Debt-to-income ratios have made headlines recently following the release of a report from the Governor of the Bank of Canada. The report voiced concerns that many young Canadians (those 45 and under) would be most susceptible to defaulting on debt if the economy was to go through a rough patch. These young Canadians are often in the early stages of their careers, potentially earning less than when they’re older, while pursuing debt to buy a home, purchase property, start a business, etc. This issue is especially taking shape in Alberta, the province with Canada’s youngest population. As the price of oil continues to fall, job losses are increasing and once affluent households are now wrestling with the highest average debt loads in the country. While Alberta has received this crude awakening (literally), here in Ontario we already know that we are not immune to the effects of a changing economy i.e. the decline of manufacturing.

In simple terms, a debt-to-income ratio is the amount of your take home income that goes toward paying off debt. There is no real rule-of-thumb when it comes to what should be considered a ‘healthy’ debt-to-income ratio. Everyone’s situation is unique, and there are a ton of variables depending on where you live and how much you earn. Ultimately, the message you should be digesting on this issue is – yes, it is a good investment to buy a home, though you should be very cautious about taking on debt that you can’t afford. It seems like a simple concept, though in practice it often doesn’t happen. What it really boils down to is goals.

  • Do you want to save for your child’s education?
  • Is it important to you to have protection in case of an untimely death or disability?
  • Do you want to have enough money to enjoy retirement?
  • Do you have cash available if a serious unexpected expense arose?
  • Do you want enough disposable income to occasionally go on vacation?

We know it is difficult to achieve this and it doesn’t come without sacrifice, but you can create a plan that will make it easier. The idea is to start doing some of it. It may be challenging to implement all strategies at once, but it’s important to get started. Chat with a financial planner to identify if you’re taking on more debt than you should, and start planning for your other goals. The purpose here is to embrace your goals, not to fear them.

For many people, these goals are really important. For others, not as much. Ultimately, they do cost money and you will have to plan for that. Look at it this way. If the majority of your income goes to paying off debt, often leaving little left for other things, that will seriously hinder your ability to achieve your other goals.

by: Jeff Caine, Financial Advisor, Racine Financial
contact:, phone: (905) 885-0815
published: Tuesday, January 5, 2016


*The contents of this article are timely to the date it was published. While much careful thought and research was employed in writing the article, it is meant to be general advice for a broad audience. Do not take action based on this content without first seeking professional advice. Contact Racine Financial to discuss any queries regarding this article. Racine Financial does not accept or assume any liability stemming from a loss based on action taken because of the contents of this article.