Getting a grip on financial reality
Money might not buy happiness, but it does allow you to rent it.
Happiness and the pros and cons of renting versus buying a home are major issues in the new book Cash Cows, Pigs and Jackpots, by Ontario chartered accountant and personal finance author David Trahair.
“It’s become clear to me now, having thought about it for a decade, that there’s nothing wrong with renting — in fact there are a lot of positives,” Trahair said recently. “If you own, what if you don’t like your neighbours, there’s shoddy construction, or you have to wait for three years for a place to be built while you’ve got money tied up?”
The book is part reference guide, detailing ongoing changes in the Canada Pension Plan and Old Age Security, but also explores behavioural finance by examining how we should approach our income and spending, a combination known as cash flow; plus the value of our assets minus debt, otherwise known as net worth.
“I’m trying to get people back to basics, back to reality, back to focusing on what’s important and to forget this notion that if something great happens, all of a sudden all my problems are solved,” Trahair said. “And I think the (financial) industry has been feeding that for awhile.”
The book speaks about cash cows, things that give you an income stream; cash pigs, things that are a drain on your money; and jackpots, potential sources of huge cash amounts that come with risk.
“People are burning themselves out, they are getting into debt trying to buy assets that will appreciate at a higher rate, they’re not thinking about cash flow, they’re not thinking about themselves, the biggest cash cow they have. I’m hoping to get them to think more about their quality of life, about avoiding situations that are going to be stressful every single day of their life; we’re talking about huge houses and rental properties all over the place and what happens when interest rates go up?”
Trahair says income from employment, entrepreneurship and even social benefits like pensions and retirement plans means that individuals are their own biggest cash cows. Yet, we often take insufficient care of ourselves.
“I’ve always had migraine issues. I’m 53 now and this year the symptoms took off. My biggest revelation was that if I got sick, it stopped my ability to earn income; that’s when I went to my GP (general practitioner).
“And if you project ahead to retirement, if you’re in good shape you’ll be in hospital less and not paying all this money out to health care that isn’t covered by provincial plans.”
Home ownership is one item that could be either a cash cow if you earn rental income, a cash pig if you sink money into interest and maintenance on a house that falls in price, or a jackpot if the house increases in value significantly.
Ownership makes sense for many people. But renting may be preferable for people just out of school, retirees with a debt-free principal residence they can sell at a profit, or those living in Toronto or Vancouver.