As we near the close of 2021, I thought I’d take a few minutes to reflect on the past year, and what I’ve learned by shifting my mindset and habits financially. I’ve never been one to splurge, but also never gave too much thought to following a budget or planning out my finances. I knew that I spent less than I made, so I was good — right?
Not quite, as it turned out. While it was true that I was overall in the black, there was one consequence of the pandemic that really was a shock to the system, and made me reconsider many aspects of personal finance: real estate prices. I’m located in Canada where, if you haven’t heard, real estate prices have gone absolutely wild. I’m talking at the bar after the Toronto Raptors won the NBA championship wild. Canada isn’t any stranger to high real estate prices (see Toronto and Vancouver), but the pandemic saw a surge in prices all across the country, in secondary/tertiary markets and less populous provinces where things had always been pretty affordable for the average citizen.
Where I am, since January 2020, the average price of a home (all types) has risen from about $453,900 to $644,000 — an increase of roughly 42%. When you look at just single family homes (townhouses and single family detached), the average price hit an all-time high in November 2021 of about $721,000. With the mortgage stress test (a measure to ensure borrowers can withstand a significant increase in interest rates before being approved for a mortgage) now sitting at 5.25%, if I wanted to buy an average single family home my household income would need to be about $165,000 in order to pass the test (assuming a reasonable 10% down payment at around $75,000, $400 a month property tax and $75/month for heating, which I estimate to be a very conservative estimate of costs).
This is a problem. A big one, for a few reasons. I am (for now) a single income earner. My girlfriend recently came to Canada from another country, and while she is going through her post-secondary program and establishing herself, that’s an income that we don’t have, plus the costs of two people. I make good money on my own, but nowhere near the $165,000 required for this. That’s software engineer money, and I’ll put it this way: I’m the kind of person who will pop champagne when I get an Excel formula to work. Not quite up to the task. Even for two people, $165,000 isn’t anything to sneeze at. At around $430,000, the average condo too is currently out of reach for me as a single income earner, as at my current income and expenses I would need about $137,000 for a down payment, or a 32% down payment, to qualify for a mortgage on such a property.
Seeing the meteoric rise in real estate prices caused me to panic more than a little. All of a sudden, the 5 year plan I had laid out (climb the corporate ladder, buy a townhome, etc.) was scuttled completely. I achieved the first part of that plan (increase salary) quite successfully, but now the goalposts had moved. In fact, they were no longer even on the field, but now the next stadium over. I realized that if I were to hope to buy a place within the next few years, I had to really take control of my finances and make some lifestyle and mindset changes to put me on the path to success.
Like I mentioned earlier in this article, I’ve never been a serial spender. That said, I definitely did enjoy buying clothes, I never thought twice about spending $50 at the bar with my friends a couple days a week, and going out and spending on all the little daily pleasures really added up to an extent that surprised me when I first looked into it. So, over the course of June 2020 to December 2020, I made several changes to streamline my lifestyle and put me in the driver’s seat:
- I sold my car, which was used and paid for, as I lived downtown and really did not use it anywhere near enough to make paying for gas, insurance, and parking worthwhile. With WFH, I also took the opportunity to cancel my bus pass, as that certainly wasn’t being used;
- I stopped buying most things that served no immediate purpose and were only for pleasure (such as clothes I didn’t need), and adopted a more minimalist approach to life — in essence, just have less stuff, and make sure what I do have is quality, functional, and serves a purpose. I audited all my things, and 95% of whatever I couldn’t immediately explain why I had I got rid of;
- I started reducing the amount that I spent on nights out, cut down heavily on ordering food (if I did order, I always tried to order from places I could walk to and do takeout), and;
- Shifted my focus from unproductive activities and those that cost money towards activities that were productive and/or free/low cost. Going for walks, exercising, reading, are all examples of what I began to focus more on.
In addition to the above, I also started paying myself first. I set a goal of how much I wanted to save and invest per month ($1000–1500), and would invest the minimum of that early on, and then whatever was left at the end of the month. This helped keep me on track by prioritizing investing, and helped curb spending because I had less money in my account to go and spend on things.
And so now, it’s been just about a year of living this tweaked lifestyle, and what have I learned? A fair bit, as it turns out — some good, and some not so good. Here are what I believe are the most important lessons I’ve learned over the course of 2021.
- You’ll be surprised at how much unnecessary stuff you have in your life.
When I first audited everything I had, I was genuinely amazed at the amount of clutter and useless objects I had accumulated. I had boxes of things that I didn’t even remember I had, much less used. And it’s not only physical items that clutter your life — think of your phone, your computer. How many apps do you have on there that you don’t ever use? How many photos have you taken that you’ve never looked at since? What old files are lurking in the corners of your hard drive, taking up valuable space? When I began eliminating all these things from my life, I found that this sort of weight I never knew I had lifted from my shoulders. It’s a very odd sensation to explain, but I think just the act of getting rid of things I didn’t need nor use was calming, empowering, and gave me a sense of clarity. Speaking of getting rid of things:
- Letting go of things is easier than you may think
I’ve known people who have a very hard time getting rid of things. Perhaps there’s a vestige of sentimental value attached to an object (which in my opinion is a totally valid reason to keep it), or a thought of “but what if I need this someday?”. These are mental obstacles that prevented me from getting rid of things in the past too. As well, I hated the thought of just getting rid of something that I may have spent money on, that no longer has any value. But, that is life, and we humans tend to be accumulators on average. We buy, gather, accumulate all manner of things, and we keep doing so our entire lives. Before long, we have more things than we know what to do with and large amounts of clutter in our lives.
The first time you get rid of something, it’s like breaking the ice: it just becomes easier and easier after that. Start with something small, it doesn’t have to be all at once, and you’ll find it becomes much easier than you may have thought. Another thing that helped me a lot was to have a strategy that I stuck to. My strategy was: if I can’t immediately tell someone why I have this or what purpose it serves, I get rid of it.
- A focus on finances can easily become an obsession, and lead to an unhealthy relationship with money
This is something of a more recent development in my life, emerging over the past month or so. As I focused more on optimizing my finances, budgeting, and saving/investing, I found myself getting more and more stressed about not being 100% disciplined with my money (e.g. if I went out and spent $40 at the bar) and seeing the goalposts continue to move farther away as housing prices continued to rise. It got to the point where it had started to affect my sleep, my focus, and I was constantly at this level of stress and anxiety that made life miserable for a while.
To avoid making the same mistakes I did, there are a few things you can do. Number one is to be kind with yourself. Accept that you will never be a perfectly efficient machine when it comes to your money, and that slip-ups will happen here and there. The important thing is to recognize when that happens, and to make a plan to get back on track when it does. You can also make your savings and investment plan and automate parts of it, such as setting up automatic transfers to your investment accounts when your paycheque comes in. The idea is to not be checking your finances constantly, which is what I did, and have them always front and centre in your mind. The more present they are, the more you’ll dwell on them, and it can easily turn into a slippery slope like the one I fell down.
- Being disciplined with your lifestyle has its own surprising challenges and rewards
The biggest challenge I faced over the past year has been saying “no” to social engagements. I’ve always been game to go out and do whatever with friends, but when I started being more disciplined with my finances, I found myself beginning to run into awkward situations where I wouldn’t be willing to go out, and when asked why I didn’t really want to say “Because I can’t afford it”. It sounded very awkward to me, and the fact is that I COULD afford it, but instead chose not to in order to progress towards other goals. I started explaining this to my friends, and I found them to be receptive and understanding, which I am very grateful for.
On the flip side of that coin, I found that being disciplined with my finances was very empowering. I felt in control of my life — I was making the decisions, they weren’t forcing themselves upon me. It gave me more confidence too, knowing that I had this newfound willpower to say “no”. Now, I can go out and not spend any more than I want to, whereas before I would’ve given in to temptations and exceeded whatever budget I had in mind.
This article has ended up a wee bit longer than I had originally planned, so I’ll wrap things up here. Have you ever tried something similar to what I did? How did it go? What did you learn, and what advice would you give to those who may be looking to take the same steps? Let’s have a chat in the comments.
Cheers!
