FINANCIAL DECISIONS ARE TOUGH WHEN YOU’RE BACKED INTO A CORNER.
A couple, two kids, two jobs, debt, minimum wage and house hunting. Sound familiar?
Find out what the Ontario minimum wage hike means for them and whether they should jump into the housing market now before it becomes even more expensive.
Managing debt is one of the single most boring tasks that anyone wants to do BUT we need to do. I often get emails from readers about their debt problems when it becomes a serious matter.
Don’t make the mistake of waiting until it’s too late to pull yourself out from under, do it before. Worst of all don’t add more debt to the mix unless you’re confident you can make more money from it or that you can pay it off.
House hunting is a big task that many people take on especially during the spring and summer months. Real estate agents are ready to go and want to start house hunting with their clients.
Any time a young person messages me about managing debt the debt help they seek is about four things:
- School Debt
- Consumer Debt (credit card, bank loans etc.)
- Personal loans
The last thing you want to be doing when you are just starting out in life is to be plagued with heavy debt. The reality is that with less available full-time work, fewer or changed benefit options (if any), large-scale competition, it can be a struggle.
Just this past week I went for a job interview for the second time in over a year and there were more candidates than I had imagined. I’ve been working on a contract with this organization for almost 4 years working two jobs just to get my foot in the door.
This is what it takes these days to garner the attention of hiring managers. They hire the best to make sure they look even better. It’s about keeping the place running smoothly on all levels. Even the specialized skill category of employment that I’m in will always have competition.
Married readers who contact me complain that their spouse is spending too much money and concerned they will lose their house and marriage.
Why are we not managing debt properly?
Why are we creating debt we don’t need?
The answer: Because we can. Plain and simple because the options for credit and loans are widely available and geared towards such people. The excitement slowly becomes sadness when there is little to no funds to pay back borrowed money.
Make more spend more or make more and start managing debt. Yes, start managing debt. The exciting news for this week was Ontario Premier Kathleen Wynne’s announcement to raise the minimum wage to $15 by 2019.
Those who currently earn $15 are wondering how it might be fair if they don’t get an increase. Small businesses are wondering how they will survive the wage hike and the extra money by minimum wage earners is met with happiness and doubt.
Managing Debt vs. House Buying
I know couples who have bought a house with little to no savings and have struggled ever since to pay the bills. Living pay to pay is NOT what you want to be doing when you own a home but many people must live this way to make ends meet.
It may not have always been that way but things happen in life that put homeowners in a changed financial position. Options- move or stay and fight it out financially. Any one currently in this position would tell you it’s tough.
I received an email from a reader the other day who explained to me about his interest in buying a house now that minimum wage was increasing. He’s 24, married with two young children and they both have budgeted for a year.
His wife on the other hand is not convinced that they should be house hunting until the get a grip on managing debt and building a savings stash. They live in a city where house prices are through the roof and they would like to continue living there. A townhouse which is the new starter home from young families sells between $350,000 – $500,000. Fair enough.
Who’s right? Who’s wrong? It all depends on whether they can afford it or not.
The husband works in the city and his wife stays home with their two children. Right now he’s working two jobs one of which offers him minimum wage (part-time) and the other $21/hr (full-time). He will see an increase over the years with his full-time job as he gains more experience.
They currently have no debt other than a new car loan that will last another 4 years eating up $300 a month from their wallets. Their net income from his two jobs is approximately $5000 a month leaving them around $3900 net to play with.
That’s not much considering they live in the Greater Toronto Area where rent for a 2 bedroom apartment ranges well over $1000 a month. Luckily they got in a newly renovated house apartment for $900/month plus gas.
In their emergency savings account they have $3500.
Money looks better when you earn more
When you’re young and have only worked minimum wage jobs all your life up until now that number seems like a jackpot win. I remember getting my first job making more than minimum wage back in the UK and had the same feeling but I still saved like crazy.
The big wage earner feeling grows weaker the older you get as family, higher taxes, retirement and other financial obligations come your way. The more you earn the more you spend is true especially if you don’t have the frugal mindset. You know what I mean if you’re nodding your head yes.
Move Left, Move Right or Stay Put
They wanted me to take a look at their monthly budget to see if house hunting was a smart move or managing debt was the better move. Everything in life is a risk, even buying a house because anything could happen.
Since I bought my first house when I was 21 I wasn’t sure if I was the right person to share my experiences with them. I reminded myself though that my situation was much different. I had no debt, no kids and saved like crazy.
If you are a first time home buyer in Ontario as of January 2017 the government doubled the maximum land transfer tax (LTT) amount to $4000. What this means is that if you qualify you likely won’t have to pay much if at all for LTT with coverage up to $368,000 of the purchase price.
Again, this depends on where you buy and how hot the market is. Prices in and around the Toronto area have sold for $50,000-$100,000 over asking price. What you see is not always what you get with house prices especially when it becomes a battle of the buyers.
Minimum wage increase and your budget
First of all, there is no rush to run out and buy a house when you are young especially if you have a family. You’re better off saving money, managing debt and have a somewhat freedom feeling before signing on the ‘You just bought a house‘ dotted line.
In a perfect world buying a house and managing it on one income would be great but these days most couples must both work to pay for the bills and childcare (if they have kids). Some couples can do this but it depends on the mathematics of the situation.
Every financial situation is different.
- Car $300/month
- Rent $900/month
- Utilities $300/month
- Groceries $350/month
- Investments $800/month RRSP/TFSA
- Clothing $50/month
- Misc $200/month
- Car maintenance – $75/month includes CAA, oil changes etc.
- Petrol $120/month
- Entertainment $50/month (eating out etc)
- Allowance $50 /month each
- Sports and activities $50/month
- Life Insurance – $80/month
- Travel $50/month
- Christmas $25/month
- Birthdays $25/month
- Health and Beauty $50/month
- Work Related $50/month
- RESP $420/month
Emergency Savings approx $305 whatever is left or $3600 a year. If they need to they could lower/chop some of the extras from their budget such as allowance, entertainment, groceries, travel, birthdays.
Don’t let money work against you
I’m a fan of paying yourself first and in this case they are investing for retirement which is a good start for their young family. As his income grows they will be able to save more for their down-payment if they wait and pay off existing debt.
If we were in their situation we would rent until we had the down-payment that we would consider our financial safe zone. This means we can afford everything on one income in the event something should happen. Don’t settle for the minimum needed even if you are a first-time home-buyer unless you have a nice emergency savings account to back yourself up.
Even then I’d concerned. I’m a bit of a worry wart when it comes to debt even if ‘good debt’ is relevant to net worth growth by other financial experts. For me, debt is debt even if it can make you a mountain of money by investing it.
Risk factor is everything.
Owning a house is far more expensive than renting an apartment as it comes with obligations such as property taxes and maintenance. The maintenance side is always the first category to get dumped when funds are too tight. Let your house fall apart and you potentially risk losing money if you ever have to sell it.
The minimum wage increase might see their income go up a few hundred bucks a month but not enough to jump into home ownership. Keep in mind that if you use your RRSP as a first time home buyer as part of your down-payment that you’ve just created a debt using your own money.
In this situation the couple plans to use their Tax Free Savings Account (TFSA) as a savings vessel for their down-payment along with any savings above 6 months of budgeted emergency savings.
You’re permitted to withdraw up to $25,000 from your RRSP for qualifying home purchases. Form T1036 needs to be filed to report the withdrawal. Under this plan, only first-time home-buyers are eligible to participate, unless the special rules for persons with disabilities (discussed below) apply. You’re considered to be a first-time buyer if, during the four calendar years prior to the year of withdrawal and up to 30 days before the withdrawal, neither you nor your spouse or common-law partner owned a home in which either of you resided.- Tax Planning Guide 2016-2017
If his wife plans to go back to work at a clothing shop she will be earning minimum wage and then have to pay for daycare for 2 young kids. They may also see an increase in transportation, grocery, clothing and extras. Keep in mind he needs his two jobs for them to afford the lifestyle they currently have while renting.
This is key.
Managing debt and saving more money is the first things I would do before making any further large debt commitments. Just because the minimum wage goes up doesn’t mean everything else won’t either. If so the revolving door just keeps on going unless you’re managing debt or earning extra money.
The larger the down-payment the less you will pay monthly for your mortgage. You may also have the option to add a lump sum yearly or optimize it so it’s paid off sooner. That means if you do have extra cash you can dump it right into your mortgage or invest it (whichever you are comfortable with). Our down-payment of $80,000 on a $265,000 home allowed us to become mortgage free in 5 years.
Hang on to your money and keep saving, pay off your vehicle and then look around for something affordable for a one income family. This might mean buying a condo, townhouse or fixer upper if you’re handy (this can be costly so be warned).
Do what’s right for the both of you but consider how you will deal with certain situations before you buy. Thanks for your email and question.
Discussion Question: What do you think this young couple should do? Buy a house as soon as they can with the minimum down-payment to get into the market or continue managing their debt, save more and keep their options open?
A Week In My Life
As I mentioned above I went for a second job interview for a new opportunity in my line of work. I don’t know if I will get the job this time around but hopefully I will know more by next week.
We are getting close to our trip to Europe and so far have nothing done. Once I sort out a few bits and bobs with our vehicle next week it’s all focus on the trip.
Not too much action happening around here. Just work, family, cook, chores,work-out, blog.
Have a great week.
Top Finance Post
I’m a happy kind of guy because I believe happiness is the key to success. I don’t mean that you have to fake being happy but simply appreciating what you already have.
Even if you are down in the financial dumps or life is crappy finding ways to encourage inner peace will help get you from point A to point B. Amanda from the blog Centsibily Rich shares with her readers about ways to increase happiness because that’s really what we are all looking for. Enjoy the read.
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Making a difference (MAD) 2017
Welcome to the 2017 Making A Difference series! Join the networking movement of Personal Finance Bloggers around the world.
If you are a personal finance blogger and would like your blog to be featured simply drop me an email. I’m currently booking June /July/August 2017-Limited spots.
Personal Finance Bloggers and Fans: I’m currently recruiting for guest posts on the blog while we go away on holidays. This is your opportunity to get published on CBB. If you have a topic idea and interested please contact me via email. firstname.lastname@example.org let’s talk.
Hello Mr. CBB and Readers,
I started Debtfiles.com to come out of from the shadows and actually HELP people – finally. Sounds weird I know but here is my condensed story.
Back in 2003 I was an unemployed aircraft engineer freshly laid off from Air Canada and freshly discharged from personal bankruptcy.
I decided to leave behind a 16 year career in aviation because I hated working nights and having a boss. On my last day working in a Calgary hanger I searched these words in Google, “I want to work at home on my computer”.
That started the insane journey. I soon discovered that I loved writing and that if I wanted to make a full-time living blogging it better be on a subject where you can get paid high commissions from merchants, and it better be the United States market. So I started my first blogs regarding personal loans (yeah…..they were UGG LEE).
Long story shortened, over the next 15 years I replaced my Air Canada income and my wife’s income, and then tripled that! Great for my wife and I. Lucky us – but something was eating away at my conscious.
Here we were traveling, paying off debt like crazy, living free as birds, and meanwhile all the people commenting on my blogs were suffering in the throes of desperation.
Still I get around 20 comments a day on my old loan blogs from people desperately trying to get out of a really bad place. Even worse I see them being scammed and manipulated by “companies” that wouldn’t even be allowed to operate in Canada.
Here is an example I just pulled from a comment this morning;
‘I have gotten behind on bills after my spouse passed away. Really just need a push to catch back up. I have 2 children and a single mom.”
I’ve read comments of desperation like this for over a decade and on top of that the Google AdSense ads on my blogs were showing mostly ads for payday loans and scam style debt consolidation companies! So I was helping make these people’s lives WORSE!
So what I did was remove Google AdSense from all of my blogs, got rid of all other advertisers except for one that provides a service respected in the industry and has a strong rating with the Better Business Bureau.
I felt better, and ironically our income increased as we developed a strong relationship with the merchant. Now we live in Saskatoon and I work from home for a company in New York City – neat right.
But something was still missing.
I’m not helping these people avoid scams and I’m not helping them change their lives.
So I started Debtfiles.com for the first time started using my real name. I started by writing posts on what I like to call “The Unicorns”. Unicorns are things people search for online that don’t exist. An example would be, “Loans For People With Bad Credit Scores – 3% Interest Rate”.
That’s a classic unicorn. It doesn’t exist and it has a sharp horn sticking out of its forehead.
But now when these people find my content I tell them about the scams they should avoid, and most of all show them how they can turn their lives around.
How they can get out of debt, or emerge from bankruptcy with less shame and guilt. When I declared bankruptcy is was the lowest time in my life in regards to sell esteem, so a big part of what I want to do is make sure my visitors will feel less embarrassed, ashamed and frightened. At the very least maybe they won’t feel so all alone.
I’ll still take pre-apps from users so I can engage with them, and if they’re in a position to get approved with a legitimate lender I’ll email them their best options and suggest a future plan for getting out of debt. Usually I’ll have to tell them the hard cold facts – they’re not going to get approved with a legit lender and they need to change their lifestyle.
Thanks again CBB.
Thanks Brent for stopping by and sharing your story!
Fan Brag of the Week
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Jen is back at it again with some awesome garage sale deals to share with us.
Here are today’s finds:
- Book shelf $3 >>>> (WOW great deal Jen)
- Lululemon sweater and blue dress $5 (asking was $7) – part of a birthday present for my friend’s daughter
- Peacock pj pants and fuzzy socks $2 (asking was $5)
- Nygard jeans and instant tac $3 (asking was $5)
- Box of paper and envelopes $1 (the chalk inside the box was free!)
- Battery operated candles $2 (asking was $6)
- Lego man case and OFF Clip on $.75
- Plastic forks $.50
- Black crochet shoes $1 (they’re brand new!)
- EOS lip balm, tent pegs, flashing light stick $2.25
- Two hockey pucks, red stress ball and kids drink container – Free!
- Three packs of side-walk chalk, metallic pencil crayons and broom with dustpan $1
- Total $21.50
CBB Words of Wisdom
Top Chef Recipe Pick
Food is a big part of any budget and a struggle for so many people which is why I’ve created frugal recipes for my family and yours for many years.
I have a second Facebook page called The Free Recipe Depot where I exclusively share recipes from Food Bloggers around the world.
Check out the Free Recipe Index on CBB compiled of frugal recipes that are 100% tested and accepted by family and friends!
I was over at Lemon Tree Dwelling this week after I managed to sneak a glimpse of this beauty on Facebook.
I love bacon, Swiss cheese and blackberry jam so why not put it together and make a grilled cheese from it. YUM. I also believe that an excellent grilled cheese always starts with a nice bread.
Watching her video will make you drool even harder for this Blackberry Bacon Grilled Cheese sandwich.
I don’t think we can have a fire pit living in the city according to our by-law but for those of you who can I found this awesome post at HomeBNC sharing 27 of the best Firepit DIY creations out there. Check it out and I hope you find something you like. I did.
Search Term Giggles
Always begin and end your day with a SMILE!- Mr.CBB
Every week I get tens of thousands of people visit Canadian Budget Binder because they did a search online and found my blog.
Most times funny, Sometimes serious.
- Where to sell my used clothes in Canafa? – I don’t know never heard of the place before.
- How to make money FAT in Canada– Don’t spend it, haha. I presume they meant ‘fast’ but hey I’m all about having a chuckle.
- You have a spouse that has uncontrollable spending. spends w/o informing spouse. what be done legally to protect the non-spending spouse– Ok, I laughed I did. This is deep but if you’re considering anything legal the first thing you might want to do is talk to your wife or go your separate ways.
- Make some serious money fast– What the heck is “serious money”?
That’s all the fun for this week, thanks for dropping by and we’ll see you all again next Saturday.
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Hey…if you see any mistakes let me know. I’m not an editor just a guy who likes to write and yes I make mistakes.
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