This 34-year-old hospital worker has three kids and a mortgage to pay off. Making $104,000 a year, he wants to save $50K each for his kids. How can he start?

Millennial Money is a weekly submission-based series that provides financial advice to millennials in the GTA. Read the full series here.

Mel, a 34-year-old father of three, was laid off earlier this year due to COVID-19. Thankfully, in the fall, he was able to pick up a job working as an essential health-care worker and now makes $ 104,000 year.

Living in Whitby, Mel travels 50 kilometres one way just to get to work at the hospital, four days a week. On a good day, it’s an hour and 45 minutes of commuting — bad days, over two hours.

Despite this, Mel, who moved to Canada six years ago, is thankful for his job.

Working in the hospital is also something he enjoys, but can be difficult especially as COVID-19 cases continue to rise. “Every day I deal with my patients one-on-one,” he said. “It can be a lot, but my family makes it worth it for me.”

When he gets home from work, it’s family time with his wife and three kids. “Most Friday evenings we have movie night together at home.”

On the weekend it’s his wife’s turn to work. “Saturdays my wife will work from 8 a.m. to 3 p.m., so I’m mostly at home with the kids.” His wife is also starting a business at home.

Later on Saturdays, they’ll go shopping or get takeout for the family.

What are his savings goals? He wants to finish paying off more than $ 323,000 for his mortgage within seven to 10 years. Also, with three kids, he’s always looking ahead at saving for the future.

“Need to save for education for three kids — at least $ 50,000 each, $ 100,000 if possible,” he said.

Mel would also like to save enough for retirement, at least $ 1 million each for him and his wife, and also purchase a second real estate property to rent out.

How can Mel prepare for his future? We asked him to share his daily spending to get an idea of his finances.

The expert: Jason Heath, managing director at Objective Financial Partners Inc., on Mel’s goals:

Mel’s got a tough job these days. He works in health care, during a pandemic, and has to drive 100 kilometres round trip each day to work. There are lots of people saving on commuting costs working from home, but not him.

I can’t help but notice his car insurance is just under $ 400 per month. That’s nearly $ 5,000 per year. Maybe he’s had accidents or tickets or something to drive that cost up, but it could be worth shopping around his policy with an insurance broker.

I note his mortgage is on track to be paid off in seven to 10 years, but he’s only 34. That’s pretty fantastic. Not many people in their early 40s are mortgage-free these days.

Given he has other priorities like saving for his children’s education and saving for retirement, he could consider pushing out his mortgage amortization to reduce his payments. This could increase his cash flow for RESP contributions for his children.

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Like many Millennial Money profiles, Mel is hoping to buy a rental property. I worry that the high growth rate for real estate in Toronto, especially in the past 10 years, has millennials thinking that real estate only goes up, and only goes up a lot. The thing is real estate can’t keep rising at 10 per cent per year if incomes are only rising at two per cent. Home prices should be much more closely tied to inflation or wage growth.

Mel’s income is high enough that RRSP contributions are attractive. He notes retirement saving as a secondary goal to buying a rental property, and if he has a pension plan at work, he may or may not need to save much in his RRSP.

It really depends on whether his wife has a pension, when they expect to retire, whether they may downsize, whether they expect any inheritances, how much they plan to spend in retirement, and several other personal factors. Many pension plan members don’t need to save a lot of additional money to retire, though some others do. Regardless, if you have extra cash flow, RRSP contributions for high income earners are a good strategy.

I note he is paying his life insurance monthly. He should be able to reduce the premiums by paying annually. Given he has three kids and his earnings make up a big part of the family income, I hope he has good disability insurance coverage — especially given his job is higher risk than most.

The result: He spent more. Spending in week 1: $ 1,008 Spending in week 2: $ 1,787.91

How he thinks he did: “I think I did OK this week, limiting most of my spending to essential buys,” Mel said. “The mortgage and housing is where the price goes up significantly.”

While Mel notes that most of Heath’s advice was more long-term, he decided to implement changes day-to-day after seeing his expenses laid out. He and his wife decided to do more bulk grocery buys, and to not send their kids to daycare.

“My wife is a stay-at-home mom for the most part but she also did some part-time jobs to help me out. I’m the primary income earner,” he said, adding that once all their kids start school his wife will be able to work more. “I guess we can follow some more strict saving strategies then.”

Take-aways: Mel is proud that his long-term goals fall in line with Heath’s advice.

“I’m already doing most of the things the adviser recommended. My insurance premium is for two cars and that’s the lowest available in Canada for a newcomer. Most of the insurance companies charge three times than what I pay,” he said.

Mel says he’s already set up an RESP for his three kids, almost at $ 25,000 altogether, and an RRSP for himself with $ 30,000 saved. In addition, he also has around $ 80,000 for emergencies and other investments.

“This is my sixth year in Canada. I’m aware of the annual premium pay for life insurance as well but I recently only took my insurance and (am) considering switching the provider in a month or so. That’s why I’m not paying annually. Most of my other payments like auto/home insurance are yearly payments, so I can save around two to three per cent,” he said.

As for buying property, he notes that it’s important to be cautious, but doing his own research with property owners, he thinks it’s the right path for this family. “Just like the adviser recommended, people should buy smart,” he said.

Finally, Mel is happy that he is able to support his wife who opened up a new company recently. “Hopefully it will be a success soon, and we can get our savings together to achieve these goals clearly.”

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

TORONTO STAR