Buy a Home or Car
Your Biggest Purchases Can Make or Break Your Financial Future
A house and a car are the two biggest purchases you'll ever make. Buy something above your budget, and it can completely derail your financial goals—leaving you house-poor, car-broke, and unable to save or invest for the future. These are the two things you absolutely must get right.
The 30/30/3 Rule for Buying a Home
Follow this rule to buy a house you can actually afford—without becoming house-poor.
30% Cash on Hand
You should have 30% of the home's purchase price in cash.
Having this 10% buffer prevents you from being house-broke and ensures you can handle unexpected costs.
30% of Gross Income
Your monthly housing costs should be less than 30% of your gross monthly income.
This ensures you still have money left for savings, investing, and living your life.
3x Annual Income
The home's purchase price should be no more than 3 times your gross annual income.
This conservative ratio helps prevent you from being house-poor and allows you to keep building wealth.
⚠️ Why This Rule Matters
Many people get approved for mortgages they can't truly afford. Banks don't care about your retirement savings or investment goals—they care about getting you to borrow as much as possible. The 30/30/3 rule ensures you buy a house that fits your life, not just your mortgage approval letter.
Should You Rent or Buy?
The truth about homeownership that nobody tells you—even if you're staying in one place forever.
The Myth: "Renting is Throwing Money Away"
This is one of the biggest financial myths out there. When you rent, you're paying for a roof over your head and flexibility. When you own, you're also "throwing away" money on:
Mortgage Interest
Often $200K-$400K+ over 25 years
Property Taxes
1-2% of home value every year, forever
Maintenance & Repairs
1-3% of home value annually
Insurance
$1,000-$3,000+ per year
Closing Costs
2-5% when buying
Realtor Fees
5% when selling
These are all "unrecoverable costs"—money you never get back, just like rent.
Even If You Never Move, Renting Can Win
The math often favors renting—especially in expensive markets like Toronto or Vancouver. Here's why:
The Rent + Invest Strategy
Instead of a $100,000 down payment tied up in a house, invest it in diversified index funds earning 7% average returns.
After 25 years: ~$542,000
Meanwhile, continue investing the difference between rent and the true cost of ownership (mortgage + taxes + insurance + maintenance).
The True Cost of Ownership
On a $500,000 home with 20% down:
• Mortgage payment: ~$2,400/month
• Property tax: ~$400/month
• Insurance: ~$150/month
• Maintenance: ~$400/month
Total: ~$3,350/month
If rent is $2,000/month, you could invest $1,350/month instead.
When Buying DOES Make Sense
✓ You meet the 30/30/3 rule
You can truly afford it without sacrificing investments
✓ Rent is very high in your area
When ownership costs are similar to rent, buying wins
✓ You value stability & customization
Non-financial benefits matter too
✓ You can still invest 20%+
A house shouldn't stop your wealth building
Bottom line: Run the numbers for YOUR situation. Don't buy just because "that's what adults do."
The 20/4/10 Rule for Buying a Car
Follow this rule to buy a car you can afford—without sabotaging your financial future.
20% Down Payment
Put down at least 20% if you're financing a car.
This protects you from owing more than the car is worth if you need to sell it.
4 Years Max Loan
Finance the car for no more than 4 years (48 months).
Longer loans (5-7 years) mean you're paying interest on a depreciating asset for way too long.
10% of Gross Income
Your monthly car expenses should be less than 10% of your gross monthly income.
This keeps your transportation costs in check so you can still save and invest.
✅ Best Option: Buy a Car in Cash
If you can afford it, buying a car in cash is always the best financial move. You avoid:
Save up and buy a reliable used car outright. Your future self will thank you.
Can You Afford It? Let's Find Out.
Enter your income to see what you can actually afford based on the 30/30/3 and 20/4/10 rules.
Your total household income before taxes and deductions