 

If only those smart teachers explained to kids who are eager to learn everything they need to know about money.

Of course, we're forgetting that kids are not too keen on learning boring books in school and more interested in the upcoming dance party.

Perhaps you don't remember yourself in high school, but I do remember taking numerous classes including French, math, chemistry, physics, literature, and history.

Let's just say if knowing European history was a major part of being an adult, I'd still be screwed in my younger years despite studying it in high school. 

Lack of educational programs makes it an easy target because you can also start blaming the government for not including basic financial education into high school curriculum.

Oh, that dang government, when will they learn? You can never go wrong with blaming the government for everything going wrong in your life. 

We even complain that banks don't educate us on dangers of borrowing money. We complained to the government, and talking heads in

Ottawa now forces all credit card companies to print in small letters, "This will take you 156 years to repay if you only make minimum payments" on our credit card statements.

But this year we will borrow more money collectively than ever before even after all this education and vital information on dangers of borrowing. Clearly, being informed doesn't stop us from doing it. 

So, for the love of everything that is holy, stop blaming lack of education for how messed up our finances are.

We all know what to do; we just don’t want to do it.



Green can save you green

Going green can help you save money

When someone tells you to “up your green game,” what do you think of?

Do you imagine roofs lined with solar paneling?

Do you think of a house that is completely off the grid? Do you start to panic, imagining how much turning your home into a “green” home will cost?

Before you freak all the way out, here is some good news: going green doesn’t necessarily mean making huge costly improvements to your home.

For the most part, going green means making small changes, all of which save you money in the long run. Here are just a few examples:

Use less power

Duh, right? Obviously one of the quickest and easiest ways to “green up” your home is to power it down as much as possible. Most families do this via simple habit switches like turning off the lights when they leave a room, adjusting their thermostats by a few degrees, etc.

Here are some other things you can do to reduce your power consumption:

Switch to LED bulbs as your CFLs burn out. LED bulbs do cost more at the outset (at the time of this article’s writing, they are about $20 per bulb) but they are the most energy efficient bulb currently available.

They use less power and last longer than incandescents, fluorescents, and even CFLs (and you don’t have to wait for them to “warm up” like you do CFLs). Over the course of a bulb’s lifetime, it can drastically reduce the amount of power you consume, thereby saving you hundreds of dollars in energy bills.

Invest in a solar charger or two. Solar chargers are primarily the purview of outdoorsy types; they’re a great way to keep devices charged without requiring heavy backup batteries, etc. They’re also quite popular with travelers who don’t want to worry about finding an outlet at the airport.

You can also use them in your home to reduce your power consumption. Small chargers work great for cell phones and tablets. You’ll want a larger charger if you want to charge laptops or multiple devices at the same time.

Grow Your Own

Yes, we know: not everybody has the yard space for a large fruit, veggie, or herb garden. Some of you live in tiny spaces with no yards at all. Guess what: even if you live in a tiny apartment, you can still grow a few things. Herb gardens, in particular, work well on window sills and in small containers.

Growing your own herbs and, if you have the space for it, produce saves you tons of money at the grocery store. It reduces the number of trips to the store you have to make. It can also, if you’re growing your herbs and produce inside, improve the air quality of your home.

This improvement reduces the burden on your air filters and HVAC system, making it cheaper and easier to maintain.

  • PRO TIP: Set up a compost pile or under-sink worm bin so that you can fertilize your plants organically with your own compost instead of spending lots of money on compost or fertilizer from your local nursery.

Yes, you already know how to take a military styled shower and are already doing that in an effort to reduce your water consumption. You also only wash full loads of dishes and laundry.

Guess what: there’s more you can do. Saving your gray water (the water that collects in the tub while you’re rinsing off, and that flows through your gutters when it rains) and pure rainwater is a great way to reduce the amount of water you access via the municipal supply, which reduces your monthly water bill.

Setting up rain barrels is relatively simple and cost effective and while you shouldn’t use gray water for cooking, it does have many other uses around the house.

It might sound silly, but the greener you can make your home, the less you will spend on everything from utilities to grocery costs. Use these tips to help you green up your life.





Don't buy that house - yet

Real estate is sizzling these days. You know it’s a hot topic when you go to Starbucks hoping to get a coffee in peace and quiet, but end up listening to people talking about how investing in real estate is a sure way to make money.

Then, on the front page of Financial Post you see an article how real estate in Vancouver is more expensive than London and Hong Kong combined. On TV, you see yet another real-estate investing show. Your cab driver tells you he’s thinking about investing in rentals. Your friends ponder about becoming real-estate moguls.

Seems like everybody is talking about it, prices are going nowhere but up, and today is your last chance to buy it; otherwise you risk spending the rest of your pointless life in misery while paying rent. Paying rent is now a synonym for throwing your money away because you simply pay someone else’s mortgage and have nothing to show for it at the end of the month.

But what everybody fails to mention is that owning your own home is not for everybody. You can go on living without having your name on the property title. In fact, some people should be prohibited from even thinking about buying real estate.

1. If you are a student going to school you have no business owning your home.

I’ve met somebody who bought a condo while going to school with no considerable income. I have no idea how she got approved for a mortgage, but somebody should have told her that buying a condo while going to school is a bad idea. Sure, you have to live somewhere, but your income is low and unstable. Also, there’s a very good chance you’ll be moving to start your career after you finish school or simply move closer to work. The two to four years it takes to finish school isn’t enough time for your property to appreciate – between listing fees and all associated costs, you might end up losing money. Just finish your school in a nice rental. There will be plenty of time to buy real estate once you’re out of school.

2. If you don’t have a sizeable emergency fund, you should stick to renting

I would not buy a place without having at least $15-25K sitting in a separate bank account as an emergency fund. While having emergency fund is a good idea for just about anybody, it is especially important for those who are homeowners because things happen. Appliances need repairs or need to be replaced, insurance rates have been raised, your roof needs to be replaced, and you have mould in your basement. Issues come up, and you can’t call your landlord to take care of them.

3. If you still don’t know what you want to do when you grow up, buying your own home might be counterproductive.

Life in your 20s is pretty awesome. You party, you go to school, you make new friends, you date, and you have fun. Life in your 20s is about discovering yourself. If you’re like an average 20 year old, you’ll probably change the direction of your life three times before lunch.

There’s no shame in waiting till you settle down to start thinking about acquiring real estate. Perhaps by that time you’ll have picked a place where you want to live, your career will be on the way, and you’ll be ready to commit. Because buying a home is a commitment.

4. If you have debt, don’t even think about buying your own home

Debt weighs you down financially. It sucks juice out of your financial well-being. It drastically reduces your options and puts extra stress on your life.

If you have troubles repaying X amount of debt, does it make sense to go and sign up for XXX more debt? It doesn’t make sense. Ideally, you slay all your debt and life debt-free for a while before you commit to borrowing hundreds of thousands of dollars. Just like before lifting an Olympic-size barbell at a gym, you become comfortable dealing with much smaller weights first.

The moral of the story is this. Everybody is screaming at you that you need to invest into real estate right now or forever be left out. Granted, investing in real estate if done under proper conditions can be beneficial. But renting until you meet these conditions won’t change your life. Finish school, work on your career, have some fun in your 20s or 30s, pay off your debts, and become comfortable with your finances. There will be plenty of opportunities to buy later. Millions of people enjoy normal lives paying rent instead of a mortgage. Don’t give into the hype and do what makes sense for you at the moment.


Photo Credit: Liane Metzler (unsplash.com)

 



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About the Author

As somebody who grew up in a poor family, I lacked common knowledge about money from day one. If you can think of one dumb thing to do with your money - I did it. No paid college education for me. No inheritance, no financial help from my parents.

I may be a financial underdog, but through building good personal finance habits and educating myself about how money works, I hope one day to achieve financial independence for myself and my family.

Yes, I do believe an average person can enjoy a wealthy lifestyle as a result of smart decisions. Given enough time and proper education, anybody can change their financial future for the better. This can happen even if you start very late into the game - but your financial habits have to change.

If you'd like to know more about my struggles and wins with money, feel free to visit my website http://www.MoneyRamblings.com where I ramble about everyday money issues.

Contact me by email or connect on Twitter 

 

 

 



The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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