Give Me Back My Five Bucks

Saving for a down payment

For the past few years, I’ve been on auto pilot with my finances. My retirement savings are automatically withdrawn every pay day, and at the end of the month whatever is left over, I put into a general savings account. It’s what I’ve always wanted for myself – to be savvy enough to create a budget and (for the most part) stick to it every month, and to have enough income coming in that I could afford to do the things that I want to do, without financial struggle.

Related: Here’s how I saved 50% of my income in 2016

Because my finances are automated for the most part (I still manually pay all my bills), I haven’t had to put in effort to save for anything … and this realization actually made me feel pretty bad about myself. That’s in part because, aside from my long-term goal of early retirement or the occasional big trip somewhere, I haven’t had an actual financial goal in years. I’m talking about a big financial goal that would require me to create a plan and actually work hard to achieve it.

Until now.

Since RD and I have made it our goal to one day buy a home (probably, maybe sometime this year), all of a sudden my new goal is to save for a down payment, because the amount we put down on our future home is riding on how much I personally can save.

Right now I have $53,000 earmarked specifically for a future down payment (this lives outside of my general savings and my emergency fund accounts). RD has much more than that – so much more that it would actually be impossible for me to match his savings even if I tried my hardest this year. And since we are planning to go 50-50 on the down payment, the amount we will have saved really depends on how much more I can squirrel away.

It seems weird to even talk about saving for a down payment, when I was so sure we would be renters for years. But now that we both understand we’ll be here long-term, it actually does make sense to buy if we can find a place that costs about the same to own as to rent. The only problem is, those places are very rare, and we’re willing to wait until we find a home that we can love for 10+ years – and until the Vancouver real estate market settles down … which is why we have no idea when we’ll end up buying.

Related: How I saved for my down payment

My dream is that we’d have $150,000 combined for a down payment and closing costs, which means I’d have to save $22,000 more to come up with my half. Admittedly, this is a somewhat unrealistic goal considering our travel itinerary this year and the fact that I refuse to lower my retirement contributions, but there’s an outside chance I can get there. Of course, it depends on when we actually decide to buy, but I will still try to come up with some sort of plan to get me as close to my goal as possible. Stay tuned!

Author: Krystal Yee

I’m a personal finance blogger and marketing professional based in Vancouver. I’m a former Toronto Star (Moneyville) columnist, author of The Beginner’s Guide to Saving and Investing, and co-founder of the Canadian Personal Finance Conference. When I’m not working, you can usually find me running, climbing, playing field hockey, or plotting my next adventure.


Comments

  1. Sarah says:

    Question! Is the $53,000 in your TD E-series? Is that your retirement savings that you would use for your down payment? Just curious – thanks!

    • Krystal Yee says:

      Hi Sarah! No, the $53,000 I currently have saved is outside of my retirement accounts and in an EQ Bank high interest savings account.

  2. Victoria says:

    If you have uneven down payment amounts you can create a declaration of trust to establish % ownership of the property. At least you can in the UK but something similar probably available in Canada. I’ve done this with someone I planned to and did in fact marry planning to be together forever. But it made sorting finances when we separated many years later much easier

    • Krystal Yee says:

      Yeah I know something that could be done to establish % of ownership, but I just really like the idea of going 50-50 on the down payment and wanted to make that my goal. :) It’s definitely something to consider though once we get closer to buying. Thanks!

  3. Sarah says:

    You should do a update on your savings/retirement savings/emergency fund! Also your monthly contributions to each.

  4. Carrie says:

    Have you thought about using First time homebuyers as the down payment, or did you do that for your townhouse? Keep in mind it does reset after 4 years. Not sure when you sold.

    • Krystal Yee says:

      Yes I used the HBP for my townhouse, but I wouldn’t use it again. It was great for my situation back then, but early retirement is still my number one goal, and I can’t jeopardize that by raiding my retirement account again. :)

  5. Liquid says:

    Good plan Krystal. Home ownership is a great way to build wealth in Vancouver. Are you going to look for another home that doesn’t allow rentals like the townhouse you use to own, but sold a couple of years ago?

    • Krystal Yee says:

      Rental restrictions is actually something we recently discussed! We both agreed that it’s not a deal breaker if the place doesn’t allow rentals, but it would be nice if the rules were less strict than my old townhouse – which was 100% owner occupied. That being said, most of the places we’ve been seeing online are newer buildings and almost all of them have relaxed or zero rental restrictions.

  6. Leigh says:

    Buying 50/50 is totally the way to go! We are staying in the condo I bought by myself for now so we will have unequal ownership for a few years. If we ever moved and bought a different place though we would absolutely go in 50/50. You could write an agreement like another commenter did, which is what my husband and I have done, but that just wouldn’t work for us psychologically. I really think you guys have the right approach!

  7. Peter Leung says:

    Hi Krystal,

    I am a long time reader of your financial blog; I am in a very similar situation as you in terms of down payment and timing to buy a place in Van. Can you please share of the financial number when you do buy a place? I would like to use it as a reference for myself. I have 150K ready to go as a down payment but I am struggling to get myself convinced of the possible financial commitment if I do buy a place

    Thanks,
    Peter

  8. Peter Leung says:

    Thanks so much for doing this, Krystal

    I have been struggling for months to try to get myself committed to buying a place in Van again. (I used to own a townhouse, but I am now a renter BTW) It really is the financial commitment (down the road) that scares the world out of me. If you can share some opinion/insights into your final decision, that will be great!

  9. Suze says:

    I am in a similar situation and we just decided to wait another year to save up more. I have a hard time leaving all these big savings in a savings account of 2.5% when an index fund could yield so much more though. Am I crazy to consider that?

    • Krystal Yee says:

      Yeah, I’m not comfortable putting any short-term cash (1-2 years) into anything other than a high interest savings account. You could always lose money, and that’s not a risk I am personally willing to take.

  10. Vad says:

    How would you compare the cost of renting versus owning?

    Comparing just mortgage payment with rent does not seem to be accurate. In case of renting you still have your downpayment that could be producing yield if invested, while with owning you also have property taxes, insurance and maintenance.

    • Krystal Yee says:

      I definitely agree that comparing just a mortgage payment with rent would not be accurate. Our plan is to only buy a place if the total mortgage/maintenance fees/property tax each month is equivalent to rent. Otherwise it doesn’t make financial sense, as neither of us are willing to sacrifice our savings or lifestyle just to own a home.

      As for investing that amount vs. using it for a down payment, yeah that’s a bit of a gamble. But we are both excellent savers and will both retire early at our current savings rate – which will not be affected by a home purchase. Our financial plan was always to own a home that’s fully paid off when entering retirement, and at the price point we’re looking at, that will definitely happen.

  11. Jax says:

    When my partner and I bought our house, I paid the down payment and we agreed he would pay the mortgage until we were even. That might be sometime to consider-though I realize not everyone would be comfortable with that arrangement.

  12. Kate says:

    I owned in a condo building that allowed rentals, and there were definitely some problems with that. A lot of the tenants weren’t great neighbours (messy, loud, and in one case selling marijuana out of the building) and the absentee landlord owners wouldn’t do anything about it.

    • Krystal Yee says:

      Yeah I’ve heard some really bad horror stories about buildings with no rental restrictions! I was really happy with my owner occupied townhouse complex while I was living there, but did find it frustrating that when my living situation changed, I couldn’t do anything about it except sell or let it sit empty. It’s definitely something to really consider.

  13. Riley Park says:

    Hi Crystal…love your blog and financial discipline. I’m in a condo in Van and there are no rental restrictions. However, it is self managed. There are 140 units (Main St. area) and our manger is an owner and works about 30 hours a week. I really think his presence here keeps the building in excellent shape and he really cracks down on problem tenants. So, if you can find one, I would highly recommend getting in a self-managed building. My stata fees are pretty average ($325/mo). Good luck!

  14. I just found your blog the other day and just wanted to let you know how helpful I am finding it. I am having a hard time finding financial blogs with Canadian content. My husband and I have decided to work really hard at paying off a good chunk of our debt this year and your blog has a ton of really useful information.

  15. Joel says:

    For someone who managed to save 50% of her income AND increase her net worth by over $40,000, saving $22,000 for a down payment should be simple.

    Look at $22,000 in small increments instead of as a lump sum then it is POSSIBLE. As a salary employee, you have 26 pay periods per year. Save as little or as much as you are comfortable each period and multiply this amount by 26. Through automatic deductions, for example, setting aside $500 every pay period allows you to accumulate $13,000 in a year, $26,000 in two years or $22,000 in roughly a year and 10 months.

    You can do it! :)

  16. Joel says:

    Another thing to keep in mind is that home ownership is a financial responsibility that involves property taxes, utilities, home insurance and maintenance. Currently, as tenants, you and RD are not paying most of these expenses thus you both have higher disposable incomes from which you enjoy certain lifestyle choices, frequent travel and a high savings ratio.

    You might be financially prepared for home ownership but are you psychologically ready for the change in lifestyle that home ownership brings? First, think about how much home you are buying and what your monthly mortgage payment will be. Go on-line and use a calculator to determine this. For the sake of this example, let’s stay you are buying a $500,000 home with 30% down payment at 3.89% (four-year term) amortized over 25 years. Your monthly mortgage payment will be $1,820.26.

    How much will your carrying costs be? Suppose your property taxes are $3,000 per year which equals $250 per month. You will have to pay house insurance estimated at $100 per month. Add utilities estimated at $300 per month. Add maintenance estimated at $400 per month. Now combine total monthly carrying costs of $1,050 with monthly mortgage payment for a grand total of $2,870.26 per month which is what it will cost you to actually live in that new home.

    Subtract your current monthly rent ($1,650) from the above proposed housing cost ($2,870.26) and the difference is your monthly savings: $1,220.26. From this $1,220.26 is what is available for early retirement savings and travel budget for BOTH of you. If this amount is insufficient then you know that you must reduce your monthly early retirement savings, sacrifice your lifestyle or curb your travel budget in order to own a home.

    You and RD could subject yourselves to a bare-bones budget for a month or so to help you learn how to live on less disposable income and to better prepare you for the adjustment in your lifestyle that home ownership will bring. What a GREAT idea for a future blog post! :)

  17. Lisa says:

    Krystal! Glad to see that you’re planning to buy a home with RD. Good job on the existing savings! Just out of curiosity, have you ever read the book Rich Dad, Poor Dad?

    I really recommend that book because it will change your mindset about whether our primary res is an asset or liability and help you decide how to make that decision when it comes down to buying a home again.

    Hopefully, when you guys do decide to buy a place it doesn’t have rental restrictions like your old townhouse, because after one year if you get bored living there you can still rent it out. :)

    Good luck!

  18. David Chen says:

    Good plan, Crystal! It’s been hard finding financial blogs relevant to my personal interests but I really enjoy your posts. What kind of system do you keep to stay organized? Have you encountered any unexpected factors in your life that that have made it much harder to save?
    Best of luck saving!

  19. Samantha says:

    Right now renting wins hand down over buying in any major Canadian market, and I think we are in the late stages of a huge real estate bubble here in Canada, driven in part by foreign money. I hear Vancouver prices are moderating or outright going down, however I would wait a bit more if I were you…probably more declines to come in the next 2- years. Of course if you find something that you love, you can live in long-term, and it makes financial sense, just go for it. Good luck :).

    • Krystal Yee says:

      Vancouver prices are definitely going down in the detached housing market, but a recent reports noted that townhomes and condo prices are remaining steady. I personally don’t think condo prices will go down much from where they are now because there is such a lack of inventory, especially in our price point. And they certainly won’t be going back down to anything I’d consider “normal” in other markets. So we’ll just wait and see what happens. There is 100% no rush, as we have a good rental situation right now. :)

  20. Levon says:

    $53,000 is an excellent down payment – you’ve actually done quite well even though you’re comparing yourself to someone who has more. Most people don’t have any money, some people have some retirement savings, but few people have a solid retirement account as well as a separate fund for a down payment that won’t require you to jeopardize your long-term investing and retirement goals by pulling money out of the market.

    More generally, however, you’re a great example of how it’s possible to actually do well financially at a young age and in this economy. Clearly many people are suffering and it’s harder for Gen Y to purchase a home than it was for either Gen X or for the Baby Boomers for various reasons (this is a whole different issue and a book can be written on it). However, it’s still possible (even with so much stacked against Gen Y) to save a very healthy amount for a down payment as you’ve clearly demonstrated.

    You clearly enjoys traveling, but would you consider not traveling for a while in order to save up? Can you cancel your travels? More importantly, would you be willing to cancel/change your travel itinerary in order to reach your goals?

    Thanks for the useful article – keep up the good work and best of luck in getting that big down payment ready

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