The pandemic derailed 33-year-old Jamie’s wedding plans for this year. Things aren’t all bad for the marketing specialist though. With COVID-19 restrictions, she’s been able to save a bit more money for her big day by cutting expenses tied to social engagements like drinks with the girls on weekends.
Currently, Jamie is making $ 72,000 a year, taking home a bit more than $ 4,000 a month. She is getting used to saving less because of her recent home purchase in Markham. She splits mortgage payments with her partner and they still have $ 315,000 to pay off.
How is she able to afford a home at 33? She’s always been very careful with her money. On a typical work day, she skips breakfast because she intermittently fasts, so meals begin around lunchtime. Also, she doesn’t drink coffee.
“I prefer tea and I have one when I get into the office.” She keeps a stash there. Being conscious of her health also has financial benefits. She always packs lunches and snacks for work — so no takeout costs — and eats dinner at home during the week.
In fact, for Jamie, spending under $ 200 a week is pretty normal. She attributes a lot of that to splitting costs biweekly with her partner and her work insurance covering costs from physiotherapy to medicine.
The weekend is when Jamie will usually splurge more, but now, because of the pandemic, the costs have been cut significantly.
“Friday nights I typically have some drinks and food at a girlfriend’s place. We bring our own drinks and order in mostly.”
Saturdays are reserved for date night with her boyfriend or going out for food and drinks with friends. On Sunday, it’s preparing to get back to the grind with grocery shopping, meal prep and eating dinner at her mom’s house.
After speaking with friends and reading other Millennial Money profiles, she wrote in to get concrete steps on how she can afford to get married to her boyfriend by 2021 while being unable to save a lot of money.
We asked Jamie to calculate her weekly spending to get a better idea of her finances.
The expert: Jason Heath, managing director at Objective Financial Partners Inc., lays down the advice for Jamie.
- Congrats on the new home purchase. I think it’s fantastic to see Jamie still has extra cash flow for savings and travel despite buying a home. Her mortgage is modest and by buying a home she and her boyfriend can comfortably afford, they can maintain balance.
- Saving for an engagement and wedding should ideally be done conservatively. If their time frame is within the next couple of years, that’s probably too short a time frame to take on too much stock market risk. You’d hate to put your wedding fund into stocks and get married at a time when stocks are down. I’d consider saving in a High Interest Savings Account or very conservative investments with little to no stock exposure in a Tax-Free Savings Account.
- Alternatively, they could use extra cash flow to pay down their mortgage in the interim and borrow back on a line of credit for the wedding cost at that time. The thinking there is that if their mortgage rate is 3 per cent and their savings account rate is 1 per cent, they would be better off paying down their mortgage as compared to saving. They could then tap their line of credit in part to fund the wedding, particularly if they expect to receive gifts that will cover a good part of the wedding costs or pay off the debt relatively quickly.
- I think her risk tolerance with her pension plan can be quite different from their wedding fund. Pension plan withdrawals are generally not permissible until a plan member turns 55 and, practically speaking, might not be taken by Jamie for 30 or more years. She should have as high an allocation to stocks as she can reasonably tolerate, despite any of the volatility we have seen so far in 2020. Today’s stock market declines are buying opportunities for a long-term investor and, with five or more years to an investment time horizon, a healthy allocation to stocks will help increase returns over the long run. Short-term volatility is the price you pay for good long-run returns.
- I would be sure to maximize the employer matching contributions for her pension given she has no nonmortgage debt and her cash flow is good. The employer match is free money for her, so she should get everything she can get out of the plan.
- Given her pension plan is already like contributing to a RRSP account, I would consider opening and contributing to a TFSA account. The TFSA may ultimately be used for funding retirement and be a long-term investment, but has the added flexibility of the funds being available along the way for other uses. She may well use some of the TFSA funds for a wedding, honeymoon, home renovation, lump-sum mortgage payment, maternity leave, catch-up RRSP contribution or other purposes. TFSAs can be very flexible and even more appealing to those already saving in a company pension plan.
- I love the prioritizing Jamie is doing. She brown bags her lunch and snacks at work, but she travels two to three times per year. It goes to show you that when you cut costs in some areas, you can splurge in others.
- Jamie appears to be doing well with a home, no consumer debt, retirement savings and extra cash flow. The biggest risk at her age and stage is a disability or a job loss. Job losses are more concerning for everyone these days as a result of COVID-19, but disability can be insured against with disability insurance. I’d take a close look at her employer coverage to make sure it adequately replaces her income. She may have options to choose from within her group plan or she may be able to supplement coverage with a third party policy. If she has mortgage insurance, that tends to be expensive and subpar compared to a private plan, so I would look to replace that coverage.
- Life insurance is less important if her boyfriend is financially independent from her at this point. Critical illness insurance may be appealing to provide a lump-sum payout if she develops a critical illness. Funds can be used for any purpose, including treatment or care costs, or for her boyfriend to take a leave of absence, as examples.
- If she and her boyfriend own their home as joint tenants, it will go to him on her death. If they own the home as tenants in common, her share can be left to her beneficiaries in her will. If she doesn’t have a will, the province dictates how her estate will be divided depending on her family members and the total value.
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Result: New record. She spent way less! Spending in Week 1 (excluding what insurance covers): $ 124.44 Spending in Week 2: $ 28.59!
How she thinks she did: Jamie has broken a Millennial Money record by spending only $ 28.59. She attributes that to the restrictions in lockdown that keep her from going out. “It feels like I did great, but it isn’t surprising,” she says. Savings are always at the top of her mind. Limiting spending on splurges has never been an issue for her. “My day-to-day spending is conservative and that never changes much.”
Take-aways: Heath’s advice has been helpful for Jamie to think about her future. “Typically I wouldn’t want to borrow money for a wedding, but the way the adviser has framed it allowed me to see that it would be more economical.” Going forward, she’ll follow the advice to borrow to match their time frame for a 2021 wedding.
Another big point that stuck out to Jamie was the need for critical illness insurance. “It was the one important takeaway and confirmation I needed.” Even though she’s been receiving health insurance from her workplace, she has been thinking about it for a while, and is planning to set up her own life insurance for her and her partner.
Finally, the exercise has made her more thankful. “I have been very fortunate to be employed by a company that provides a pension and many benefits, and I am very aware how rare that is in this climate.”