All of us operate on a budget, whether it is a hard-and-fast detailed plan or a spending pattern that expires when the money runs out. Larger cost items such as a house or a car generally demand more planning as outside financing is often required. The Altus Group recently published some interesting data from a study regarding Canadian spending habits.
Expenses related to shelter (mortgage payments, rent, condominium fees, repairs, maintenance, property taxes) are the largest expense category for the average Canadian, followed by transportation and food. Combined, they account for about 60 per cent of expenditures. Shelter is just over 25 per cent (33 per cent for those with mortgages, 17 per cent for those without). It is interesting to note shelter costs are highest for those under 35 and just starting out; experiencing a gradual decline through the empty nester years, and then increasing again among seniors. Note this is a percentage of consumption dollars spent, thereby showing the increase for seniors due to a reduction in dollars spent on other items. On the other hand, seniors rank lowest in owned homes with a mortgage.
Each age group experiences different pressures relating to their spending patterns. Although shelter is generally the largest single item, the study also considered household operations, recreation, clothing and accessories, health care, household furnishings and equipment, education and personal care.
Once big-ticket items have been satisfied, Canadians exhibit greater restraint in spending on other items. Household debt (consumer mortgage and credit liabilities as a ratio of personal disposable income) peaked in 2012 but seems to have stabilized this year and seems to be progressing at the rate of income growth.
Canadians are also showing effort in paying down their mortgages faster. In the survey, one out of every four respondents said they made extra payments against their mortgage in 2012 and 80 per cent indicated they will do so this year. This group doesn't even include those who have built a prepay or increased mortgage payment into their schedule. Many of these people are taking advantage of lower interest rates now in order to ease their payment amounts when they have to renew.
Planning and budgeting personal consumption expenses at all levels can make the transition into home ownership or the step-up in home ownership to a new home a much easier process.
Mike Moore is the president of the Manitoba Homebuilders' Association.