The Generation X live in a period which can be seen as not favorable compared to the baby boomer generation. In Canada, the housing prices are high and keep going up. The huge mortgage will take away most of the disposable income if you plan to buy a house. That will trigger everybody to think about a strategy how to accommodate the daily need, the retirement and the mortgage wrapped around your earning which will not be easy increased in today's economy.
The sluggish economy, the public debt, the high unemployment and the higher cost of borrowing, even in today low interest environment, are factors affecting younger generation in achieving wealth and comfort for retirement in later years of life. The higher cost of housing will cut down the saving significantly. The consequence is more and more people think about working beyond 65 or even until 70 because they think the saving is not enough for the retirement. Some people are even worry that the pension system will not be there for them when they retire. The basic government benefits could be collapsed due to high public debt and sluggish economy. The employer sponsored pension plan is trending toward smaller or eliminated entirely. Thus, the personal saving will become more important than ever.
For many years the pie of disposable income was divided in three: one for every day need, one for the housing and one for the saving, specially for the retirement. In the current economy, the cost for housing is getting bigger than one third, in some situation it even takes up one half of the monthly income, and the savings get smaller. For some people, savings in the early years seem to be impossible. Balancing out between the expenses and the savings therefore makes more sense and cutting cost for housing may be better for the long run. Saving for the retirement, saving for child education and life insurance are good investments for the family. Saving with registered retirement saving plan and use the tax refund to pay down the mortgage is considered a double saving. When the saving in registered retirement saving plan is large enough to cover the mortgage, you can set up a self-directed plan with the bank and lend the money to mortgage as an investment. This way, you pay the interest to yourself instead to the bank. The saving is threefold when saving with this strategy.
Keep in mind, a bigger house has more expenses than a smaller house: larger bill for heating in winter, larger bill for electricity to keep the house cool in summer, more property tax etc,. It is also less liquid than other investment type such as stock or mutual fund. The house is a good investment but will suck more money into it. The trending of real state price could be reversed, the same reaction as the other investment in bad market condition. If you are limited in earning, the balance between investments in housing and the retirement is important.
Car is actually a money burning machine. Be cautious about buying and selecting car for your need. Car is the mean for transportation from one point to the another. Car value is decreased very fast. No matter what kind of car, value could be only fifty percent after a few years of use. Putting car in context of saving strategy is important. In the long term, car could be a very big expense in your budget. There are many expenses for car: car insurance cost, car maintenance cost, gas cost, parking fees...
The boomerang kid is a clear indicator of today sluggish and jittery economy. Number of adult children returning home and look for support from parents are on the rise. You may need to factor in this reality into your retirement planning as well. Everybody is facing a tough economic uncertainty in a saturated material world. A bumpy ride ahead is certainly for most people in the thirties or forties when job for life is not a standard as half century ago. Just hold it tight and take a deep breath.
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