20111202

The High Cost of Living...

I'm not suggesting that you you reduce costs by not living, but that it's a fact of life that living costs a great deal day-to-day. This is why we work, but it also leaves us wondering about the choices we make in living our lives.

Living beyond your means is a bad thing. It's not just a question of "Can I afford this [today]?" but rather a question of whether I should incur an expense at all, what purpose does it serve and is the long-term benefit practical. This does not mean you need to be "practical" 24x7x365 (all the time), you simply need to budget the "mad money" that you have to do what's fun and a little frivolous from time-to-time.

That said... I'll quote ING and say "You need to save your money."

Saving... Reduce the cost of living to the point that you have a surplus, then don't spend that surplus. Why? because buying things on credit is a skill, a tightrope that you can very easily balance on, but you need to balance it. Tightrope? Maybe not a tightrope.

Picture a cliff... You have life and you can live on the edge, or over the edge, but living over the edge requires you to walk on a plank which is counter-balancing your life. For most of us this is normal, the job we have is the counter-balance and the life we have carefully ensures that job is there to support us. The problem is that we have two other tools to use as that counter-balance, savings, and credit. Yes, and in Canada we also have Employment Insurance.

Some people use credit while they have a job and that 10, 20, or 50K of credit is used to make their life "perfect," but they forget that a job is variable and it can disappear in a heartbeat. They are then left with debt, and no means by which to pay it off. This is a very bad place to be. One should NEVER assume they have a job-for-life. There are games you can play with money that can leverage credit, but you can lose games, you must be able to afford to lose the game.

Back to life on the plank, You can save money by living modestly, with less, accepting sacrifices and being at peace with not having all that Jane and Bob down the street have. You can build up savings is your frugal to the point that a job-loss can give you grace and a chance to get back to the edge of the cliff  before the counter-balance is gone. A lottery win, while not something to bet your life on, can give you a permanent counter-balance, $3 million in the bank should be enough to maintain a working man's lifestyle on the interest alone, but in real life your savings should be enough to cover a few months without work. If you make $50K in a year, your take home is approximately $30K, if you can build up $30K in savings you can technically take a year to find work, living without a paycheque, longer if you have support from a government program such as Canada's Employment Insurance. The key to survival is that you must save first.

You'll need to evaluate what's important and rather than having a 4-bedroom home that's 3500 square feet, look at the affordable 1600 sq. ft. townhome and enjoy the sense of community it offers. If you're on your own, single or a couple with no kids (expected in the next few years), look at a condo with in-suite laundry. Buying is always better than renting, unless you don't have a good credit rating. I rent.

In-suite laundry is critical. This is what separates apartment renters from condo. owners and it's a reward that's enviable. There's nothing cool about having to ride an elevator or walk down to the laundry room only to find that some individual has removed your clean laundry from the machine because you got stuck on a call with your Mom and simply couldn't get her to hang up and left you 5-minutes late. It gets worse when you discover that this was that hairy-smelly-chain-smoking guy from the 10th floor and he was a tad less than careful with his cigarette he shouldn't be smoking when he removed your clothes from the washer. Or, worse, that the retired mother of 3 on the 7th floor has folded your entire load including your leopard-skin patterned underwear that your girlfriend gave you, or if you are the girlfriend, that she attempted to fold your thongs!

When looking for the place to live, rental or otherwise, consider the places you need to be and the environment you need to be in. If you don't have a vehicle, plan to be on good, reliable transit and close to stores. Walking distance is preferred and living close to work is almost unheard of these days. You will pay a premium on "location, location, location," that a closet with a bed in it is 3 times more expensive than a house with a 1-2 hour commute. I am lucky, my commute is 35-40 minutes when I do it right. That's a blessing, in the past it's been as high as 2 hours. One job was 1 hour each way, I loved the job, but car-pooled with a very good friend. I tried the transit option, 3 hours, I hated those to weeks of the commute.

If you're a parent like me, you may be constrained by where your children are going to school. Yes, in the rare circumstance that the parents are together you can move the kids, but if your family is like mine, you want to be close to the school(s) so your place is accessible. My youngest daughter has a 45-minute walk home to either parent's house, that was not planned, just luck.

The cost of housing...
If your bank offers you a $350K mortgage, you do NOT need to buy a $349,990 house! You will be just as happy in a $200K house, or perhaps a $150K condominium depending on your real space requirements. If you have 7 kids you still do NOT need a 3500 sq. ft. house, but you will need to have patience and a non-violence rule in settling territory issues. You also do NOT need a big back yard, just enough space for a BBQ and picnic table.

A car is optional in an urban centre. I'm proof, but that doesn't make it easy. A car will cost you roughly $12,000 per year to operate/finance. Where you live can drastically affect your insurance rate, it's a consideration in the "where you live" discussion. The bigger the urban centre, the better the transit option is.

Live with less, happily.

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