Finally, some help for big city dwellers wondering if the high cost of living is killing their personal finances.
“If your fixed expenses (housing, transportation, bills, utilities, etc.) are more than 55 per cent of your take-home pay, you need to rethink where or how you live,” financial planner Shannon Lee Simmons says in recent article on when to leave a city because it’s too expensive to live there.
There’s been a lot of attention lately given to how expensive it is to live in Toronto, Vancouver and surrounding areas. Toronto Life recently presented six middle-class couples who decided to move away from the city to find a more affordable lifestyle. In the article where Ms. Simmons offers her 55 per cent rule, author Lisa Coxon talks about both the high cost of living in Toronto and the challenge of finding other cities with comparable opportunities for career and income growth.
It’s now clear that for people who don’t pull down big salaries, it’s normal to be financially stretched in a big city. The 55-per-cent rule at least helps people tell if they’re stretched to the breaking point. If you’re spending more than that percentage of your pay on fixed expenses, Ms. Simmons suggests thinking about taking on a roommate or finding a way to earn more money.
The 55-per-cent rule is a good start in helping personal finance adapt to the high cost of living in some cities. But how do you save for emergencies, for your kids’ post-secondary education and for retirement when living costs eat up more than half your take-home pay? We need more answers than just telling people to move somewhere cheaper. I’m wide open to any ideas you have on this. Send them to rcarrick@globeandmail.com.
Rob’s personal finance reading list…
Affordable housing markets for singles
Two-income households have a much easier time affording the costs of getting into the housing market than singles. Are singles sunk? Here’s some data to show which cities are most affordable. Preview: Look to the west.
Top picks for sustainable investing
If you’re starting to get interested in sustainable investing, also known as socially responsible or ethical investing, check out this list of mutual funds and exchange-traded funds with high scores for both sustainability and financial results.
These household devices can prevent costly damage
Affordable alarms and sensors to detect problems such as fires, water leaks in your plumbing, and sudden drops or increases in temperature. Could save you thousands in repair costs.
Three questions for parents thinking of helping their adult kids buy a house
I particularly like this question: How well does your child manage money now?
Ask Rob
Q: Why do you and many other financial advisers in the media think that when people retire, their investment goals should automatically become conservative? If you retire at 65, do you not still have a 25-year investment horizon?
A: For sure. In fact, a lot of the growth in your retirement savings will occur after you retire. While it’s generally accepted that people should take some of the risk out of their investments as they approach retirement, you’d still want at least 50 to 60 per cent in stocks as a general rule, with the rest in bonds. A lot depends on your comfort level with stock market risk. Bonds don’t offer much growth in a portfolio, but they do provide an excellent cushion against stock market corrections.
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
Compare the cost of living in two different cities on a website called Expatistan.
Video of the week
A brisk run-through of how the Canada Deposit Insurance Corp. works and the accounts it covers.
In case you missed these Globe and Mail personal finance-related stories
- The Globe and Mail 2020 ETF Buyer’s Guide: Best U.S. equity funds (for Globe Unlimited subscribers)
- Have a defined-contribution pension plan? Here’s how to make the most of it
- Just when the housing market needs a firm hand, Ottawa makes it easier to get a mortgage
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