Gail Vaz-Oxlade - Money Rules: Rule Your Money or Your Money Will Rule You

You dont have to own to have a home. While the common mantra is Buy and build equity, thats true only if you can afford to buy. So Rule #1 replaces the old rule People should all own their own homes.

I know there is a stigma attached to renting. But renting or owning is a personal choice. It has nothing to do with how smart, ambitious, or financially savvy you are. If all your ducks line up and you want to buy, then buy. If they dont, you should not be squeezing yourself into home ownership because you think that with it comes some magical financial stability you cant get if you dont own.

People twist themselves into knots trying to own their own homes. They overextend themselves. They buy with little or no down payment just to get into the market. They squeeze their cash flows and have to turn to credit to make ends meet.

Home ownership can be a big ol pain in the arse. Like when your shingles blow off in a windstorm. Or the furnace breaks. Or youre trying to sell and no one wants to buy, so you cant move and get on with your life. Yes, there are moments of joy and pride that come with home ownership, but its not for everyone.

So, who should NOT own?

YOU if you havent done a realistic budget. Dont fall for the crap that home ownership costs the same as renting. It does not. According to the Stats Man, homeowners spend an average of $57,649 a year on shelter-related costs compared with renters, who spend $32,536. Thats a difference of over $25,000. Just being able to make the mortgage payments isnt enough. If your budget doesnt include all the other costsproperty insurance, utilities (which will be higher than if you were renting), property taxes, and maintenance, you may find yourself tapping your credit cards and lines of credit just to make ends meet.

YOU if you have a variable income. If your income has some slow periods when you have trouble making ends meet, taking on a home may be the straw that breaks your cash flows back. Most people with a variable income, unless its very high, find budgeting difficult. Taking on home ownership means taking on a ton of stress.

YOU if you work in an industry where employment is seasonal or erratic. Ditto above. Unless you really sock it away while you are working, you may find it hard to keep up with the financial demands of ownership.

YOU if you dont have the time, skills, desire, or cash to deal with home maintenance. There is always something to be done around a house: a garden to be weeded, walls to be painted, lawns to be cut, plumbing to be fixed, curtains to be replaced, a roof to be repaired, snow to be shovelled, carpets to be cleaned, a furnace to be maintained the list goes on and on and on. Home maintenance can be expensive. Estimate 3% of the value of your home, not including the property; look at your home replacement insurance for this since it doesnt include the land. That means on a $200,000 house, youd need to include about $500 a month in your budget for maintenance. If you can do it yourself, youll save on labour, so you can put away a little less. If you must pay someone else, your costs will be higher, so dont skimp on your maintenance budget.

YOU if youll wipe out all your savings. Would you do ANYTHING to get into a home of your own? Would you take money from your retirement savings plans? Would you tap your tax-free savings accounts (TFSAs)? Would you annihilate your emergency funds? Wipe out all your savings and you could find that once youre in your new home, expenses start cropping up, and you have no safety net in place to see you through. If buying a house gobbles every red cent youve managed to squirrel away, you should wait until you can own a house AND have a safety net.

YOU if you move often. If you work in a career that has you relocating often, the costs of buying and selling may be prohibitive. Nomads live in tents for a reason. Getting in and out of home ownership (sales commission, closing costs, legal fees, land transfer taxes) can wipe out any equity youve built up, assuming the market has been going up in your area. And if the market has taken a turn for the worse just when youre pulling up roots again, youll eat the loss.

YOU if you cant afford to own in an area in which you would like to live. For the sake of home ownership, would you move far away from friends and family, from your job, from the life you love? It makes no sense to become house-poor in a place you dont even want to live. And if you add huge commuting costswhich you never calculate into your home-buying decisionboth in terms of money and time, youll end up rueing the decision to buy.

YOU if youre not financially responsible. Youd think this would be a given, wouldnt you? Not so much. Loads of people who are clueless about their money have bought homes. If you havent had the discipline to save up a healthy down payment, what makes you think youre ready for home ownership? If you dont even know for sure how much you make each month, youre climbing out on a rotten limb. And if you havent given a thought to what youll have to do to keep the place from falling down, youre delusional about what home ownership involves. In the end, youll rely on credit to see you through, and have to tap your home equity to pay down your consumer debt.