Reviewing the Real Life Ratio

Lately, I’ve been keeping an eye on the Globe & Mail. I am glad to see more good articles written about house-hold debt. In the past I've written about this topic, buying what’s reasonable versus maximum.

Rob Carrick from the Globe & Mail wrote two excellent pieces on 6 March 2014 and 19 March 2014. In the March 6th piece, entitled “Can you really afford that mortgage? Know your Real Life Ratio”, Rob makes a bold outright statement when he says, "Someone ought to explain the facts of life to the nation’s bankers....Never take a lender’s word for it that you can afford a house." Rob highlights what he calls the real life ratio which accounts for the basic costs of home ownership but also the real world expenses such as education, insurance, and long-term home maintenance. The real life ratio (see attached link, excel sheet) also shifts depending on what stage you are in life including your kids.

In Rob’s second article, entitled “West Coaster making $86,000 can barely afford his modest life,” Rob shares the life of Hamish Telford.Hamish is separated from his wife, has a 7 year old son and a professor of political science who is considered upper middle class living in Abbotsford, BC. Hamish spends over 50% of his net income towards household expenses.  Hamish is hanging and “isn’t looking for sympathy, just some understanding of how hard it is to get by even for a member of the upper middle class.” He is more worried about others, “I can only imagine how stressed the other 95 per cent of the population must feel."

The point of the article was that Hamish had car trouble and needed to spend approximately $1500-$2000 to fix his car and he sadly had trouble doing so. People should think about the Real Life Ratio when considering the home they wish to purchase.