No more student loans! Almost a decade after graduating university, 33-year-old Anna is moving forward after paying off her OSAP last August. She has also landed a great career job working as a data analyst making $ 86,000 a year, plus around $ 15,000 in bonuses.
“I have been working professionally for the past five-and-a-half years and after paying off that debt, I’m ready to look toward my future goals,” she said.
Typically on a weekday pre-pandemic times, Anna would eat most weekday breakfasts a home — with the exception of one day when she’d buy a bagel. She used to also stock up her pantry with snacks she could bring to work to prevent impulsive food buys. For lunch, she subscribed to a lunch meal plan that delivered food to her office daily. “I started biking more to work and it would be too heavy to bring that much lunch,” she said.
In the evenings, pre-COVID, Anna would usually eat at home with her partner, but on days when she used to make a pit stop by the gym she’d grab sushi-to-go.
“Before pandemic, I also used to go out for dinner with friends once a week or once every two weeks, but it’s hard to remember,” she said. “Now I eat almost all meals at home with the exception of takeout twice a week. My spending is down and I think it’s important to support my local restaurants.”
On weekends, Anna used to host friends for drinks or go out to a bar, but all those activities have been halted.
“Right now I’ve been going for long bike rides, playing cards with my partner and watching TV and movies,” she said. All in all, the change in lifestyle has saved her more than $ 200 a month.
Like many others we’ve profiled in Millennial Money, Anna’s main long-term goal is to save up for a down payment on a home in the city. Now, because of the pandemic, she’s looking to buy sooner than later because of the real estate market.
“The housing market seems to have temporarily stabilized, and now I’ve really considered buying a home,” she said. On top of that, she’d like to have savings for her retirement to “secure her future.”
Short-term, Anna also wants to be able to indulge in her passions. “I have yearly short-term savings goals for buying art, clothing and taking vacations,” she said. This also includes her commitment to donate $ 230 each month to a charity. “These things are important to me even though they could get in the way of saving more.”
We asked Anna to share a sample of her daily purchases to get a better idea of her financials.
The expert: Jason Heath, managing director at Objective Financial Partners Inc., on Anna’s dream of buying a home in the city:
- Anna is making some good choices to keep her expenses down and live below her means. Subscription meal apps can connect users with restaurants that offer discounted prices during off-peak hours or end-of-day sales. It may be cheaper to brown bag lunch or cook dinner at home, but subscription meal apps are at least a lower price point to other alternatives.
- Biking to work every day helps her kill two birds with one stone — keeping transportation costs down and getting some exercise on her commute.
- Anna is pretty generous, donating almost $ 3,000 a year to charity. As long as someone is establishing budgets for saving and spending and has the extra cash flow, giving can and should be a budgeted item.
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- When someone like Anna receives a regular bonus, it is important to avoid spending the bonus as if it is part of your salary. It is not uncommon for people to run up debt over the course of the year and use their bonus to pay it down. Ideally, a bonus is used for saving, or extraordinary, discretionary expenses like a vacation. Especially if that bonus is not guaranteed.
- Anna budgets for short-term goals like vacations, and even clothing and art purchases. Some people find it helpful to set up bank or savings accounts for these saving goals, and this can be a good way to stay on track or avoid using a credit card for immediate gratification.
- She has about $ 1,500 of monthly savings potential based on her stated expenses, plus her annual bonus. That’s a lot of implied savings and means Anna is not succumbing to the lifestyle creep that sometimes comes with an increasing income.
- Regardless, Toronto is an expensive city, and balancing a home purchase and retirement in addition to short-term goals can be challenging. It may be helpful for her and her partner to try to develop a long-term financial plan to determine a home budget and talk about other potential considerations like starting a family.
- Anna’s income is relatively high. She has enough extra cash flow that I would avoid saving too much in a RRSP account, given only $ 35,000 is available to withdraw under the Homebuyer’s Plan. A Tax Free Savings Account should also be part of her savings plan, and given Anna’s age, she will have as much as $ 69,500 of TFSA room if she has not contributed in the past.
- Investment options should be matched not only to her risk tolerance, but also to her time horizon. If a home purchase is likely to be in five years or less, Anna and her partner should be careful about having too much exposure to stocks that could be depressed in value at a time when they need those savings for a down payment.
Result: She spent more! Spending in Week 1: $ 420.04 Spending in Week 2: $ 2,313.42
How she thinks she did: Though spending a lot more, it was also a week when Anna had to pay rent. “I did OK. My spending was significantly higher because many of my monthly bills fall at the end or beginning of the month,” she said.
Also, because she’s going out less, the money saved from living under pandemic restrictions has also given Anna more to put in her savings account. “I’d usually be eating out more, going to see movies and plays, and drinking,” she said. Now I’m a homebody who only spends money on takeout or other outdoor activities.”
Take-aways: “Toronto real estate is scary. Even with money saved for a down payment and a relatively high income, it still feels like buying property is only achievable with a crushingly large mortgage,” Anna said.
What used to be a little more abstract, her dream of owning a home was really put into perspective for Anna after reading Heath’s advice. Even though the housing prices seem to have stabilized, she’ll be re-evaluating her finances before trying to leap into buying a home during the pandemic.
As for the other advice, Anna said she’s been following those tips even before the Millennial Money exercise. “I contribute to my RRSP through work to receive the full match and when I get my yearly bonus I use it to max out that year’s TFSA contribution before spending on fun things,” she said.
As for prioritizing savings over “fun,” Anna has been diligent at putting money that she’d usually be putting toward her student loans away as extra savings. “I’ll be continuing to do this to pay for the short-term goals I have!”