Whether you fit into FAMILY A or FAMILY B (or somewhere in between) its not always a matter of making more money to get where you want to be. Whether its a vacation or a down payment for a house, sometimes its looking at where you are spending. I have found it doesn’t matter if you are FAMILY A or FAMILY B. There will be those in either category (or the inbetweeners) that are able to afford the down payment or that trip and there are those that cannot. It usually comes down to the money going out not the money coming in that can make all the difference.
In my 15 years as a Realtor I have sure seen a lot! I am by no means a financial expert, however I have learned a lot by simply observing and listening to the stories of success (and sometimes mistakes) people make in the real estate world. There is one simple thing I want to share with all of you. It really doesn’t matter how much money you bring in that is most important, it is what you DO with that money that really matters. I love examples, so I’ve shared one with you below.
FAMILY A makes roughly $50,000 a year. They own a nice, affordable house and pay it down every month. They save a little and live just within their means. They may save where others might not. They could have chosen to not eat out or changed their grocery shopping habits. Their hobbies luckily might include a lot of FREE things (camping, hiking or other outdoorsy free stuff). They may drive older vehicles that are paid for and try to avoid spending a lot on luxury items. This family might deal with little financial stress when it comes to the day to day expenses and find that they are quickly building equity in their home.
Now let’s talk about FAMILY B
FAMILY B in this example brings in $250,000 a year. Their home is quite a bit bigger and the mortgage matches. They appear to have a lot more toys (which may be financed). They have a lot more disposable income and will likely spend a lot more on things like dinners out or those luxury items. These income scenarios can sometimes lead to more money leaving the bank account than what’s coming in.
At some point in our lives we have all asked the question, “How do my neighbours afford all those toys?” Well they may very well not be able to afford them. Our low interest rates have made borrowing money a little too easy. Studies show Canadians household debt increasing at a rapid rate over the past few years.
Our next financial post is going to focus on the differences between Good and Bad Debt. Stay tuned for that!