We are living in an age where the thirst to look wealthy is making us broke.
As Morgan Housel writes in The Psychology of Money, “people measure their well-being against their peers (and) people are more keenly aware of how other people live than ever before.” This digital world drives our consumerism; tempting us to want the next best thing, and to want it now. And unfortunately, living in the most expensive North American city is only adding fuel to the fire. Those with a foot in the ‘far from modest’ Vancouver real estate market are using their home equity as a reason to continue living beyond their means; further hindering their ability to build wealth.
Together, Vancouverites have billions of dollars worth of home value that they could, if desired, grab from. Through home equity loans, home equity lines of credit, and cash-out refinancing, lenders are keen to help many do just that. This is an attractive option to home owners as rates are often lower than other kinds of borrowing, and the interest may be deductible. Unfortunately, many are not ensuring they have access to equity in the case of an emergency. If you can’t pay back the loan, you’re vulnerable to foreclosure and can lose your home. Yikes!
Psychologically, the thought of having a home to use as a piggy bank provides a sense of security that fuels one to accumulate debt. Unfortunately, we can see the harmful effects from binging on home equity debt by looking at the catastrophic effects of 2008. As Morgan Housel puts it, “history is just one damned thing after another.”
In order to curb this phenomenon, it’s important to learn to live within your means. Invest early, invest often, and follow a budget that works for your lifestyle. If you’re concerned about your debts, ability to pay off a mortgage, or anything in the realm of personal finance, it’s very useful to talk to a trusted financial professional. My wife happens to work as an Insurance Agent and Mutual Fund Representative here in Vancouver. Feel free to schedule a free financial needs analysis with her HERE.