A survey from Manulife shows that an alarming number of home owners have very little set aside in emergency savings. Also, more than a third of homeowners admit that it’s a challenge to pay their mortgage, utilities and maintenance on a monthly basis. As a homeowner, living paycheque to paycheque can be a recipe for debt disaster.
Findings from the survey include:
- Three in 10 homeowners spend more than 30 per cent of their net income on mortgage payments.
- One in six respondents would encounter financial difficulty with any increase to their mortgage payment.
- Homeowner debt loads are so high that more than a third of respondents would struggle to make their mortgage payments after three months in the event of job loss, because of insufficient savings to draw on.
“As a homeowner, it is essential that your monthly budget include a savings strategy to help cover home expenses, whether it is for maintenance, renovations or to have cash on hand to be able to continue to cover the mortgage in the event of a job loss,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
As a homeowner, maintenance costs are inevitable at some point. You also never know what could happen to your job stability and ability to pay the mortgage.
Living paycheque to paycheque makes a slippery slope more dangerous
Living paycheque to paycheque is a lot like treading water. It’s manageable for a while, but eventually it won’t be enough to stay afloat. You need to plan for thr moment you’ll need a lifeline, financially speaking.
“If you are living paycheque to paycheque, it may be hard to find or even to justify putting money into savings, when there are so many other areas of your budget needing attention,” says Schwartz. “If you find yourself in that situation at the moment, you’ve got to actively build yourself a financial cushion to shoulder the blow from any change in your situation, or major repair bill.”
The relationship between savings and debt management
If you are trying to keep your debt under control, conventional wisdom says you should put as much as you can toward those debts, right?
Yes and no. By all means, put as much as you can toward debt, but also ensure that you don’t rack up more debt. This can happen as a homeowner. Depending on the age of your home, the costs of home maintenance and repairs can range from a few hundred dollars to thousands. And these costs often appear when you aren’t expecting them, as emergencies do.
That’s why savings is a crucial part of debt management. If your debt payments are for paying down debt, your savings ensure that you don’t end up in debt again.
Build a financial cushion
How do you create the financial cushion that all homeowners should have? If you are shopping for a home, you can increase that cushion right out of the bat by taking a lower mortgage loan.
If you are a homeowner and are carrying multiple debts, consider consolidating. Part of the problem in living paycheque to paycheque is a lack of cash flow. Consolidating debt can improve cash flow, which can help you build up your savings.