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April 28th, 2008 at 8:13 pm
I agree with those who saying paying down the mortgage is a form of savings, but I don’t know if many people do it.
The last time I renewed my mortgage it was at a lower interest rate so the payments would have been much lower. I got a rather strange look from the banker when I said, I’d like to add several hundred dollars to my mortgage payments. I’ve reduced the amortization period by ten years so far.
The largest chunk of money I save comes from not owning a car. I even rent my parking stall. I rarely eat meat. And shop at thrift stores. I don’t take exotic vacations. I live in a much smaller place than I’d like to. But that’s not forever.
I look at it as a process and try to shave a little bit off my expenses every few months.
That said, my savings plan is not perfect. Most of the books I want are not available at the library. I spoil the dog. Life is too short and some things are non-negotiable.
April 28th, 2008 at 7:48 pm
Read this over at the fantastic “Dr Housing Bubble” blog. It’s a breakdown of how hard it is for a family with a net income of 100k to afford even a 350k home, with an average budget.
It points out that 100k puts the average family in the top 15% of earners in Los Angeles. I think it goes to show just how over-extended the average Vancouver family likely is. Good reading:
http://www.doctorhousingbubble.....into-debt/
April 28th, 2008 at 7:27 pm
Interesting topic! I earn a nearly six-figure income, but I started late after dickin’ around in my 20′s and getting married/divorced in my 30′s. Now I’m 40-something and just starting to save.
I’m saving as much as I can, but my retirement plan is simple — max out the RRSP, max out the new savings plan when it kicks in, and put money in the high interest bank accounts.
But in the end, it’s as simple as reducing you expenses, and for me that means moving down to central/south america (or spain/portugal) and where the cost of living is 1/2 what it is here. I figure I can probably retire by the time I’m 50 or 55 and live cheap after that.
April 28th, 2008 at 7:02 pm
You buy a home for $1m and in addition to the purchase price you pay about $1M in interest to the bank. How am I saving money when a $1M purchase just cost be $2M?
It didn’t cost you $2M. The present value of a future payment is less than the nominal amount. The house actually cost you $1M.
Obviously you save money buying a house at historically normal prices – not today’s prices – because that’s how landlords make a profit. They are selling a service – shelter – for less than it’s costing them. Buying a house means being your own landlord.
You save money borrowing money to buy a house when the present value of the net rental income exceeds the purchase price, i.e. buying is cheaper than renting on a net discounted cost basis.
In simpler terms, that’s when the price/rent is at historical levels.
Of course that’s true for buying versus renting everything else be it a car or skis, but for some reason people have a much harder time making the rational choice for a house than for other things.
“Saving money” is not the same as “savings” BTW, the former means buying something cheaper (in the case of a house the service of shelter), and the latter means consuming less than your income. But the former is the best way to make the latter possible.
The principal part of your mortgage payments is savings, which really has nothing to do with buying a house. It’s investing in fixed income (paying off a debt).
Bears for some reason like to say a house is not an investment. Actually it’s very much an investment, and if people evaluated houses with the same metrics as professionals use for stocks or bonds or commercial RE they wouldn’t be overpaying for one.
A house is only a good investment if you pay the right price for it, just like anything else.
BTW Pope, could you add preferred shares to the poll.
April 28th, 2008 at 6:08 pm
Comment by Panda
2008-04-28 18:04:24
It is too difficult and slow to save based on Canadian tax rates on income.
***************
Nonsense.
April 28th, 2008 at 6:04 pm
Work hard at becoming an expert at investing (or start a small business). This might take 5-10 years, so start young. After that point you don’t need to try to save, since the top line generated from your tax-advantaged investments does the work. It is too difficult and slow to save based on Canadian tax rates on income. If you must save from working income consider doing it from outside Canada for a few years.
April 28th, 2008 at 6:01 pm
One thing about savers that non-savers might not understand is that we don’t simply set aside the money and leave it never to be used. The purpose of saving is to accumulate money to spend at a later time. That later time could be any time. For example, when I’m in need of a new computer or ready to take a big vacation, I’ve got the savings to do it. I disagree that saving money and enjoying life are incompatible.
April 28th, 2008 at 5:49 pm
arrow:
Problems with that calculator.
1) Will not allow a negative appreciation rate, I put in zero.
2) Will not allow you to buy outright.
After that it said I would save 2 million over 40 years. Just for fun. I would expect appreciation to resume at some point, though.
Then I put in 4 % appreciation, 3% inflation and 5% savings rate and only saved 600,000. You can make banks a LOT of money with mortgage interest.
April 28th, 2008 at 5:13 pm
I don’t save. You only live once and I want to enjoy it. I want to be where the action is and that means spending money.
In the end I’ll always have my downtown condo. It’s like an insurance policy. Prime real estate in a desirable city!
April 28th, 2008 at 4:22 pm
Toronto is plumetting, from number 12 to 51, due to flat population growth, crime and low incomes.
***********
Err, and I thought Toronto had higher average incomes than Vancouver….
April 28th, 2008 at 4:17 pm
We’re Number 10!
We’re Number 10!
We’re Number 10!
Huzzah for Vancouver.
April 28th, 2008 at 4:08 pm
Also, for anyone whose income/obligations/etc. does not allow them to save the extreme amounts some of us are talking about, please do not be discouraged.
I believe that once house prices return to fundamental levels there will be the opportunity for almost everyone who is employed to buy a place to live in once again.
April 28th, 2008 at 4:03 pm
“Price is perfect for couple or new starter.”
As opposed to an old starter? Geesh…
April 28th, 2008 at 3:58 pm
I also save approximately 30% of net, on a decent salary but far from six figures. I seem to be a carbon copy of a lot of you, which is encouraging!
My biggest tip (already mentioned by Tacoman) is to use personal finance software like Quicken or Microsoft Money. Nothing makes financial decision making clearer than tracking and categorizing every dollar you earn and every dollar you spend.
If you do this, then when it comes time to budget/save/etc., you can easily see which areas of your spending you can reduce without drastically affecting your quality of life.
April 28th, 2008 at 3:18 pm
I’ve been checkingn false creek south (where I rent) RE listings for the past five years. They have never risen much beyond 30 listings at any point during the last five years.
Today they are at 57.
April 28th, 2008 at 3:16 pm
California median real estate prices drop 29% YOY in March. Check out Mish’s blog.
April 28th, 2008 at 3:14 pm
California median home prices drop 29% YOY in March.
http://globaleconomicanalysis.blogspot.com/
Dosh,
If someone bought a house at the peak of the California real estate market, how much money have they saved by buying a house?
April 28th, 2008 at 3:11 pm
“not sure why some people are so upset about the ‘forced savings’ aspect of buying a home.”
You buy a home for $1m and in addition to the purchase price you pay about $1M in interst to the bank. How am I saving money when a $1M purchase just cost be $2M?
April 28th, 2008 at 2:52 pm
Some ways to save money:
-Get out of the game of paying bank fees. As a matter of principle, I think it’s wrong to pay fees for the “privilege” of using my own money. Get a no-fee chequing account. For example, PC Financial gives you unlimited Interac and CIBC ATM transactions.
-Open a high-interest savings account and get in the habit of moving money into there; ING Direct and others offer these accounts and they are free and easy. Interest is paid monthly.
-Never finance a purchase on a credit card. Credit cards are to be used for ease of payment, the 30-day interest-free grace period, and to collect points from spending. If you can only “afford” the purchase because you’re using a credit card, you can’t afford the purchase. Period.
-If you have credit card debt, do whatever you can to pay it off. If you have a line of credit, use it to pay off the credit card. At least that way the money you owe will be at a much lower interest rate.
-Never use a credit card to withdraw cash. Never. Very high interest is charged from the moment you withdraw.
Anyone else have any favourite tips?
April 28th, 2008 at 2:44 pm
Oh, c’mon Dosh, you can do better than that.
April 28th, 2008 at 2:33 pm
“Sounds like we are great candidates for stated income mortgages! I think a lot of people reading here are dual income so don’t think we’re all doctors, lawyers, and bankers.”
First, I think I would trust the results from this anonymous survey more so than any stated income mortgage application that came across my desk. But I’m not sure I would buy the results of a similar poll over at BCRET.
Second, point taken on the dual incomes, but compared to a median family income for BC of 60K…well, you get my point. Like I said before, it’s preaching to the choir here.
April 28th, 2008 at 2:30 pm
not sure why some people are so upset about the ‘forced savings’ aspect of buying a home. This is a proven way to automatically build equity and get yourself ready for retirement. Sounds like some of you are willing to live like you have no income and squirrel away all of your earnings, but that’s not normal. For most people buying a home is a proven wealth builder that keeps them saving.
April 28th, 2008 at 2:00 pm
Some tips on how to save:
- marry someone who makes a decent income and is also a saver (essential!)
- don’t eat meals out if you can help it. Find recipes on the internet and make great-tasting, healthier food at home for a fraction of the cost. Make lunch the night before for work. Today’s lunch was chicken salad and butternut squash soup. Delicious!
- buy stuff on sale
- don’t buy crap just because it’s on sale
- cut coupons and get deals where you can
- don’t pay fees for services you don’t really need
April 28th, 2008 at 2:00 pm
I love the “home ownership is forced savings line”…….what a load of BS.
It takes you about 15 years of a 25 year mortgage to have any reasonable principal reduction from your payments to the point where you can call it a
“nestegg”.
Realtors take 7/3% from a sale if need to make “a withdrawl”….removing a big chunk of your “savings”.
Banks charge you interest and fees if you pledge your house as collateral for said “withdrawl”.
If houses do not appreciate due to speculation, and that is the only time that they do IMHO, you generate no financial gain from your “savings”.
‘.
April 28th, 2008 at 1:55 pm
How do you guys save so much?
Good question! In our case, the magic words are: “prepare a budget, and stick to it”.
In our family (hubby + wifey + kiddie) we bring in a net of $4500 a month. From these:
- $1200 go for renting (in Bby 30 minutes from work, by bus), telephone, cable, internet, hydro, and transit bus pass
- 1000 go for groceries, dining out (at least twice a month), clothing, kitchenware, other minor things
- 300 go for books, magazines, toys (for kids and not-so-kids:), etc
Total expenses: $2500
Savings: $2000
We don’t have (or need) a car, we use our 1% cashback credit card for anything that we can (and pay it in full every month), max our RSPs every year, and keep track of every dollar that comes and goes in MS Money, which we started using 10 years ago.
Also, last, but not least, reading in this blog what others are doing has given us some very good saving tips, and the assurance that we are not alone in this “bubbly” world.
April 28th, 2008 at 1:23 pm
“Doing the same for the income and savings questions, you get stated incomes of 111,200″
Sounds like we are great candidates for stated income mortgages! I think a lot of people reading here are dual income so don’t think we’re all doctors, lawyers, and bankers.
April 28th, 2008 at 1:22 pm
This is an excellent post. These are the things I so curious about when someone buys a property. It’s so telling as to how they make their decisions.
I’m a high saver (probably 60%, instead of the 40 I put in the poll), with a moderately good income (but not 6 figures), and savings well into the 6 figures. I have no car, with my work and apartment on the skytrain line. I have been a tenant of the same place for many years and my rent is under market. While I came from a poor family, and almost took welfare in the 80s, a fortunate scholarship program allowed me to have no school debt. I have never had a debt. I’m allergic to debt. I’ve seen people in debt, and they frighten me.
Oddly enough, I should probably use my credit card more because it is a cash back one. The more I use it, the more money I get back. Postdated electronic banking pays each bill when it is due, so I don’t get charged interest. Technically, VISA pays me to use their credit card. But it’s a credit card, and it’s scary.
I enjoy traveling, especially if I can visit (and stay with…) friends around the world. I love bargains, but don’t eat at home enough to save money on food. I feel bad when I buy things, and despise malls even though I live near a large mall. I loathe getting christmas gifts I don’t need from family or friends that can’t afford to give them. I like buying the occasional good gift where and when it is appropriate or needed, even if it costs alot. (But I’ll still try to get a bargain for it)
I could save more money, but can afford a few things and still save (over?) half my net earnings. I must admit, it’s kinda neat having investment/interest income instead of having to pay interest on a loan/mortgage. I just hate paying taxes on my out of RRSP savings. It just doesn’t seem fair to punish me for fiscal prudence.
I don’t understand how people function paycheck to paycheck.
April 28th, 2008 at 12:41 pm
“Dealing with percentages in terms of savings is tricky because not all incomes are the same. One person saving 15% and another saving 30% might be saving the same money in terms of actual dollars.”
True, but you could compare the results here with a benchmark. For instance, on the savings rate question, you could assign the midpoint value for the ranges and then combine that with shares of votes to get something approaching an average (let’s say you also assigned a maximum savings rate of 50% for the 50+ category and a minimum savings rate of 0% for the 5- category). This would yield a figure of 20.8%. Compare that to the savings rate of about -5% BC wide.
(Doing the same for the income and savings questions, you get stated incomes of 111,200 and stated savings of 94,600…not too shabby).
April 28th, 2008 at 12:16 pm
Dealing with percentages in terms of savings is tricky because not all incomes are the same. One person saving 15% and another saving 30% might be saving the same money in terms of actual dollars.
April 28th, 2008 at 12:00 pm
Hey, your savings rate didn’t go below zero–I’m sure lots of folks out there in condoland have savings rates in the -10% – -40% range!
Whybuywhenucanrent’til’13?
**Forecasting a 50% drop in Van area RE prices by 2012**
April 28th, 2008 at 11:56 am
OFF TOPIC… (on C-list)
$259000 Studio unit. Better than rent! (Joyce) (map)
HOT studio Newer Laminated floor… 407 sqft. 1 locker. Kitchen, bathroom looks like brand new….
Price is perfect for couple or new starter.
Very easy on Mortgage monthly… batter than rent!
****
“Batter than rent” indeed! Where do they find these people?
April 28th, 2008 at 11:54 am
By the way, the poll results (if truthful and I have no reason to think otherwise) are telling. It seems most of the readers of this blog are not the losers they’re depicted as on other blogs.
It’s as if we are preaching to the choir here…
April 28th, 2008 at 11:52 am
“How do you guys save so much? I don’t think I’ve ever heard of anyone saving 40% of thier income. I have trouble saving 5 or 10% and I don’t live that large.”
A high income helps (I’m not being facetious), but frugality (not cheapness) is even more important. Even as a postgraduate student, I was able to amass about $50K through saving and investing. But all through my life I have spent a lot (in %) on food and entertainment – it is important to me. What’s not important to me is having a lot of stuff and especially stuff that has no intrinsic value other than impressing other people.
April 28th, 2008 at 11:39 am
Comment by Anonymous
2008-04-28 09:36:27
How do you guys save so much? I don’t think I’ve ever heard of anyone saving 40% of thier income. I have trouble saving 5 or 10% and I don’t live that large.
**********
Combined net monthly income (dual, no kids – yet) = 8000
Monthly saving due to work pensions = 2000
**********
Monthly rent (2 bed, 5 mins walk from work) = 1500
– due to this, no car (saves c. 1k a month all up)
Monthly food, utilites, moderate social spending = 1000
Monthly clothes, coffee, skiing/kayaking/etc = 1500
**********
Monthly savings (some of which then goes on holidays etc) = 4000, or there abouts.
We could save more, but we save 4k a month on average (6k including our pensions) (some months less, some more) and still have a lot of fun. Sure, we have no kids yet, and things will get more expensive then, but we won’t be spending the money on skiing/shows/eating out as much – at least for the first few years.
April 28th, 2008 at 11:36 am
Saving any more and you are no better than the folks who can do nothing because they are saddled by a massive mortage.
No better except for the whole mountain of cash vs. mountain of debt thing..
April 28th, 2008 at 11:29 am
The number one way to live cheap – stay out of debt.
The number one rule of personal finance, and so few people understand it, let alone practice it.
Don’t people who talk about “having to borrow to get by” understand that not only is borrowing not income, it reduces your disposable income?
April 28th, 2008 at 11:28 am
We save about 32% of our gross income. To the guy who saves 40% of his net (after taxes) either bravo or bullshit!
I guess we could save more but at some point you have to do some living! Saving any more and you are no better than the folks who can do nothing because they are saddled by a massive mortage.
I agree with the folks who don’t use credit cards, only cash as the main way to savings. I use to try and do only 10 transactions a month on my bank card (all cash withdrawals) and not use my credit card at all. Try that for a few months and you’ll be amazed by your saving.
April 28th, 2008 at 11:19 am
Good point, PW. In my case, I have no debt. However, my employer does contribute to my RRSP so that helps add to my overall savings rate.
April 28th, 2008 at 11:06 am
One big thing missing from the survey, is a debt question. Some people save automatically through their employers RRSP program but also get a car loan or go into credit card debt. Speaking for myself, I have a small RRSP loan (under $2000) that I needed for the tax savings (its under 1% interest for a few months), but that’s all my debt.
April 28th, 2008 at 11:04 am
I’m an aggressive saver in general but it helps that I live without having a car. I’m fortunate that because of where I work and where I live, the transit is very good. This is not a reality for many people in the Lower Mainland.
But beyond that, I save money because I don’t blow money. Having money in my pocket is no excuse to spend it. Really, once rent, utilities and food are paid for, what is there to buy? Do I really need that latte or the extra round of drinks at the bar? Must I buy that book or can I just get it at the library? When hanging out with friends, do we need to go shopping or can we just walk the seawall and have a great time?
It isn’t about being cheap but making choices that allow me to spend less.
April 28th, 2008 at 10:51 am
I’m curious how other people do rent vs buy calculations.
I use:
http://finance.move.com/HomeFi.....entBuy.asp
but it has some drawbacks. Any thoughts?
April 28th, 2008 at 10:50 am
Bloggers,
It’s not hard to save 20 to 30% of your income. Just refuse to spend it. Look harder for the rental units. Bargain a bit if the landlord is asking too much. Stop buying things you don’t need.
Best way to control your spending is to cut all credit cards. Spend cash only. No debit cards. Go to the bank to take out cash. Make it harder for you to spend.
April 28th, 2008 at 10:49 am
I save slightly less than 10%. Sure, I could save more but at the end of a long work week I want to enjoy myself. I’ve known some people who died before their time. Both my grandfathers died before they were 60. Sometimes you have to enjoy the here and now.
April 28th, 2008 at 10:28 am
I wait for the time this will happen in Vancouver:
http://au.biz.yahoo.com/080425/17/1pp8j.html
Scholar Threatened for Warning of Housing Bubble in Taipei
An academic who warned of a property bubble in Taipei in a letter to a newspaper editor April 12 has received a threatening letter telling him to “shut up” or a contract killer will be sent to murder him.
The Wenshan police station in Taipei confirmed Thursday that its officers were investigating the intimidation case.
Chang Chin-oh, a professor of land economics at National Chengchi University, warned property hunters in his letter to the editor that the property market in Taipei is showing signs of a bubble and that although the market is no longer flourishing, housing prices are still being maintained at abnormally high levels.
After the letter was published, Chang received a computer-printed letter from the “Greater China Real Estate Alliance,” warning him to keep his mouth shut or his life will be in danger.
Chang told reporters that the caution he set forth in his letter to the editor was well-intentioned, as he felt he has a duty to share the findings of his research with the public.
April 28th, 2008 at 10:14 am
I’m one of those high savers. I don’t have a 6 digit income. (far from it!) The number one way to live cheap – stay out of debt. Pay off your visa every month, rent, buy a used car with cash, pay off student loans, etc.
I want to buy a condo. I want the home ownership part. But I won’t until the “buy vs rent” numbers works for me. Until then, without hardship, I save.
April 28th, 2008 at 9:45 am
“One argument for home ownership is that it acts as a forced savings plan”
This is true only for those who cannot control their spending when they have free cash flow, otherwise it’s a fallacious argument.
“How do you guys save so much?”
The question you should be asking is how do some people survive with so little. Once you answer that, anything above that is discretionary that can be saved. Welcome to Vancouver.
April 28th, 2008 at 9:36 am
How do you guys save so much? I don’t think I’ve ever heard of anyone saving 40% of thier income. I have trouble saving 5 or 10% and I don’t live that large.
April 28th, 2008 at 9:34 am
One argument for home ownership is that it acts as a forced savings plan
It’s only a an effective savings plan if the yield on the house is larger than the yield on the mortgage. Otherwise it eats your income without either savings or consumption to show for it, unless a greater fool comes around and makes up your losses.
And let’s not forget it’s a forced dissavings plan if the market price of the house declines. Even the meager savings you’re making (principal part of mortgage) can go up in smoke.
April 28th, 2008 at 9:21 am
I save around 30% depending on what other expenses I have during the month. One thing about having savings that I really appreciate is the peace of mind. I no longer freak out about unexpected expenses and I like the feeling of freedom it gives me. Even if I don’t take advantage of it, I could at any time quit my job, move anywhere I wanted and live comfortably for a couple of years before my savings ran out.
April 28th, 2008 at 8:27 am
I tuck away about 40% of my net income to savings. I rent in a brand-new building in the neighbourhood I want to be living in. I have no roommates and I don’t have a car. I have total freedom and flexibility in my life. I really like it.
I have no desire to own a home just for the sake of owning. It’s a question of what makes sense. If I could afford to own and the cost of ownership wasn’t much of a premium compared to renting, I would have no problem taking the plunge. Not that I’m waiting for the market to drop. If prices stay high, I’ll just keep renting and save the difference.