Something funny happens when you write about money in the newspaper.
The people you meet suddenly become hyper-aware of their purchases and expenses, and what you will think of them.
The other day, a friend was a little embarrassed to show me around her newly renovated house. “Of course it was still expensive…” she said, almost apologetically.
Recently, a friend texted me the link to the condo he had just purchased. “I paid $122,000 under the original price,” he quickly added in a following message.
I’m not a no-spend fundamentalist – though the fact that I feel the need to write it here still makes me think.
That said, I concede that I like to have a few rules in mind for big money-related decisions.
For example, the question everyone eventually asks: “How do you know you can afford to buy a house?” »
When do we have a job? When do you have enough money for a down payment? When the nice lady at the bank pre-approves us?
I like to use three rules that have been around for a long time, and were recently repopularized by American financial author Ramit Sethi. Here’s what its about.
The goal is not necessarily to make a 20% down payment. The idea is that the person who does not have the income or the discipline to accumulate 20% of the purchase price of the coveted house should not buy this house: the risks of falling into a debt spiral are too students. For example, the Canada Mortgage and Housing Corporation (CMHC) estimates that rising interest rates will lead to a 20% to 40% increase in the size of mortgage payments in the coming years. Those with savings have options: they can dip into their assets to absorb higher payments, pay cash for certain expenses, or even possibly reduce the size of their loan. Those who don’t have savings are at risk of having to drastically reduce their lifestyle, and thus “go without”, that expression I hate so much that, ironically, is often thrown around at people who are saving… Anyway, make sure you to have reserves before you embark on the most important purchase of your life. Especially since with the rise in rates, the years when you could dip into the line of credit like a bowl of popcorn are behind us.
Money is like oxygen: it’s when you start running out of it that you realize its importance.
Changing where to live is expensive, in addition to taking energy and time. Commission from a real estate broker, closing costs, upgrades, moving costs… We are talking about tens of thousands of dollars in sunk sums. Also, the real estate market has been very generous for a long time, but it has also historically experienced difficult years, which can happen without warning. It is for this reason that one should plan to stay in one’s house for at least a decade.
Often used by banks, the 28/36 rule states that housing costs must not exceed 28% of a household’s gross monthly income, or that the household’s total debt payments must not exceed 36%. gross monthly income.
Clearly, a couple earning the Quebec average of $6,750 gross per month (or $81,000 per year) should not spend more than $1,900 on housing. Impossible, you say? Perfect. The rule says that this couple can spend up to 36% of their gross income on debt repayments in total, which includes mortgage, student debt, vehicle debt, credit card debt, etc. . To continue our example, the couple earning $6750 per month could spend up to $2430 on their mortgage if they have no other debts. Don’t qualify for this rule? One solution is to accumulate a larger down payment, which will reduce your debt at the time of purchase. You can also pay your debts before buying a house, which could help you with the 28/36 rule.
These are rules, not laws. We can follow them or we can do like many of our neighbours, colleagues and acquaintances and get into maximum debt, then cross our fingers that everything goes well. It’s our choice.
In the meantime, know that there is nothing wrong with renting a place. The “Should You Buy or Lease?” Calculator from National Bank 1 is a good starting point to compare the two options.
Who knows, maybe you’ll agree with the words of a young self-employed woman quoted last week in La Presse, who now spends $3,000 a month to pay the mortgage on her condo, compared to $2,000 last year. : “Looking back, it’s still nice, being a tenant. »
Speaking of rules, there was talk of the least error rule last week. Here are some of the rules you sent me:
Benjamin writes, “If I can sum up my main rule, it would be: ‘Hard choices, easy life. Easy choices, hard life,” a quote from Jerzy Gregorek. To apply this concept, I make easy choices less appealing, and I work to make hard choices more appealing. For example, I have an old, unattractive phone because I want to reduce the time I spend on it. Conversely, I value my work a lot, so I have a super well-equipped office. »
Claude writes: “I determine the worst and the best option according to the data and the foreseeable consequences. Then, I formulate an option that will be acceptable in terms of risk and benefit for my client or any other person concerned. I have also tried to apply this rule in my personal life, but my wife says that the weight I give to logic is too high compared to the weight she gives to pleasure. »
Melanie writes, “One of the most beautiful rules I’ve heard and live by is this quote from Dr. Wayne W. Dyer: ‘If you have a choice between being right and being kind, choose to be right. be kind.” »
