At 34, Vanessa has been able to pay off all her student loans and find independence. She has no debt, a career making $ 75,000 a year as a developer and rents a spot in Milton for less than $ 1,000.
Now she wants to know if she’ll ever be able to own a condo.
“I would like to save (for one). However, my income would only allow for $ 1,600 for housing (including mortgage, tax and condo fees) so even if I reach my goal of saving $ 100,000 for a down payment, I don’t know if I will ever be able to afford anything in the GTA or Vancouver,” she says.
She’s been saving quite a bit during the pandemic — about $ 200 a month on gas alone, not having to drive into work, and COVID-19 restrictions have also limited her spending.
“Pre-pandemic I met up with a friend or two for dinner or coffee, a couple times a month, and the occasional concert. Now I might have takeout twice a month.” (Vanessa also has a restricted diet, which cuts down on takeout costs.)
Her short-term goal is to get a vehicle. “My car is 15 years old and so I will soon need to replace it, and I’m looking to pay cash for something fairly new, around $ 15,000 or so.”
Vanessa has been trying to handle her money questions herself. “I don’t have enough assets to afford a professional financial planner, so I have explored ETFs like (with) Wealthsimple but found it confusing and I don’t want to invest in any companies that conflict with my values.”
We asked Vanessa to share a week of spending to get an idea of her finances.
The expert: Jason Heath, managing director at Objective Financial Partners Inc., on Vanessa’s goals:
Vanessa has the right idea saving to buy a slightly used car with cash. That is probably the best way to get a deal. Cash incentives or discounts for new cars are often offered by dealerships, but if you can buy a 2021 model for a reduced price, that probably means you can buy a 2019 or 2020 that is close to new for much less as well. When a buyer is offered zero per cent financing, the dealership is not doing a favour — the financing cost is built into the price, meaning you may be able to pay with cash and buy for less.
She has to consider the cost of owning a car, even if it is paid off. She has been working from home for over a year and barely using her car. She is also concerned about how little is left in her budget to allocate to a mortgage payment. If she lives close to work or close to transit, or does her home-hunting strategically, she may be able to do without a car, paying less using ride-sharing or renting cars.
It is brutal that Vanessa is working towards a $ 100,000 down payment and does not think she can afford to buy a home. She is considering Toronto or Vancouver, so that limits her. But you can be a wealthy renter in those or other cities if you make good choices with your savings. One way to do that is to work on her investing knowledge so she can put her money to work.
Vanessa should definitely have a Tax Free Savings Account (TFSA). If she has never contributed before, she probably has the maximum cumulative TFSA room of $ 75,500. Even if the funds just sit in a high-interest savings account, at least the interest is tax-free. Her income is relatively high so some Registered Retirement Savings Plan contributions with a potential of taking a Home Buyers’ Plan withdrawal for her purchase may make sense too. (The dilemma with a young investor is how much risk to take on if they may need their savings for a down payment. If she will not be buying anytime soon, she can take on more risk.)
It is becoming easier and easier to use Exchange Traded Funds to invest in a socially responsible way. The two biggest ETF providers by assets in Canada — RBC iShares and BMO — have a huge selection. iShares has 17 Canadian-listed sustainable ETFs and BMO has 10 ESG (environmental, social, governance) ETFs. There are other socially responsible ETFs in Canada, plenty of mutual funds, and an even bigger U.S. ETF market for socially responsible investors. Canadian robo-advisors like Wealthsimple, CI Direct Investing, ModernAdvisor, and Questwealth Portfolios have specific offerings based on an investor’s values.
The result: She spent less. Spending in week 1: $ 156 Spending in week 2: $ 133
How she thinks she did: For Vanessa, spending less week-to-week looks great, but isn’t her main priority — she already lives frugally.
“I’m not too worried as I really have saved quite a bit during the pandemic,” she says, adding that the clarity she got was regarding longer-term goals.
Take-aways: “I did NOT know that even the zero per cent financing deals aren’t deals,” Vanessa says about her car search. “I should’ve known there’s always a catch.”
However, she believes a car will still be necessary for her. “Getting rid of the car was a suggestion that hadn’t occurred to me because I live in the suburbs and I really rely on a car.” She says she will calculate the potential savings or expense by trying a month without using it when times are closer to normal.
She’ll also focus on a regular TFSA; nothing too risky. “I really would like to buy in another 18 months … I might research the ETFs again and put a small amount there, too.”
The key takeaway for her is re-evaluating her home-ownership goals. “Renting long term doesn’t appeal to me because I just want to settle down and stay close to my family, so I need to find more room in my budget.” That may mean moving to a smaller city or a more affordable area in the U.S.
“I’m more comfortable in a diverse city like Toronto, especially as a minority, so if I can’t find anything, I’ll have to embrace renting.”