The results of a recent survey found that nearly half of Canadian homeowners do not have enough money set aside to deal with a financial emergency.
The survey, conducted by Manulife Bank of Canada, also discovered that four in 10 homeowners admitted that they are experiencing difficulty in managing the basic living expenses associated with home ownership.
Roughly a quarter of those surveyed said that they have $1,000 or less set aside for an emergency, and another quarter admitted that they do not even know how much emergency savings they have set aside. Manulife noted that millennial homeowners (aged 20-34 years) have posted the lowest median amount of emergency funds among the respondents at only $3,500. Thirty-eight percent (38%) of homeowners with mortgage debt also said that they have some difficulty affording their mortgage, utilities and maintenance.
“It’s undoubtedly stressful living paycheque-to-paycheque,” commented Manulife Bank of Canada president and CEO Rick Lunny. “If you don’t have extra cash at the end of the month, it’s very difficult to build a rainy-day account. For those who find themselves in this situation, a good place to start is working with an advisor to create a budget. Many people are surprised at how much of their money is going toward things that they don’t consider that important.”
Canadian homeowners with a mortgage, according to the survey, posted an average $174,000 in mortgage debt, with over a quarter of their net income going toward mortgage payments. Only about three in 10 homeowners spend more than 30% of their net income on mortgage payments.
One third of the survey respondents who are mortgage holders have answered that they would have difficulty paying for their mortgage within three months if the main breadwinner in their household lost their job. Manulife Bank recommended that homeowners have enough emergency savings to cover three to six months of expenses.
“A financial buffer is an important part of a financial plan,” Lunny explained. “A high-interest savings account is a good option. Or, if you’ve got a home equity line of credit, you could use your savings to reduce your debt and save interest - and still have access to that money if an emergency arises.”
A third of mortgage holders said that they could manage a mortgage payment increase of up to 10% without running into any financial difficulty. Another 40% of mortgage holders said that they could handle increases of up to 20% or more. One in six respondents, however, admitted that they would encounter financial difficulty with any increase to their mortgage payment.
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