The question that comes up more and more in the country's expensive housing markets is: Where are first-time buyers getting the money?
Parental help is a big factor, so much so that the federal agency Canada Mortgage and Housing Corp. has launched a study of the phenomenon. Also, it's virtually a given that today's buyers will raid their registered retirement savings plans to use the federal Home Buyers' Plan. And then there are savings – money put away week by week over a period of years to build a down payment.
I took a look at housing affordability in a recent column and concluded that heroic savings measures are needed by anyone hoping to buy in expensive cities such as Vancouver, Calgary and Toronto. In other words, sacrifices must be made on all your spending, from the day-to-day to special occasions. Here are nine ways to power-save your way to a house down payment in any city:
1. Move in with your parent or in-laws
Explain that you’re thinking strategically in moving back home. The quickest way to get into the housing market is to maximize savings, which is difficult to do when you're paying the cost of rent in a big city. You’ll pay your parents a token amount of rent, but most of your savings will go directly into your house down payment fund. Tell your parents to think of the grandchildren you’ll be raising in the house you’re saving for.
Yearly rent at $800 per month: $9,600
Minus token rent payment to parents: $2,400
One-year savings: $7,200
2. Move down one level of rental
If you have a two-bedroom apartment, try going down to one bedroom. Or, trying squeezing into a bachelor apartment. You could also look at moving to a cheaper part of town, as long as it won’t jack up your commuting costs. Get rid of stuff that won’t fit in your new, smaller place, or store it in your parents’ basement. Don’t spend money on a storage unit.
Yearly rent at $800 per month: $9,600
Minus yearly rent at $650 per month: $7,800
One-year savings: $1,800
3. Sell your car and take the bus
You’ll be saving on fixed costs such as parking, insurance, gas, maintenance and possibly car payments, and you’ll be protected against the risk of financially catastrophic four-figure repair bills. Rent a car or use a car-sharing service for those times when the bus won’t cut it. A cheap bike will help you save on bus fare.
Estimated annual cost of gas, insurance and maintenance and parking: $5,000
Minus estimated annual cost of a bus pass and occasional car rental: $1,500
One-year savings: $3,500
4. Stop buying lunch
A pain, but worth it. You’ll have to think ahead by either picking up the right groceries to make your own lunch, or by scooping up after-dinner leftovers. Healthier than your food-court lunch, which you’re probably sick of anyway.
Estimated cost of buying lunch at $8 or so per day: $2,000
Minus cost of spending about $15 per week to stuff to make your lunch with: $750
One-year savings: $1,250
5. Dial down your vacations
New York is out. Maybe Buffalo. For West Coasters, maybe Seattle instead of Hawaii. Use the likes of Airbnb (airbnb.ca) to find cheap accommodations instead of staying in a pricey hotel. Or stay home and use some of the money you saved on hotels to try some nice restaurants in your town. This is good practice for when you own a home and find that fancy vacations are unaffordable without going into debt.
Summer vacation somewhere in the U.S.: $2,500
Minus the cost of a Staycation: $500
One-year savings: $2,000
6. No pets
Buy a house, and then get a dog, cat, ferret, parakeet or whatever. Pets don’t cost a lot on a day-to-day basis, but vet bills will blow your mind if something goes wrong. Protect your house down payment fund.
Food, vet, toys etc.: $500
One-year savings: $500
7. Put a $100 price limit on birthday presents
Extravagant presents are fun to both give and receive. But they’re a luxury for people who are more financially settled than someone who is madly saving for a house down payment.
Yearly cost for a couple of buying presents for various occasions: $1,000
Minus using the $100 present limit: $500
One-year savings: $500
8. Cut your cable TV and landline
Almost like heat and hydro, an Internet connection is essential. But a home phone is dispensable if you have a smartphone, and cable TV can be replaced by Netflix, watching shows online and using an HDTV antenna. Also, try buying up DVDs of movies and TV show seasons at garage sales, or find stores that sell used DVDs, CDs and videogames.
Yearly cost of cable and home phone: $1,200
Minus approximate cost of a Netflix subscription: $110
One-year savings: $1,090
9. Halve your spending at restaurants and bars
Studies of Generation Y spending habits show that going out to eat and drink is big. Hey, everyone needs a hobby. But this one is too expensive for people who are set on buying a house. Aim to eat out less often, and rather than pay marked-up restaurant or bar tabs, grab a beer from the fridge.
Annual cost of spending $250 monthly: $3,000
Minus half that annual cost: $1,500
One-year savings: $1,500
TOTAL ONE-YEAR SAVINGS FROM ITEMS 1-9: $19,340
And one more thought: Ask for a raise at work!
Take the exact amount of your raise on an after tax-basis every payday and direct it into your down payment fund.