This 31-year-old web specialist makes $70,000 a year. He says he’s lucky to have his job during COVID-19 and aims to use self-isolation to get his finances in order

Luckily for Hugh, during this time of COVID-19, he hasn’t been laid off. The 31-year-old SEO (search engine optimization) specialist, who is working from his North York home, makes $ 70,000 a year. He is hoping to use this time of self-reflection during social isolation to get his finances in order.

Hugh has devised a plan to save money on food costs while still supporting local restaurants. “I have lunch and dinner delivered to my home for half the month, and I cook the rest of the month.” That means buying groceries bi-weekly by making a concise list of non-perishable items that will last him through the two weeks while also indulging and supporting his favourite dine-out spots.

On the weekends, not much changes. “I’ll meet with a couple friends for virtual coffee, volunteer work.” Other than that, he’ll cook more meals and watch movies at home.

He notes that this time of lockdown has helped him save money in certain areas, like $ 100 in transportation, and no overheads in social or miscellaneous purchases, which gives him an extra $ 150 to $ 250 cash in hand.

He wrote into Millennial Money in hopes of getting advice for using this time wisely so he’ll be able to afford a down payment on a second property, a condo, which he can use as an investment. Currently, he is continuing to pay off the mortgage on his current home, which he bought for under $ 300,000.

The expert: Jason Heath, managing director at Objective Financial Partners Inc., gives his take on Hugh’s situation.

> Like a lot of young people, Hugh’s investing aspirations are focused squarely on real estate. If someone’s wealth is primarily real estate equity to begin with, I’d be hesitant to go out and borrow to invest more money in real estate. You don’t want all your eggs in one basket.

> I have a lot of clients in other cities across Canada and countries around the world. I find it interesting to look at how much rent a landlord gets in Toronto for every dollar of real estate purchased. It’s often quite low in Toronto comparatively, meaning many Toronto real estate investors are quite reliant on price appreciation to make their investment a good one.

> In Hugh’s case, I’d be more inclined to consider diversifying his assets into stocks and bonds by contributing to his RRSP and TFSA accounts.

> Hugh’s tax rate is moderate at $ 70,000 of income, so he can probably benefit from making RRSP contributions and the corresponding tax deductions. As an existing homeowner, he cannot take advantage of the RRSP Home Buyers’ Plan, so his RRSP investments should be considered long-term in nature for retirement.

> Contributing to a TFSA could also be good for more short- and medium-term goals, which may include goals that are not yet fully apparent. If Hugh gets married or has children, there are costs that go along with these life events that can be funded with tax-free TFSA withdrawals.

> Hugh’s investment selection in his RRSP can be more aggressive given the time horizon may be 30 years or more. For his TFSA, given he may need some of the withdrawals in his 30s or 40s if he starts a family or has other lump-sum needs, his risk tolerance should be more conservative. If his TFSA investments are too conservative though, he may be indifferent between TFSA contributions or paying down his mortgage more aggressively. The thinking there is if he’s paying three per cent interest on his mortgage, he should be aiming to earn at least a three per cent return on his TFSA in order to come out ahead.

> I note Hugh has lunch and dinner delivered 10 days per month, or a total of 20 food deliveries monthly. That’s quite a bit all things considered, and definitely an area to cut back on if he is looking to lower costs. His restaurant and takeout budget is 150 per cent of his grocery budget.

> It’s hard to pick on Hugh though as a young, single homeowner who appears to have $ 1,600 per month of extra cash flow. I’d consider directing some of that to disability insurance if he doesn’t already have good coverage at work, as that’s a big risk for him that could derail an otherwise good financial trajectory. I’d opt out of mortgage insurance if he has it, as the coverage tends to be expensive. Furthermore, the life insurance component of mortgage insurance is probably unnecessary given he does not appear to have anyone dependent on him financially.

Heath also adds: “The COVID-19 pandemic highlights the risk of taking on too much debt, particularly for landlords, some of whom are not receiving rent from their tenants at this time. I suspect we will see more short-term rental units become available for long-term rent so condo owners can generate income from their units this summer. That could push down rents in Toronto as a result. Lower rents could also decrease condo market values, so I’d be very cautious with any new real estate investment purchases during the current social distancing era.”

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Results: Yes, much less! Week 1 $ 120 vs. Week 2 $ 12.50

How he thinks he did: “I already knew this week would be a much lesser spend as I have been cooking based on the groceries I procured last weekend to last me till end of April now,” Hugh says. That’s a nearly 90 per cent drop from week one to week two, he adds.

The week-recording exercise also helped him get a better sense of the options he has during COVID-19, as it helped with everyday “financial planning and strategizing” as well as gave him insight into future goals.

Takeaways: Despite Heath’s advice to hold up on real estate, Hugh disagrees that it’s a “higher risk appetite” during COVID-19, and says after his own research and understanding of the market, he finds that it could be a “reliant source of secondary income.” “My primary-residence condo, which I purchased exactly 12 months ago, has seen an appreciation of value by 30 per cent and rent appreciation at around 12 to 15 per cent even during COVID-19.”

However, he says he will look into evaluating the disability insurance to see if the coverage he receives from his employer is sufficient. Another piece of advice he’s considering is a contribution toward an RRSP — but only once he’s closer to a six-figure salary. He says it’ll give him “more room for contribution toward RRSP for retirement funds.”

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Evelyn Kwong