I was alarmed the other day when I was watching the news and it was reported that we are on the verge of a housing bubble in major cities in Canada. "Yeah right..." was my initial thought, but looking at the numbers I may have changed my mind.
The statistics that the show shared was that the average house is now valued at 4.7 to 11.3 times the annual household salary. Now quickly run the numbers to see how much house the minimum and the maximum would be for you. frugala and I make a little more than $100K per year together, so for us that would be from $470,000 to $1.1 million for a house. I am having a difficult time finding ways to have our next mortgage for $250,000 so these numbers are impossible.
Historically, the books have said that you should spend about 2.5x your annual salary on your house. What is the problem if you have a house that is worth $1.1 million and you make $100,000 per year, other than the $5251.57 monthly mortgage (that is 4% interest in my calculations over 25 years which isn't possible I think to pay on $100,000 per year). Since our interest rates are basically at 0%, any increase will cause these houses to be out of people's price range. If we change my calculation above to 3% over 35 years compounded monthly (you can tell I am getting ready to go back to school) and a $800,000 mortgage, that is still $3078.80 per month. These people will be house-poor (meaning that they live in a beautiful home but will be unable to afford anything outside of their house).
I prefer to be a little more flexible with my income. My suggestion, if you are unable to afford a standard 25 years mortgage then you can't afford the house. Another great suggestion that I read was for the six months before you decide to move, put the amount of your rent aside for savings (so essentially you are paying double for rent). If you can do this comfortably, then you can afford to buy a house.
Thursday, September 2, 2010
Monday, August 16, 2010
New Baby and New Yearly Goal
frugala and I are pregnant! We formally announced it at our six month wedding anniversary on Saturday so I can talk about it on the blogosphere. With a baby on the way, for the next school year I am going to shift my plans from saving to paying off debt.
I got a new job at the Homework Help centre, which will pay me about $130 per week, and along with tutoring on the side, I should have more disposable cash this year. The plan will be to get my student loans paid off before the baby is born (or at least close to that time).
Right now I save $200 per paycheque and put $500 towards my mortgage and $400 towards my student loans (monthly). Out of my money from the Homework Help, all will go towards my student loans. I should get two raises this year, one from seniority and one from moving up to the highest category. I estimate this will be about $200, so I will take $100 from that. My mortgage will go up to $525 and my savings will go to $275. The shift will be that $75 will go to my RRSP and $200 going to my TFSA. Then every time my TFSA gets to $1100, $1000 will be removed to pay towards a student loan. In this way, lots will be paid off my loans. As well $200 x 26 pays per year is $5200 so I shouldn't get into trouble with the government over the $5000 cap on the TFSA (considering that I have undercontributed for the first two years).
In this way I am still making my regular payments, and the extras are coming out of my TFSA. I will comment on the effectiveness in the upcoming weeks (once it happens in September), as well as the price of having a baby and how the extra work on the side is going. It is a plan anyway...
I got a new job at the Homework Help centre, which will pay me about $130 per week, and along with tutoring on the side, I should have more disposable cash this year. The plan will be to get my student loans paid off before the baby is born (or at least close to that time).
Right now I save $200 per paycheque and put $500 towards my mortgage and $400 towards my student loans (monthly). Out of my money from the Homework Help, all will go towards my student loans. I should get two raises this year, one from seniority and one from moving up to the highest category. I estimate this will be about $200, so I will take $100 from that. My mortgage will go up to $525 and my savings will go to $275. The shift will be that $75 will go to my RRSP and $200 going to my TFSA. Then every time my TFSA gets to $1100, $1000 will be removed to pay towards a student loan. In this way, lots will be paid off my loans. As well $200 x 26 pays per year is $5200 so I shouldn't get into trouble with the government over the $5000 cap on the TFSA (considering that I have undercontributed for the first two years).
In this way I am still making my regular payments, and the extras are coming out of my TFSA. I will comment on the effectiveness in the upcoming weeks (once it happens in September), as well as the price of having a baby and how the extra work on the side is going. It is a plan anyway...
Monday, August 2, 2010
Net Worth Update - August 1st, 2010
frugala's and my numbers are finally linked, and despite doing two weeks of painting and installing laminate flooring (which costs money), we still ended up okay for our first update.
Every time I get paid (every two weeks), I update my net worth. The idea behind this is that my goals are that my liabilities drop every two weeks, and by tracking them in this way, I am able to get a nice picture of where I stand financially. Its not a perfect balance sheet that I have (because of student loans I have a negative net worth), but the progress is what I am looking for.
ASSETS:
- down $15,682.92 from July 17th, 2010
frugala donated some of her assets to remove one of my loans, which is why this number looks really bad. The theory is that I will be taking on all of the bills myself in exchange instead of splitting them down the middle which has happened in the past.
LIABILITIES:
- better $15,775.32 from July 17th, 2010
Once again, with a loan paid off, this looks very nice. Next week will have more realistic numbers.
NET WORTH:
- better $92.40 from July 17th, 2010
With my loan being charged a much higher interest rate than what frugala was earning on her GIC, this will naturally improve more. A nice start though!
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that are dependent on the value of the TSX.
TSX Graph
Current Value: 11,713.43
Highest Value in Last 2 Years: 13771.25 (August 29th, 2008)
We are exactly two years from the high within the two years. The market hasn't been over 12,000 consistently since September, 2008. For these purposes, the stock market was about 13000 in mid September 2008, so I will either rebalance when the TSX hits 13000 or 12500 after September (once I get my raise).
Every time I get paid (every two weeks), I update my net worth. The idea behind this is that my goals are that my liabilities drop every two weeks, and by tracking them in this way, I am able to get a nice picture of where I stand financially. Its not a perfect balance sheet that I have (because of student loans I have a negative net worth), but the progress is what I am looking for.
ASSETS:
- down $15,682.92 from July 17th, 2010
frugala donated some of her assets to remove one of my loans, which is why this number looks really bad. The theory is that I will be taking on all of the bills myself in exchange instead of splitting them down the middle which has happened in the past.
LIABILITIES:
- better $15,775.32 from July 17th, 2010
Once again, with a loan paid off, this looks very nice. Next week will have more realistic numbers.
NET WORTH:
- better $92.40 from July 17th, 2010
With my loan being charged a much higher interest rate than what frugala was earning on her GIC, this will naturally improve more. A nice start though!
The last thing I am going to track is the value of the TSX. I have some asset allocation goals that are dependent on the value of the TSX.
TSX Graph
Current Value: 11,713.43
Highest Value in Last 2 Years: 13771.25 (August 29th, 2008)
We are exactly two years from the high within the two years. The market hasn't been over 12,000 consistently since September, 2008. For these purposes, the stock market was about 13000 in mid September 2008, so I will either rebalance when the TSX hits 13000 or 12500 after September (once I get my raise).
Saturday, July 24, 2010
Home Renovations
As of now, for our home renovations, we have
- ripped out the carpet and kitchen (3 person days)
- bought laminate floor and underpad (approx. $1000)
- bought paint and accessories (approx. $200)
- painted one coat on the main floor (2.5 person days)
We will still have to put down the laminate floor, paint the kitchen cabinets, paint the rest of the kitchen and possibly put another layer on the main floor.
The plan is that when we look to sell, be it next summer or whenever, that the house has been improved so that it is ready to go. Even if we decide to stay for a few years, it would be much more livable. Financially, doing cosmetic house renovations always increases the value of your house when you go to sell.
- ripped out the carpet and kitchen (3 person days)
- bought laminate floor and underpad (approx. $1000)
- bought paint and accessories (approx. $200)
- painted one coat on the main floor (2.5 person days)
We will still have to put down the laminate floor, paint the kitchen cabinets, paint the rest of the kitchen and possibly put another layer on the main floor.
The plan is that when we look to sell, be it next summer or whenever, that the house has been improved so that it is ready to go. Even if we decide to stay for a few years, it would be much more livable. Financially, doing cosmetic house renovations always increases the value of your house when you go to sell.
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