This month RateHub launched the Finance your Life infographic, a playful guide through paying for life’s big events.
When you start adding it all up, saving for your own life’s path—marriage, kids, house, travel, paying off debt, starting your own business or whatever inspires you—can seem daunting and unachievable. But we broke it down and told you how much you should put aside each month to achieve your goals, which made things look a little less scary. Still, it can be challenging to find that extra money each month to start saving for that goal.
I’ve written before about my experience renting my apartment on Airbnb and how much I love being a host. But to be honest, I spent my first year as a host spending all of my earned rental money. Now, with the infographic as my inspiration, I’ve started to drop my Airbnb funds into appropriate savings accounts to finance my future.
Become a host and get $200
List your space and you’ll receive $200 after your first successful booking as a brand new Airbnb host (currently available for Toronto and Vancouver only).
Here are three ways you can finance your life with Airbnb.
Pay off your debt
TransUnion reported at the beginning of this year that the average Canadian has $21,348 in debt (not including mortgage debt). Depending on the type of debt you have, you could be incurring 19% interest charged on top of what you owe. The first step should be to consider debt repayment options that will off you a lower interest rate, such as a great balance transfer credit card.
Assuming you have the average non-mortgage debt and a loan option that brings your interest rate down to 10% annually, your monthly payments would be around $430 per month. That will take you about five years to pay back and cost you about $6,400 in interest over your repayment term.
The average Airbnb rental in downtown Toronto is $125 per night, about $150 for Vancouver, and about $100 for cities like Montreal or Calgary. You could allocate those funds to your debt repayment. And with only three to five guest bookings each month, you wouldn’t need to touch any of your regular income to repay that debt. Of course, if you have a higher-end rental space or book more than a few times each month, you can speed up your repayment.
Save for your first home
If you have the opportunity to host in your rental space this would be a great way to save for eventual ownership!
Let’s have a look at one of Canada’s hottest housing markets for this example. The average price of a home in Toronto is slightly more than $700,000. If you’re a first-time homebuyer in Toronto, with a 7% down payment and factoring other initial costs and fees, you’ll need about $60,000 on hand to make this purchase.
Things look slightly more manageable if you give yourself five years to save. If you list at $150 per night and rent your space every weekend, you’re looking at $14,000 per year! If you consider (and you should) putting 30% aside to account for taxes, you’ll net about $10,000 annually.
Assuming a 6% investment return and giving yourself five years to save, you’ll end up with $58,000. Keep in mind that if both you and your spouse/common-law partner take advantage of the Home Buyers’ Plan, you can each withdraw up to $25,000 each from your RRSPs. You’ll be able to make a tax-free withdrawal but you must begin repaying the amount you borrowed two years after buying a home over a 15-year timeframe or you’ll have to pay tax. With a TFSA, you can withdraw as much money as you want and you don’t need to put the money back into your account ever again.
With a five-year plan, Airbnb could get you into your first home.
Build your emergency fund
Airbnb can be a great way to help you create an emergency fund. A high-interest savings account (HISA) is a great option for emergencies because you can access the money easily at any time and you’ll earn more interest than a regular savings account.
The best high-interest savings account currently on RateHub.ca is the EQ Bank Savings Plus Account, which has an interest rate of 2.25%. There’s no minimum deposit amount required. However, there is a wait list due to its popularity. If you rent your space for $125 per night for just two weekends each month and drop that $500 into a HISA at 2.25%, you’ll save a little more than $6,000 in one year.
Financing your life just got a whole lot easier.
- Where to Save the Down Payment for Your Home
- What’s the Best Savings Option for Parking Your Money?
- A Full House-Style Life Lesson (in Personal Finance)