Millennial Money is a weekly submission-based series that provides financial advice to millennials in the GTA. Read the full series here.
Peter, 29, was laid off for the second time in December, during COVID-19’s second wave, as a server working in Halton Region. Currently, he’s receiving $ 1,800 a month (before tax) through Employment Insurance (EI).
Despite these circumstances, Peter still feels blessed.
“I guess it could be a blessing in disguise,” he said. “I was stressed every day about handling food during the pandemic, making minimum wage, and wanted a fresh start.”
He also feels lucky to be able to live at home with his parents. “Since graduating college, I’ve been struggling to find a stable job,” he said. But because he hasn’t ever had to pay rent, he was able to accumulate savings over the years.
That’s all about to change. Taking this pandemic time to reflect and grow, he’s decided to take an intensive UX (user experience) design course. The cost? $ 16,000 for a three-month program.
“I’ve used up every single penny of my savings on this, and I’ve heard good things. I hope I can make it out OK on the other side,” Peter said. He hopes this investment in himself will help him find his passion in an industry that pays more than hospitality.
So, on a typical day, what does Peter spend money on? Living at home has had its benefits — food and housing costs are shared.
“On occasion, I will get a steeped tea from Tim Hortons but generally keep costs low. I’ll go to specialty Asian grocery stores and spend around $ 20 a week on snacks, ramen,” he said.
He also has a car, which he pays gas and insurance for. “We live in Markham so it’s easier to drive to the grocery stores, but really everything is pretty much virtual now,” he said.
On weekends, Peter runs on trails or downtown by the lake, or spends time at home playing video games, which he calls his “only indulgence.”
“I will spend a couple hundred a month on video games, but it’s been my release.”
On top of completing the course and starting a career, he wants financial independence. “I need to understand what kinds of financial things I need for the future. I have no credit card, no TFSA or RRSP, and I am unsure about all these things and what they are,” he said. “I wish we learned more of this in high school.”
We asked Peter to share his weekly purchases to get an idea of his spending.
The expert: Jason Heath, managing director at Objective Financial Partners Inc., on Peter’s situation:
Like so many in the hospitality industry, Peter has had a tough year. He lost his job, but EI and his savings are keeping him afloat. His costs are relatively modest given he lives with his parents and that helps. I hope that in retrospect the job loss that has led him to begin a UX design course is a turning point. Maybe he wouldn’t have made a career change otherwise. Sometimes good comes from bad.
It sounds like Peter’s savings will be depleted by his studies and he will truly be starting over. He’s also candid that he never really got started financially other than a bank account. He should consider getting a credit card to help establish credit, but beware the temptation to spend money he can’t afford to pay back each month.
A Tax Free Savings Account (TFSA) would have been a good spot for him to have his savings instead of a bank account. He should open one now. A TFSA is like a grocery cart. You can put whatever you want in it. For some, it may be a simple savings account. Interest rates are low enough as it is, and a TFSA can at least avoid the 20-50 per cent tax most taxpayers would pay on their interest. For a saver with a medium- to long-time horizon and a tolerance for risk, stocks and other risky assets can help increase a TFSA’s long-run return despite the short-run volatility. In Peter’s case, I wouldn’t be buying stocks given his short time horizon.
A Registered Retirement Savings Plan (RRSP) may not be a good fit for Peter until he is back at work and his income is higher and he has established an emergency fund. RRSPs give tax deductions and allow savings to grow tax deferred. Because future withdrawals are taxable, RRSPs are generally not a good option for short-term savings and are meant primarily for retirement.
RRSPs are also better for someone in a higher tax bracket now especially if they will be in a lower tax bracket in retirement or they are a long way from retirement. The higher someone’s income is over $ 50,000, the more beneficial RRSPs may be for saving. Someone with a lower income may be better off with a TFSA unless their employer offers a group RRSP matching program where they contribute to an RRSP based on the employee’s contributions.
I fully appreciate Peter’s despair about thinking he will never be able to own real estate. Toronto is an expensive city, and at 29, he’s putting all his savings into a career change. There are a lot of things that could change in his future, like a new job, moving to a less expensive city, a relationship with a partner who can also contribute to a home purchase, a gift or inheritance from his parents, and so on. Even if he never owns real estate, there are short-term and long-term reasons to save once his income increases again.
There’s an old Chinese proverb: “The best time to plant a tree was 20 years ago. The second best time is now.” The same goes for investing. A little savings, compounded over a number of years, will be something Peter will be thankful for in the future — just like the savings he now has to pay for his UX design course.
Results: He spent less. Spending in week 1: $ 262.50 Spending in week 2: $ 117.50
How he thinks he did: “I think that my daily costs aren’t too high, but there are improvements I can make,” Peter said. He says that when he gets into the UX design course he probably won’t have time to play video games and can cut costs that way.
“With such a big jump I should make sure I dedicate my time to it.”
Take-aways: First of all, he’s relieved to hear that his investment in himself — using all this savings to put into a course — will pay off. “It’s comforting to hear after being laid off, feeling at my lowest, betting on myself is the move to make,” he said.
Additionally, Peter isn’t feeling too burnt about living with his parents. “I think that’s just a reality now and I would love to move out, but housing is too expensive in our city.”
His first priority is to start a TFSA.
“What I’m really excited about is learning about banking. Thank you to the coach for breaking down these different accounts and I will call my bank and inquire about having those.”