Millennial Money is a weekly submission-based series that provides financial advice to millennials in the GTA. Read the full series here.
After months on the front lines during the pandemic, nurse practitioner Chloe, 33, is looking to make a big change and move to Europe.
“My goal is to become financially independent since my goal is to live in Europe,” Chloe says. From there, she wants to start a business and other entrepreneurial projects, while renting out a home she just purchased in Toronto.
Earning $ 120,000 a year, she’s confident she can save up to make her dreams a reality, but the stresses of her everyday job have her seeking a little help from Millennial Money.
Despite a high income, Chloe spent most of her 20s paying off school debt — around $ 50,000 with the extended education to become a nurse practitioner. With all the OSAP now paid off, she’s looking to start saving, but has recently made investments that haven’t done very well.
She’s staying positive, hoping to turn her failed investment experience into a learning opportunity. To save even more money, she’s taken on a virtual job in addition to her full-time career.
In a typical workday at the hospital, Chloe says she doesn’t usually bring lunch. “I usually try to eat a big breakfast before going to work, and at work may snack on various items throughout the day — chips, muffins, cookies, croissants.” After a 12-hour shift, dinner is usually takeout.
On her days off she balances work with time with friends and family. “Now that more places are opening up, I’m starting to head out to more restaurants and patios during this time.”
With a mortgage to pay off, Chloe is wondering: what’s the best way to get her finances in order and move across the pond?
We asked her to track her daily finances to get a better idea.
The expert: Jason Heath, managing director at Objective Financial Partners Inc., on Chloe’s finances:
- Based on Chloe’s salary and take-home pay, I’m guessing she is in a pension plan, like most Ontario nurse practitioners. That means she is saving for retirement with each paycheque and pension contribution. It also means she likely has little to no RRSP room because pension plan members have pension adjustments that reduce their ability to contribute to a RRSP.
- TFSA contributions are a good option for her savings given she may need money to fund her move to Europe and the start-up costs for a potential business endeavour. However, depending on her risk tolerance and home equity, making extra payments toward her mortgage may be a good alternative. If she is a conservative investor, she may have a hard time investing in her TFSA at more than the 2-3 per cent she is likely paying in mortgage interest. GICs and investment grade bonds are paying well under 2 per cent, so unless she is going to have a good allocation to stocks and low investment fees, paying down debt may be worth considering with her extra cash flow. If she has a good amount of home equity, she may be able to borrow against her home equity in the future for her business start-up costs or for her move abroad.
- If she moves away and rents her home, that could be an option for her. She will still have to file Canadian tax returns for her rental income, but may be considered a non-resident and be exempt from Canadian tax on her income in Europe. That wouldn’t mean she’d be off the hook for paying tax on her European earnings, as she may have tax to pay in Europe. As she gets closer to considering a move, she should look at the tax rates and cost of living in the country or countries she is considering, to come up with a financial game plan for her move.
- I note Chloe has no car payments. Lease and loan payments can significantly limit cash flow. Buying slightly used instead of new or driving a used car a little longer can make a bigger difference in your budget than forgoing avocados.
- I see she has disability premiums deducted from her paycheque, which is great. Canadians are often uninsured or underinsured against disability, a risk that can devastate even the most fiscally responsible saver.
- Chloe’s restaurant budget is twice that of her grocery spending, so if she is looking for somewhere to cut, that would be it. She admits to buying lunch and snacks most days at work and eating out is a common part of her weekend entertainment. When you budget, you don’t have to spend as little as possible at all costs. But it helps to see where you are spending a bit extra so you know where you could cut if you wanted to or had to reduce spending. Regardless, it sounds like Chloe is on a good trajectory with some exciting medium-term goals.
Results: She spent more. Spending in Week 1: $ 550.82 Spending in Week 2: $ 620.03
How she thinks she did: “It’s really interesting to see that I spend so much money on eating out, but also a lot of money on grocery!” Chloe says after examining her two weeks. “I am not spending all of my own money on these things, but I do think there’s room for improvement,” Chloe adds. Her boyfriend moved in during the pandemic and has been helping with food expenses.
Another thing she has come to realize? It’s hard for her to break her habits even during a pandemic. “My spending at the moment may be on par with normal times, although more money may have been spent on concerts, festivities and vacations if not for COVID.”
Take-aways: Before Heath’s advice, Chloe was really trying to narrow down where she should put her extra cash flow first. Down payment for a new business venture/investment rental? Stocks? An emergency fund?
One thing she hadn’t considered: “Mortgage repayment with the extra cash flow,” she says, reading Heath’s advice.
Now she’s trying to determine what works best.
More philosophically, the Millennial Money challenge has given her a refreshed sense of purpose.
“I think quality of life is really important, and given my profession, I realize how short life can be. As a result, I think people need to enjoy it, and have a good balance of both saving and spending,” Chloe says.
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