At 28, Danielle is living her best life as a PR and digital marketing manager making $ 81,000 a year. Right now, she’s fortunate to have kept her job throughout the COVID-19 pandemic, and is using this time to reflect on her splurging habits to see if she can save enough for her first down payment.
It means confronting her food costs. Per month, Danielle spends $ 800 on groceries and food. Worse, that’s only the cost of food for two weeks, as her and her boyfriend alternate on weekly food costs, meaning they spend around $ 1,600 a month on food. “Yikes. It’s scary after seeing it on paper,” she says.
Fortunately, Danielle lucked out on a spacious two-bedroom downtown property she rents with her boyfriend, paying less than $ 1,000 for half the rent. “I’ve lived here for five years so the rent is low compared to the size of the space.”
When it comes to her daily regimen under pandemic measures, Danielle works from home and eats all meals from home. This means a lot more cooking, but also delivery once or twice a week. “It’s an expense I could definitely cut as I always have groceries in the house; it’s more of a matter of laziness and not feeling like cooking.”
Before COVID-19, Danielle also brought lunch from home, and had breakfast, snacks and coffee from her workplace’s communal fridge, but would spend more time dining out. On weekends, she and her boyfriend would typically go out for coffee and a dinner with friends. They also used more ride-sharing services like Uber for outings.
Now that she’s staying home more and has only $ 350 in debt on her credit card, she’s hoping to take advantage of reduced spending to pursue her dream of buying her first home — but it has to be in Toronto. “I’m not interested in moving outside the city.”
Danielle also hopes to set up a travel fund, which includes enough for two small trips and one bigger trip per year.
We asked Danielle to share her weekly spending to see how her weekly costs add up.
The expert: Jason Heath, managing director at Objective Financial Partners Inc., gives his financial advice to Danielle:
“I feel for Danielle and other young people who want to buy a home in Toronto. The prices are really high for young people regardless of their incomes … she may not want to move out of the city, but if someone is willing to make a bit of a commute prices can be a bit less,” Heath says.
- Her modest rent with her boyfriend is a good reason to stay put. She has had just small rent increases for five years, so she is paying a pretty competitive rent.
- She is making some great decisions like meal planning and brown-bagging her lunch. The exercise equipment purchase is smart too. Sometimes, big upfront expenses like that can save you more money over the long run, compared to a gym membership in this case.
- She was surprised at how high her restaurant spending was once she put it down on paper. Most people find the same thing once they actually quantify their spending. It can be a great exercise to see how much you’re spending and how much ability you have to save. Putting any money matters down on paper can be a great strategy.
- Regardless, her eating-out costs are low compared to her groceries. Plus, she’s debt-free and saving regularly. So she’s making some great choices.
- Her income is fairly high, so her RRSP contributions are saving her about 30 per cent tax. She is saving more to her TFSA than to her RRSP — five times as much, in fact. She may want to consider ramping up her RRSP contributions given her high income to benefit from tax refunds, given it will help her accumulate more money for an eventual down payment. She can withdraw up to $ 35,000 from her RRSP under the Home Buyers’ Plan for an eligible home purchase.
- I can understand her hesitance to invest recently given stock market volatility. Generally, I would say that an investor with a long run time horizon should try to remain unfazed by stock market volatility or declines because, if anything, it just means you’re buying stocks on sale. But a 28-year-old hoping to buy a home, and who may start a family at some point in the next five to 10 years, has a short to medium-term time horizon for most of her savings. She should probably maintain a modest stock market exposure — not because of COVID-19 or volatility — but because even a moderate risk investment portfolio can have a negative five-year return.
- It would be easy to pick on her three trips a year as a way to cut costs and boost savings for a down payment, but I think that would be short-sighted. As young people get older and start a family, it can be harder to take vacations. Enjoying them while responsibly avoiding consumer debt and saving for the future in your 20s and 30s can be a good way to maintain balance and live for today while saving for tomorrow.
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Results: She spent a lot less! Week 1 spending: $ 2,564.34 Week 2 spending: $ 400
What she learned: Danielle is proud of her weekly spending, especially now that she’s able to look at her spending differently under COVID-19. “In normal times, I would usually go out for dinner once a week, spending anywhere from $ 40 to $ 100, and an average of $ 60 to $ 80 a month on Ubers. On top of that, this time at home has given her the ability to save on her gel manicure costs, which are around $ 50 to $ 90 a month, and her gym membership, which costs $ 189 a month. “I’ve gotten into a good groove with working out at home during COVID-19 and hope to make this stick as things go back to normal.”
But this doesn’t mean that she hasn’t totally stopped impulse buys. “I did still have one impulse food delivery order and then the vitamins were a bit of an impulse purchase, although I had been considering trying that brand for a while and the 50 per cent off promo code dramatically reduced the cost of my order.”
Take-aways: Despite food deliveries, what Millennial Money taught her was that she isn’t that bad with money. “To be honest, I think the money coach’s feedback demonstrated to me that I am doing better financially than I thought,” she says. “Ensuring that I have little to no debt has always been a huge priority to me, which is why I worked hard to pay my student loan in eight months when I started my first full-time job in my industry.”
Her next steps are to set up an appointment with her financial adviser to look at how she can increase her monthly RRSP contributions. Before the money coach’s advice, Danielle says she placed more importance on her TFSA than her RRSP. “Seeing the RRSP as more a short-term savings solution for purchasing a property has changed my perspective.”