Wednesday, 24 May 2017

Small Changes, Big Gains? The Avocado Blame Game

The Avocado Blame Game

If you've been on the internet at all in the last week you've likely heard the debate over millennials, home-ownership and avocado toast. Small sidenote, you know it's a thing when you can so easily find a free stock photo ;) Australian millionaire, Tim Gurner, did an interview with 60 minutes and spewed some advice and threw avocados under the bus as the reason millennials can't afford houses. (Ahem, millennial homeowner over here) He was quoted as saying: 
“I have seen young people order smashed avocado with crumbled feta on five-grain toasted bread at $22 a pop and more. I can afford to eat this for lunch because I am middle aged and have raised my family. But how can young people afford to eat like this? Shouldn’t they be economising by eating at home? How often are they eating out? Twenty-two dollars several times a week could go towards a deposit on a house.” -Tim Gurner
Opinions are as varied as can be about what Mr Gurner said and I'm going to throw my two cents into the debate today. 

First off, who the hell actually spends $22 on avocado toast?! I am not above the trend (I love me some avocados, and just about anything is better on bread) but seriously, $22! Maybe we have significantly cheaper avocados here in Canada than they do it Australia but even at the fanciest brunch restaurant I can think of you wouldn't have to pay that ridiculous sum. So yes, if you are in fact a millennial who is spending 22 bucks a pop for avocado toast then there might be some issues we need to deal with. 

Let's take a look at the actual math of the issue. To keep things fair, I'm going to pretend you really truly are spending that amount. The average house price in Canada is currently (as of April 2017) $559,317, but that number is skewed because of the crazy markets in Toronto and Vancouver, so I'm instead going to focus on my hometown of Edmonton which clocks in with an average house price of $377,774. A 20% down-payment on such a purchase price is going to cost you $75,555 or a whopping 3434 avocado toasts. Even if you ate a $22 avocado toast EVERY SINGLE DAY, it would still take you over 9 years to eat away your down-payment. So no, cutting this out is not magically going to make you a homeowner...sorry guys. 

Do you really need to be a homeowner?
Sentiments are changing a bit, and it's no longer everyone's top priority to buy a home. Millennials aren't always following the graduate college, get married, purchase a home, and have a couple of kids path that guided our parents. It's much more common to delay marriage, travel the world, switch jobs a bunch of times, and not have kids at all. And some of these things are much easier to accomplish when you're not tied to real estate. You're much more likely to drop everything and take a job in a new city if you don't have to worry about selling your home first. All I'm trying to say is that you shouldn't feel bad if you'd rather keep renting...having a good grasp of your money is important, but it doesn't necessarily go hand in hand with owning property. 

But what if you do want to buy a home?
We've clarified that cutting avocado toast out of your diet isn't going to get you a down-payment, but what will? Honestly, hard work and time. Unless you have a rich relative who's willing to front you the money (small dig at how millionaire dude got $34,000 from Gramps to start his first business), you're going to have to do it the old fashioned savings way. For just a second, I'm going to give Mr Gurner the benefit of the doubt and assume his avocado statement was meant to touch on the bigger picture. If you are the type of person who is willing to drop $22 on breakfast, it's fair to say that you are also likely to drop that sort of money in other areas of your life. Avocado toast isn't going to crush your home-ownership dreams, but excessive spending very well could. 

If we look back on that example from above, you're going to need to save up $75,555 for a down-payment. If your goal is to buy a home in five years that means you need to save $15,111 per year or $1,260 per month (or $41 per day if you really want to break it down). So yes, if you're spending that much eating out every day and can cut that out cold turkey then you're all set. I'm going to go ahead and assume that if you're worried about buying a home, then you're likely not the type to be throwing money away like that ;) 

There are two ways you can save money...

1. Earn More
Not what you thought I was going to start with was it? Most people believe that the best way to save money is by cutting spending, but that's wrong. Bringing in more money will almost always have a bigger impact on your savings rate than decreasing how much you spend. There are a few ways you can make this happen: ask for a raise, sell stuff (excess items around your house or a hobby you can market), get a second job, or start a side hustle (tutoring, AirBnB, blogging, etc.) Whatever extra income you make should be immediately put away into a house-saving fund, so you aren't tempted to spend it. 

2. Cut Spending
The most important thing you can do for your finances is to create a detailed budget, so you know where your money is going. Start out by tracking your spending for a few months and then take a long hard look at the numbers to see what areas can be decreased (or even eliminated). Once you know where your money goes, you can determine how much you need for living expenses and how much you can sock away in your house fund. If you're serious about buying a house in 'X' years, this might be a bit of a reality check, but you can pull it off. I can preach about healthy money habits until I run out of words (as if that will ever happen), but you'll only 'get' it when you do it for yourself. Eliminating avocado toast may not get you your dream home, but a bunch of small changes will get you there a heck of a lot faster. One tip, don't be too brutal when slashing your budget. We all have our vices (expensive coffee, baked goods, books, whatever), so don't eliminate everything you love. You'll find yourself miserable and not be able to stick to your budget. So live...a little! 

In conclusion, take the millionaire's advice (and your avocado) with a grain of salt. Becoming a homeowner takes more than cutting out fancy brunches, but excessive spending isn't going to get you anywhere fast.  

The Avocado Blame Game

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