Millennial Money is a weekly submission-based series that provides financial advice to millennials. Read the full series here.
At 28 years old, Elizabeth has landed a career, paid off all her student debt and is now looking to move onto the next chapter of her life with her partner: home ownership.
Living in Halifax, N. S., she pays $ 650 rent for a two-bedroom condo — much less than the usual Millennial Money woes we hear about from people living in the GTA. She makes $ 48,500 as a research co-ordinator working from the office, and keeps her day-to-day costs low.
“I love to cook so I also eat most of meals at home and I always bring lunch,” Elizabeth said. She’s also able to save on commuting as she lives close to work. “I walk to and from work so my transportation costs are very low. Last year, I used my savings to purchase the remainder of what I was owing on my car so I could eventually contribute more savings for a down payment on a house.”
Post-lockdown, she’s been returning to the occasional dinner and drinks with friends, but it’s not as frequently as before.
“I haven’t been doing much over the weekends aside from small road trips with friends to beaches and cottages. I have gotten used to having friends over for drinks at home instead of going out to bars,” she said.
She has fast-tracked her goal to buy a house with her partner. “We are eager to save for a 20 per cent down payment on a $ 300,000 to $ 350,000 house,” she said, adding that she doesn’t want to “sink” all her savings into a down payment, especially with Nova Scotia’s rising real estate market.
“The housing market has blown up here since the pandemic began so we are trying our best to save until the market settles down,” Elizabeth said.
Additionally, working for the government, Elizabeth knows she has a great pension. She’s accumulated $ 20,000 in various TFSA and RRSP accounts. Now, she wants to organize it.
“I want to save for an emergency fund and possibly invest some money now to have it grow over time. I have a number of weddings to go to over the next year, which is going to be expensive, so I’d like to set a bit of money set aside for these as well,” she said.
Every month, she saves around $ 525 of her current pay and is expecting a $ 3,000 raise in October. With her frugal lifestyle, she sometimes worries she isn’t giving enough back to herself.
“I have majorly cut back on costs like shopping and grooming. I sometimes do get stressed because after bills and savings, I don’t have much money remaining for ‘wants,’” she said.
We asked Elizabeth to share a week in spending to get an idea of her finances.
The expert: Jason Heath, managing director at Objective Financial Partners Inc., on Elizabeth’s situation
It seems like young people all over the country have similar concerns — rising home prices and waning affordability. Prices are a lot lower in Halifax than other cities, but the Canada Real Estate Association (CREA) reports an increase of over 28 per cent on a year-over-year basis in the second quarter of 2021 for single detached homes in Halifax-Dartmouth.
Elizabeth and her partner are targeting a 20 per cent down payment or $ 60,000 to $ 70,000 for their budgeted $ 300,000 to $ 350,000 home purchase. They only need five per cent down or $ 15,000 to $ 17,500. Assuming her partner’s income is similar to her $ 48,000 salary, they would likely be approved for a mortgage for 95 per cent of the purchase price. Elizabeth already has $ 20,000 saved up between her RRSP and TFSA but is wise to strive for a larger down payment as well as an emergency fund.
At the rate Elizabeth is saving, she could have 10 per cent of her target home purchase saved within about 2 years. If her partner does the same, they are on a good trajectory.
Elizabeth’s saving rate is impressive. She is saving about 13 per cent of her gross income. She does this by walking to work, driving a paid-off car, always packing her lunch, and drinking with her friends at home instead of at the bar. Partying in your living room instead of on the dance floor may not be as fun, but it can help you buy a bigger living room. I note 80 per cent of her food spending is on groceries with very little on eating out.
Elizabeth mentions having several weddings to attend over the next year and saving for those. No doubt there are plenty of weddings that were delayed due to the pandemic. But costs like those highlight the importance of realistic budgeting. Look at your actual spending in the past year and envision any expenses you can reasonably expect going forward. Life happens.
If Elizabeth gets her raise in October as she expects, I sense she will put that extra cash flow to extra savings. This is an important strategy as your income rises. If you can dedicate at least some of that to saving, you can prevent your lifestyle from getting ahead of you. It is easier to loosen up on saving down the road than it is to try to change a lifestyle to which you have become accustomed if you get behind.
Results: She spent less! Spending in week 1: $ 289.53 Spending in week 2: $ 196
How she thinks she did: “I’m pretty happy with how I did this week,” Elizabeth said.
Her grocery costs were higher in week one compared to week two, but it’s because she’s decided to shop differently. “I got a lot of food and bulk items that I know will last a while,” she added.
With lockdowns loosened, Elizabeth is continuing to find a good balance for social spending. “I managed to keep my other costs low while still feeling like I wasn’t missing out on socializing.”
Take-aways: The first thing Elizabeth noticed about the advice was how impressed the adviser was with her savings. “It’s reassuring to know I’m on the right track. Sometimes I feel a little down about money and my income, especially when I compare with what others have and how much money they seem to be able to spend,” she said.
Elizabeth has also shifted her original plans to use the money on “wants” like shopping to putting extra cash flow into saving accounts to accumulate a substantial emergency fund.
On top of that, her dream of home ownership seems closer to reality. With her partner making $ 10,000 more a year — but still carrying significant student debt — they’ve organized their accounts to make automatic savings into a down payment fund.
“I know saving will be worth it in the long run and putting a 20 per cent down payment will benefit me in the long run,” she said. “We will definitely see if we can increase that savings with upcoming raises we both anticipate.”
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