Family Formation & Housing

For young couples starting families, buying their first home and/or other real estate. Covers mortgages, credit cards, interest rates, children’s education savings plans, joint accounts for couples and the like.

A saving & spending plan you can live with

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Robb Engen, Boomer & Echo

In many ways, Elizabeth Warren’s 2005 bestseller All Your Worth was ahead of its time. Warren, a relentless consumer advocate, eschews mindless frugality and focuses instead on finding the right balance so you always have enough to pay your bills, have some fun, and save for the future.

The author suggests a simple formula for spending your after-tax dollars on needs, wants, and savings:

  • Allocate 50 per cent to needs: These must-haves include housing, transportation, groceries, insurance, and clothes that you really need.
  • Spend 30 per cent on wants: Wants include cable television, clothing beyond the basics, restaurant meals, concert tickets, hobbies, etc.
  • Set aside 20 per cent for savings: This includes both short- and-long term savings, as well as debt repayment.

Warren encourages saving AND having fun rather than scrimping and pinching pennies on the things that make you happy. That means saving money on big-ticket items like housing and transportation – effectively reducing the amount you spend on needs to free up money to save for the future and spend on wants.

“If you can’t afford to have fun, you can’t afford your life.” 

When I applied this formula to my own spending I found the following breakdown:

Needs took up 53.5 per cent of our monthly budget, including the mortgage payment, property taxes, car payment, insurance (life, home, car), groceries, gas, utilities, cell phone, hair cuts, prescriptions, and clothing.

Related: What will it take for you to save more this year?

Wants made up just 18 per cent of our monthly spending, including cable and internet, restaurants, alcohol, children’s activities, hired cleaners (bi-weekly), credit card annual fees, subscriptions and memberships, gifts, summer vacation, and discretionary spending.

Finally, savings accounted for 28.5 per cent of our monthly budget. This amount includes repayment to our line of credit, contributions to my employer pension, RESP deposits, plus RRSP contributions.

Our car will be paid off late next year, which will free up $10,000 per year and reduce our “needs” allocation from 53.5 per cent down to about 44 per cent. Ideally, I’d prefer to shuffle that money over to savings and build up our TFSAs;  however, I’ll keep the idea of balance in mind and consider adding a few thousand dollars into our “wants” allocation.

Final thoughts

A balanced financial plan will ultimately lead to a happier and more fulfilling life.

Too many of us are living close to the edge financially because they’ve over-extended themselves on house and car payments and can’t afford to live.

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Expect mortgage price war to be sparked by today’s interest-rate cut

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Romana King (MoneySense.ca)

Good news for homeowners today with the surprise announcement interest rates in Canada are being cut by 0.25% (to 0.75%).

In her MoneySense.ca column today, real estate columnist Romana King predicts there will be an imminent price war among financial institutions offering home mortgages.

That can only be good for those renewing mortgages or about to buy their first home. One of the charts Romana describes shows five-year fixed rates could even fall below 5%.

Of course, as someone who preaches that the foundation of Financial Independence is a paid-for home, I’d still rather have no mortgage at all. But rock-bottom rates are the next best thing and it seems they will continue for as long as the eye can see.

My only caveat: be wary of buying more house than you really need. Use the gift of continued low rates as a way to accelerate the paydown of your mortgage.  Because ultimately we value Financial Independence more than having a monster home in which to store more “stuff.” Don’t we?

As I say in my book, “Freedom, Not Stuff!”

How to protect your biggest asset: the ability to earn an income

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Ermos Erotocritou, CFP

By Ermos Erotocritou, CFP

Special to the Financial Independence Hub

When a person suffers an illness or injury, it may take some time to know how long it will last, and how long it will keep the person from earning an income.

Hopefully, the disability will last a short time. However, in many instances, the disability can last for a long period of time, perhaps for life. The consequences facing an individual will tend to vary with the length of time a person is disabled.

The consequences will also extend beyond financial concerns. While every everyone is different, and will react differently to events in life, there are some commonalties that tend to occur among people who experience a disability.

Possible consequences of short-term disability

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Rethinking Retirement and Home Ownership

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Gary Gorr, CHFC

By Gary Gorr, Chartered Financial Consultant

Special to the Financial Independence Hub

Recently I have been doing retirement assessments for several new customers. What amazed me as I spoke with them was how resigned to defeat the clients were. It was like they knew in their guts that they had started saving too little and too late to attain the retirement they wanted.

One answered my question on when do you want to retire by saying “around 120 is the only way I could.”

After the initial meetings I reflected on other circumstances from planning for customers in 2014 and noticed some commonalties.

  • Age range: 45-55
  • They own homes with attractive Fair Market Values
  • Had fairly decent equity positions in homes
  • Most would carry a mortgage into retirement
  • All had projected incomes at retirement far less than their desired outcome

Many Canadians, including these clients, have grown up with the belief that home ownership is an important goal. The home represents a significant part of their net worth.

Not easy to unlock home equity

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Why you need to share financial responsibilities with your spouse

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Wealth PlanningHub Staff

From the American Family Insurance website, this article focuses on the importance of sharing budgeting and financial responsibilities with your spouse. In many relationships, it seems one party usually takes over much of the financial decision making– knowing important contacts, where money is kept and how it is spent etc. This article stresses the importance of making sure BOTH parties are on the same page with the family finances and, just as importantly, the family’s financial goals.

AmFam provides a few important steps to accomplishing this, beginning with talking to each other about things like saving, bills, retirement planning and debts.
Setting short- and long- term financial goals TOGETHER, knowing where to find your safe deposit box and combinations to the home safe, and finally making sure your loved ones know how to contact important financial contacts are the final steps to being on the same page as your spouse.

The article also discusses the importance of protecting your important papers by using preventative measures such as a safe deposit box, a fire-resistant home safe, a home filing system, and your attorney’s office to keep all your various documents safe.