How to Avoid Reno Debt with a Rising Cost of LivingMay 12, 2018
Whether it’s upgrading your interior with a new kitchen, or building something in your back yard, summer is renovation season in Canada. Plenty of people are starting to make plans for those warmer months and making the decision whether to borrow money, possibly taking on debt, to pay for a home reno.
Last year, we visited this topic with our home reno poll to find how debt relief in Canada, related to home renovations, were weigh against long-term financial goals. The results showed a big difference in spending, an average of $20,744 to $13,239, between those who borrowed money and those who used savings or cash. It also showed that some were making sacrifices: 21 per cent weren’t saving enough for retirement, while 24 per cent weren’t reducing debt as quickly as they want or should.
This year, before making an action plan for your home, evaluate what’s changed in your finances, and whether you can withstand changes in spending over the next year. These changes can come from a number of budget areas, but one that many Canadians grapple with on a daily basis is general cost of living.
Here are a few variables of cost of living that you should consider before committing to your renovation spend.
Does the rising cost of gas and hydro impact you?
In Ontario, a hot button issue is the rising cost of hydro. In the last few years, the Ontario Association of Food Banks has started to refer to “energy poverty” as a real reason behind a 26 per cent rise in those Ontarians living in low-income situations. There’s also the cost of gas, with various factors like pipeline disputes and the summer season playing a part in pump premiums.
With these costs, it’s generally a good idea to have a budget that’s flexible. You want to make sure a new renovation doesn’t leave you scrambling to make a higher hydro bill, especially when you consider the extra electricity needed to do a project at home.
What about food and other small daily purchases?
For many in their 30s and 40s, busy lives can lead to eating out — a more expensive lunch proposition than packing your own. Minimum wage increases in Ontario has resulted in changing costs here too, as prices for food went up 1.9 per cent from January 2017 to January 18.
While this rise seems small and a meal doesn’t seem like a big impact on your budget, this kind of spending adds up quickly if it’s not watched. Ensure you’re sticking to an allotted amount.
Or, change your habits with some advice from personal finance expert Rubina Ahmed-Haq. She recommends making low-maintenance habits that will help your long-term goals, like taking 10 per cent off every paycheque and putting it towards retirement. With this money put away, you’re less susceptible to spending on an area of life that’s getting more expensive and jeopardizing your long term saving goals.
With these and other considerations in mind, take another critical look at your renovation plans for 2018. Is it something you need to do this year, or can it be put off? Consider your longer-term goals like retirement and whether you can keep up with savings through renovation debt payments.
Finally, make sure you’re keeping a priority to reduce debt, whether you have a big summer spend coming or not. Canadians in their 30s or 40s have many financial priorities to weigh on an annual basis. Getting out of debt makes it easier to save money, which makes those priorities easier to achieve.