This 29-year-old consultant makes $84,500, has $10,000 in student debt and plans to buy a multi-unit property to live in and rent out. Does he have enough money?

At 29, Adam makes $ 84,500 a year as a management consultant and feels he has a pretty good handle on his finances. To rise to the next level into his 30s, however, he wants to save enough money to buy a duplex or triplex with a friend so he can live in one unit, while also earning rental income.

Before that he wants to pay off $ 10,000 in student debt which hasn’t been an issue but is still an outstanding amount he owes.

Before the pandemic, his work required a lot of travel which made him re-evaluate his eating and spending habits as he was always ordering takeout or dining out for meals. He even hired a nutritionist to steer him in the right path. Since COVID-19 and the shift toward virtual meetings, Adam has taken the time to learn how to cook more at home and only orders out on weekends. This means around $ 500 in monthly savings compared to his pre-pandemic spending.

Though he doesn’t save much on shelter (rent, internet) he does save around $ 150 a month on transportation by limiting his use of ride-shares and around $ 350 personal costs including clothing and a vacation fund.

Despite the restrictions, Adam has been staying active outdoors on the weekends, which means hiking, biking, or working out. For his down time, he’ll catch up with friends at a distance at the park or spend his time reading.

“I’d like to start building out my real estate portfolio and bring in rental income while we live in a unit,” Adam says. How does he start?

We asked Adam to log his daily purchases to get a better idea of what he spends money on.

The expert: Jason Heath, managing director at Objective Financial Partners Inc., gives his advice to Adam.

  • Adam has good cash flow and he’s saving every month. I note he’s got about $ 10,000 of student debt remaining. I’d be curious what his interest rate is on that debt. If it’s a provincial or federal student loan at prime, that’s under 3% and very competitive. But if it’s bank loan, or he locked in a fixed interest rate in the past, the rate could be over 5%. Paying down debt and avoiding that interest could be a decent “investment” option for him as well. He’d need to earn a higher return on his TFSA to be better off compared to just paying down his debt.
  • I note Adam doesn’t mention RRSP contributions. He’s in a 31% marginal tax bracket in Ontario, meaning RRSP contributions would save him 31 cents for every dollar contributed. RRSP contributions could be worth considering both for long-term retirement savings and shorter term down payment savings given he can access up to $ 35,000 from his RRSP by way of the Homebuyer’s Plan for an eligible home purchase.
  • Like some lucky people, Adam is saving more money during COVID-19 than before. Not everyone is as lucky, and this highlights the benefit of setting money aside while times are good in case of an emergency.
  • I like the way Adam is proactively contributing to a vacation fund. There’s something to be said about saving for an extraordinary expense ahead of time rather than paying for it with a credit card and then retroactively paying it off over time. That’s how some people get behind, so it pays to stay ahead.
  • Sometimes, investing in your health is good on several levels. The nutritionist Adam hired earlier this year helped him avoid takeout while travelling, which is good for his body and his pocketbook. I’m sure those skills are coming in handy while locked down.
  • I have to play devil’s advocate on Adam’s goal to buy a duplex or triplex. I think rental real estate can be a good way to build wealth in the right circumstances, but for a young person in Toronto, saving up a down payment for a condo can be enough of a challenge. Real estate prices have increased significantly over the past 25 years, but that doesn’t mean they’re going to grow at the same pace over the next 25 years. The 10-year return for U.S. stocks in Canadian dollars through December 31, 2019 more than doubled the growth rate of Toronto real estate prices and tripled that of Canadian real estate prices overall. A rental real estate investor would have narrowed the gap due to their net rental income in addition to price appreciation, but the point is Toronto real estate may not be the only way to build wealth for a young person. RRSP contributions generate tax refunds that some young people overlook. And the COVID-19 job losses, eviction bans, and Airbnb recession all highlight some of the risks that rental real estate investors may never have envisioned.

Results: He spent more! Week 1 spending: $ 589.38 Week 2 spending: $ 1,153.87

How he thinks he did: Though he spent more this week, most of it went toward his savings — his TFSA and RRSP account — and toward his student loan debt. “This was great as the tracking aspect really informed how I made purchases,” Adam says. On evenings where he felt inclined to order takeout after a draining day, to avoid having to log it into the money tracker, he forced himself to cook a quick (and healthier!) meal at home.

Out of pandemic situations, Adam says he’d usually be spending more on going out with friends and having drinks. “Additionally, there would be an added expense for travelling as I would probably be doing more of that,” he adds.

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Luckily, Adam is paying off his student loans through his parents which means no interest on his part. This gives him more breathing room to invest and save in other aspects of his life.

This includes the RRSP contribution. “I’m fortunate that my company has a GRSP which is maxed out at 5 per cent and the company matches my contributions. I’ve automatically been deducting that since I was eligible and there is around $ 17,000 in that account which can also be used to make a down payment on a house,” he says.

Regarding real estate, Adam says that he’s still looking to purchase a building along with his friend despite Heath’s advice. “I am looking to purchase in the Ottawa area as my firm is looking to move me there in the coming future,” he says. “I understand the real estate market is starting to skyrocket within this area and getting in at the right time would seem beneficial.”

Finally, Adam’s gained a heightened awareness about his finances through the Millennial Money exercise.

“Being more conscious of my spending has really informed my decision making moving forward,” he says.

Are you a millennial living in Toronto or the GTA and need help with saving your money? Be a part of #MillennialMoney and email
Evelyn Kwong