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Sandra Fry: Adopt a new financial mindset as your housing costs rise
Published on February 22, 2024 • Last updated 2 days ago • 4 minutes reading time
Homes in Langley, BC Photo by Darryl Dyck/The Canadian Press Files
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Whether you purchased your home at the peak of the market or have owned it for many years, mortgage extensions during this time of high interest rates are causing many sleepless nights for Canadians.
Struggling to cover basic housing costs, be it rent or mortgage, is one of the most stressful situations you can find yourself in, and I'm often asked what someone can do to make ends meet.
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Start with an objective review of your overall financial situation because you need a baseline from which to make future financial decisions. At the very least, you need to know how much is coming in, what is going out, and what it is being spent on. At this point, it can be helpful to track household expenses for a few weeks. This identifies habits and patterns and provides insight into where your money is really going.
When it comes to making spending decisions, the emotional often takes precedence over the mathematical, and therein lies the problem when we're faced with difficult circumstances.
You may have more home than you can comfortably afford because you wanted to buy in a certain area or had certain ideas when you bought. Maybe you don't want to rent out a room or storage space in your house because you don't want a stranger around. You may be hesitant to ask for more hours because you're afraid of what others will think. You might be hesitant about getting a second job because you would have to test yourself and apply. Or maybe you don't want to host a garage sale because you're worried about what others will think of you selling your goods.
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If you've discarded these options for emotional or practical reasons – for example, starting a job and affecting childcare arrangements – put them aside and reconsider other options. Consider your situation from the perspective of helping a friend: What would you suggest to them if they were you? Take your own advice and start with the easier decisions.
For example, are there any utility bills you could reduce or temporarily reduce? Consider canceling all but one or two streaming services, reducing cell phone plans to meet your needs, and ending subscription services or memberships that you don't fully utilize. If child care costs are holding you back, perhaps you and your partner can adjust your work schedules to either eliminate child care from your budget or free up time to turn a hobby into a profitable venture.
If you find yourself spending a lot on takeout or meal delivery, plan your week to include a meal plan, a detailed grocery shopping list, and time for meal prep in advance. If you're worried this will take time away from your kids or your partner, make it a collaborative effort and have fun doing it.
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If you don't, you could be faced with the big question of whether it's worth selling your home and buying cheaper somewhere else, whether it's worth looking for an alternative living arrangement, or whether it's worth moving in with your family to share the costs. This is a much more difficult question, but it becomes a financial reality when your mortgage payments are increasing by hundreds of dollars each month.
As you work to reduce your expenses, increase your income, and shift to a more cost-conscious mindset, you're also working on the bigger things that could help you make ends meet and avoid more drastic financial measures.
Contact your lender to see what they can offer. Deferring payments might help you deal with an emergency expense, but it's not a long-term budgeting strategy. However, it may make sense to extend your repayment to reduce your payments. If refinancing is an option, ask your lender about the cost-benefit analysis, as there are times when it makes sense to pay the penalty or capitalize.
As you do your research, consult a tax advisor to find out what impact it would have if you rented out all or part of your home. Perhaps you could move into your suite and rent out the main living area or move out completely. It's also the start of tax season, so it's a good time to consider ways to prepare a sufficiently large tax return next year without jeopardizing any income-based benefits you receive.
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If your cost of living issues go unchecked due to high mortgage interest rates, your situation could lead to default on your mortgage. Instead of allowing your creditors to make financial decisions for you, take the bull by the horns and do everything you can to prevent this from happening. This means you need to reduce your spending in all categories of your budget and put away your credit cards. Avoid relying on a home equity loan (HELOC), help from family members, or online short-term loans to pay your bills.
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Making difficult financial decisions is even more difficult when emotions are running high or you and your partner disagree about solutions. An objective third party close to you can help you determine your path forward. They can help you think about your financial options and solutions to get back on track, rather than finding emotional or legal alternatives to paying off your debt.
Sandra Fry is a Winnipeg-based credit counselor at the Credit Counseling Society, a non-profit organization that has been helping Canadians manage debt for more than 27 years.
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