Millennial Money is a weekly submission-based series that provides financial advice to millennials in the GTA. Read the full series here.
Alexis has tried to save money, but with an income of $ 39,000 a year working as a store manager, saving just doesn’t happen — especially after her cat’s large hospital bill.
“I don’t have a lot of savings because I had a high hospital bill for my cat about a year ago and I took out everything that I had — which wasn’t a lot to begin with,” the 27-year-old says. It’s also very difficult to save with her salary while living in the city, she adds.
On top of the more expensive rent in downtown Toronto, she also tends to give into the temptation to impulse buy. For Alexis, food is the issue. “I rarely ever bring lunch even though I’ve been meaning to for the past four years. It’s just so much more convenient to grab something fresh.”
Another problem? Alexis wants to eat well, but it’s not always easy for someone who doesn’t make as much money. “The healthy options near my work also make me feel better for the day,” she says. Though she’ll usually pick up an avocado toast — cue the millennial jokes — the story is more complex.
“Trying to be healthy, stay energized with good food, but rushing to work means breakfast is only a sometimes meal. Sometimes I just skip it to save money. But shouldn’t I, even on a lower salary, afford to eat better?” Alexis adds.
Another point she wants to drill in is the fact that her spending in terms of social events has always been relatively low even on weekends. On average, Alexis says that she only goes out with her boyfriend and friends once or twice a month for dinner or drinks — and it was the same even in pre-COVID-19 times.
“On the weekends, my boyfriend and I usually get things from low-key places, somewhere like Taco El Asador on Bloor. We don’t really splurge on nice places, mainly because he is picky and we actually can’t afford it,” she says.
The one saving grace is that she has no debt, thanks to a savings fund her parents put aside after immigrating to Canada and finding work. That’s been able to help her pay off student loans as she finishes university after several years of putting it off.
Her priorities now? “I need help with controlling takeout or dining out during work hours,” she says. Though it’s convenient and less stressful, she recognizes that it’s a habit she needs to address.
“I do want to focus on eating more food prepared at home, I’ve just built a bad habit of eating out. It’s like sick instant gratification — I don’t have to put the work in and I can grab delicious food,” she says.
We asked Alexis to record all her daily spending for a week to get a better idea of her financials.
The expert: Jason Heath, managing director at Objective Financial Partners Inc., weighs in on Alexis’ situation.
- Cash flow is obviously quite tight for Alexis. She is lucky to have no debt, but unfortunately she doesn’t have any savings either. Over time, it’s important to increase your income or lower your expenses so you can save for short and long-term goals alike.
- Alexis had a savings account, but that disappeared due to a hospital bill for her cat. I feel like the Grinch discouraging people from enjoying simple pleasures like a pet, but obviously they can lead to such unexpected bills. Full disclosure: I have a dog and have also had a veterinary hospital visit this summer.
- She has been meaning to start packing a lunch for four years but hasn’t got around to it. Buying coffee a few times a week probably won’t make or break your budget, but buying a couple fast food meals a day can certainly add up. In her case, Alexis spends about $ 15 at lunch, an amount she feels is modest, and it is, if it happens once in a while. If she does that five days a week for a year, that’s $ 3,900 — or about 10 per cent of her $ 39,000 annual salary. Looking at the money journal she provided, most of the expenses she had did, in fact, relate to eating out.
- It’s great that her parents helped her to pay for school, but if she’s not able to save despite the assistance, that means her expenses are more than her income. If her parents were unable to provide that support, she could have racked up debt. And working in retail, there are certainly risks if there is a second wave of COVID-19. Besides the pandemic, without an emergency fund, anyone can be vulnerable to an unexpected financial shock from a job loss, car accident or other such incident.
- Included in the week’s worth of expenses Alexis provided, I noticed her monthly bank fee was $ 25. Finding a no-fee or low-fee bank account isn’t going to help Alexis buy a house in Toronto or retire at 40, but it’s certainly indicative of a potential financial flaw for Alexis. Despite a fairly modest income, there are lots of little expenses in her budget that cause her to spend everything she makes each month. The risk of spending first and saving second is your expenses may always rise with your income — the so-called lifestyle creep. I’d encourage Alexis to dedicate a monthly amount to rebuilding her emergency fund as a first step. If saving becomes an expense, coming right out of her chequing account and into a TFSA savings account, she may not even notice $ 25 here and there. She doesn’t seem to mind all the other $ 25 transactions like eating out that eat up her paycheque, so why not one more?
Results: She spent less. Spending in week 1: $ 538.56 Spending in week 2: $ 332.29
How she thinks she did: Yes, there were still some takeout and Ritual purchases on her work days, but Alexis thinks it’s fair to give herself an ‘OK’ spending rating. “I think I did all right, but I was also very unsocial this week,” she says.
In terms of Heath’s more detailed advice on spending less eating out, Alexis says she made an effort to buy more groceries. At the start of the week, she recognizes that she bought lunch and a snack during her work breaks, but it’s because she didn’t have time to grocery shop. “I still need to figure out ways to plan better to have meals that keep me full and are healthy.” As a challenge to herself, she’ll be looking up meal-prep solutions that will fit her budget while also give her the nutritious fuel she needs to work retail.
Out of COVID-19 times, Alexis says she’d probably be spending $ 60 more a week on social engagements. “It would probably be a cost for drinks and dining out with friends maybe once a week.”
Take-aways: Another self challenge for Alexis is to start recording her spending. “ I need to write and lay out all of the little bills that really add up and ruin my financial stability. It’s actually quite embarrassing to look at my bad spending habits on food,” she says.
That’s allowed her to reflect more on the difficulties of preparing food compared to buying food. “The dine-out meals have more to do with organization and not being lazy,” she says. “I think I have created a horrible spending monster in my body that only spends “a little” but is constant and dangerous.
Next steps are to take a step back and identify the root causes of why she can’t be “creative and driven” enough to make her own meals to save money.
“It’s not easy to stop a habit years in the making, I have to accept that it will be hard at the beginning and that I’m only hurting myself in not starting as soon as possible.”