In: Real Estate News21 Sep 2011
Many Canadians are buying homes at record prices. Buying a home at the top of your budget can create a situation where owners are “house poor”. House Poor is a term to describe owners who are able to afford their mortgage payment, but are not able to afford to spend money on other necessities or desires. For example, if your mortgage payments are $2,500 a month, and this amount consumes a lot of your incomes, then you might not have money left over for clothes, expensive food. movies, cell phones…In the case of “house poor” the buyers have chosen to buy an expensive home and not have additional funds for other purchases. If you are in this situation, here are 10 tips to manage being house poor:
President’s choice has a FREE credit card that pays back approximately 1% of your spend in free groceries. This is by far one of the best deals available. As long as you pay your balance on time each money, this is a great way to save money. My family puts everything on our PC mastercard and we receive approximately $300 a year in free groceries.
If you are able to follow tip 1 and put everything on a PC credit card, then you will be able to earn interest on your money while you wait to pay off your credit card statement. Ally bank offers 2% interest on your money. You can easily transfer money to and from your chequing account. Most house poor people don’t have a lot of spare money available, but if you do, make sure to earn some interest on it. Even $2,500 in an Ally account gives you $50 in interest per year.
Instead of MORE plastic toys for your children, why not instead have your children’s grandparents give you money for their RESP. If your child receives $200 a year from grandparents, and this money is put into an RESP, the government gives an addition 20% (free!). This means that you could have $240 a year going toward your child’s education. That’s $40 free from the government.
(…in case your calculating, the first 3 steps have resulted in close to $400 a year in free money.)
If you want to live in your great big expensive home, then you should be motivated to earn more money. You should be aggressively looking for opportunities to get promoted at work. If there is no opportunity at your day job, then perhaps look to earn extra money. Tutoring? Tim Hortons? Turn a hobby into a money earning enterprise? Whatever it takes, if you are house poor, you need to find a way to make more money if you want to buy more stuff.
Changing your mortgage to weekly payments does not lower the total monthly mortgage bill, but it does lower your amortization. A 35 year mortgage paid weekly is actually only a 30 year mortgage. You save 5 years in interest costs! Plus if you need to refinance to afford your “house poor” situation, you will have paid off more principal with weekly payments, and thus you will be able to get more money from your refinance.
Cars are expensive. Insurance, gas, financing. Think about whether you can get by with only one car. One person should be able to commute to work. Really think about it! How many times a year do you really need 2 cars. Maybe 10 times a year? Insurance on a car can be $250/month or $3,000 a year. You could take 10 cabs for $50 each and save $2,500 a year just in insurance costs!
This is a way to afford an expensive home. It can come with complications and all the “fun” aspects of dealing with a renter, but if you want to live in a big home, it might be an option to make more money. Imagine an extra $700 a month?
You might not have extra money available for all the cool new stuff you want to buy, but why not look on kijiji? You might find a used version of what you want for a fraction of the price.
Most TV shows are available online. Why are you paying for internet and cable? You could be saving $70 a month if you stop your cable. Just buy a cable that hooks your computer to your TV! There is free software (boxee.com) that even organizes all the TV shows into an easy “choose and click” option. I do this and use my Iphone as my remote control. 80% of shows are available and others can be downloaded. Youtube now has free movies! There are of course sacrifices. You will need to wait until the following day to watch your favourite TV show. The Super Bowl is not broadcast online , but then that’s what buddies are for!
Similar to Cable TV, a land line can be eliminated. This can save up to $70 a month. You can use other alternatives. Perhaps use your cell phone, or just Skype with family members. You could also consider Vonage as a home phone. I pay $19.95 per month. It comes with free voicemail, call forwarding, caller ID and all the other bells and whistles that many other people pay Bell or Rogers $70 a month for…
The ultimate goal is to always live within your means. Spending more money than you make ultimately leads to credit and debt issues. Even worst, it results in most of your money going to pay interest on borrowed money.
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Real estate news in Canada including buy and sell information, local market updates, guides, tips for Canadians in the real estate market.