Five expenses that will consume 50 per cent of your lifetime earnings

by Manisha Thakor, Forbes.com
In these recessionary times, financial tips are flowing fast and furious about how to save money and stick to a budget. Facing a sea of information, many people are asking, “Where do I start?” For most of us, five areas of spending will consume over 50% of the money we earn during our lifetime, so that’s the best place to begin.

The five areas are: Home, car, children, education and retirement. Here’s what you need to know about each:

* Don’t bite off more HOME than you can chew. How much house can you comfortably afford? For most people the answer is a house with a purchase price of no more than 3x their annual household income. Rationale: the cost of a home includes much more than the monthly mortgage payment. It’s also property tax, insurance, upkeep, etc. Typically these costs run 2%-3% of the price of your home each year. Assuming a 20% down payment, a 30-year fixed rate mortgage, and interest rates in the 5%-6% rate, the 3x your income rule of thumb will translate into total housing costs of roughly 30% of your gross income.

* Don’t let your CAR drive you to the poor house. The same logic applies to your car. Most people can comfortably afford a car that is one-third of their annual income. If you make $60,000 you can comfortably afford a car that costs $20,000. If that seems low – now you know why so many people are in financial trouble. They are driving it. A car has many other costs than simply the monthly payment. There’s insurance, gas, parking, maintenance, etc. If you follow this rule of thumb, your total transportation costs should be 10% or less of your gross income.

* Don’t let your KIDS kick you in the wallet. Kids are expensive. From a purely clinical standpoint the Dept. of Agriculture estimates it will cost $220,000 to raise a child born in 2008 from diapers to age 18. And that figure is before you add in the cost of college or university! Deciding to be a parent is a major financial obligation. Don’t make it worse by over-indulging your love bundles.

* Don’t forget to ask “How high is too high for higher EDUCATION?” It used to be good debt was defined as mortgage and student loan debt… and bad debt was everything else. Not any more. We’ve now learned that too much of a good thing can indeed be bad. Rough rule of thumb, don’t take on more in total education debt than you think you are going to earn on average annually during your first 10 years after graduating (from college/university or grad school). In plain English, if you think you’ll make $50,000 a year, don’t take out more than $50,000 in loans. The logic behind this is that if it takes you more than 10 years of paying 10% of your income a year in student loan repayments, it’s going to be tough to meet your other financial obligations.

* Don’t underestimate the need to feed your RETIREMENT nest egg. How much will you need to retire? A simple rule of thumb is to multiply your current income by 25. So if you make $50,000 a year and want to maintain that standard of living in retirement, you’ll need a nest egg of at least $1,250,000. Understanding early on in your working life what “your number” is… will help you see just how important it is to plan for this major savings goal. http://ca.finance.yahoo.com/banking-budgeting/article/forbes/83/five-expenses-that-will-consume-50-per-cent-of-your-lifetime-earnings

Canada sees ‘dramatic’ housing slowdown, global report says

Canada sees ‘dramatic’ housing slowdown, global report says

Julie Fortier, Financial Post · Tuesday, Aug. 10, 2010

OTTAWA — Canada led in the global housing recovery in the first quarter of 2010, but moderating global growth, heightened financial market volatility and sluggish job creation have led to a “dramatic” slowdown in Canada, according to the Global Real Estate Trends report released Tuesday from Scotia Economics.

“Global real estate markets entered 2010 with a renewed sense of optimism, piggybacking on the broader economic recovery underway,” Adrienne Warren, senior economist at Scotia Economics said in the report. “Housing demand and pricing improved in the first quarter of the year in the majority of the advanced nations we track, benefiting from ultralow interest rates, improved affordability, and in some cases, government purchase incentives.”

Australia and Canada, with inflation-adjusted average home prices rising at double-digit rates, led the pack, echoing their relatively favourable employment and lending conditions. Sweden, Switzerland and the U.K. also saw home price increases, while U.S. and French markets reported small declines.

However, the global trend has reversed itself in recent months and Canada has seen home sales activity begin to fall.

“The recent slowdown has been most dramatic in Canada,” Warren noted. “Average home prices in (the second quarter) were up just 6.8 per cent year-over-year, compared with 16.6 per cent year-over-year in (the first quarter). Sales, while still at a high level, have trended steadily lower alongside reduced affordability and exhausted pent-up demand.”

For instance, figures from the Canadian Real Estate Association released last month showed seasonally adjusted national home sales activity via the Multiple Listing Service Systems fall 8.2 per cent in June from the previous month. Sales fell in almost 70 per cent of local markets.

The Scotia report said hard-hit markets like the U.S., Spain and the U.K. are expected to take years to recover, while “in higher growth nations such as Canada and Australia, housing activity should prove much more subdued than in recent years.”

Loonie's rise 'makes sense,' Flaherty says

Jack Reerink and Jeffrey Hodgson, Reuters · Thursday, Aug. 5, 2010

OTTAWA -- The rise in Canada’s currency “makes sense” because investors are snapping up the country’s assets and the economy is growing nicely, Canadian Finance Minister Jim Flaherty said on Thursday.

It’s a different world from the heady days of 2007, when the Canadian dollar zoomed up to a high near US$1.10, Mr. Flaherty said. Then, speculators were at the heart of the rise, he said, while this time he credits the strong economy.

“There’s more demand for Canadian investments. So the upward pressure on the dollar to me makes sense,” said Mr. Flaherty, who previously voiced concerns about the “loonie’s” rapid rise.

The currency was trading just above 98 U.S. cents on Thursday.

“It would have to go significantly above parity. And that would be a concern for Canadian business, and therefore a concern of mine,” Mr. Flaherty told Reuters in his Parliament Hill office.

Mr. Flaherty, the “eminence grise” among finance ministers of the Group of Seven big economies with four years on the job, also is focused on prodding China and other Asian economies to let their currencies rise — a perennial discussion point at finance minister meetings.

“We feel that there’s room to move ... more flexibility in the Asian currencies,” said Mr. Flaherty, who treated his G7 colleagues to a dog sled ride and meal of seal meat at a February conference in Canada’s Far North.

“At the same time, I’m pleased to see a restoration of a degree of flexibility with the Chinese currency,” he said. “We’ll continue to press on the subject.”

Mr. Flaherty’s Asia focus fits with Canada’s drive to stimulate trade with emerging markets, particularly resource-hungry China.

“We know that the world trade picture is changing. You can see it in the countries that sit around the table at the G20 summits,” he said, his voice almost drowned out by the stand-alone air-conditioning unit cooling his office in the Gothic Revival building.

The share of Canada’s exports going to the United States has steadily declined in the past decade, but still stands at three-quarters. Mr. Flaherty sees it going down to as little as 60% in the next five to 10 years on more Asia business and a possible trade deal with the European Union.

All the same, the state of the U.S. economy is always front of mind. And Mr. Flaherty, who mostly uses job figures and consumer confidence to gauge economic conditions, is pretty upbeat.

“My two significant worries about the American economy are the relative weakness of the job recovery ... and weak U.S. consumer confidence,” he said, adding the risk of the U.S. economy sliding back into recession is “modest”

“The more likely course is a modest gradual recovery,” said Mr. Flaherty, who studied at Princeton University before getting his law degree in Canada.

The “track is good” for Mr. Flaherty’s own budget, due early next year, as analysts are ratcheting up expectations of economic growth to 3.5% this year. One issue clouding the picture: how to account for payments to provinces adopting the harmonized sales tax, or HST, which combines federal and provincial sales taxes rather than collect them separately.

Number crunchers are now figuring out whether to take the hit in one go or spread it out over several years, Mr. Flaherty said, adding: “We don’t have fun with figures here.”

© Thomson Reuters 2010