“I really only started getting a real paycheque after grad school.” After more than 10 years of post-secondary education to attain his PhD, Damien has spent the last two years working in the medical science field as a liaison to doctors and researchers.
With a high salary of $ 125,000, despite only really landing a job in this 30s, Damien has been able to pay off all his debt within a year: $ 30,000 in OSAP and a loan from family.
But for the most part, Damien says he’s “still trying to live like a poor graduate student, so having a higher income hasn’t resulted in significant lifestyle inflation.” The only exception? Paying $ 1,500 for his own apartment after years renting a bedroom in Chinatown.
Damien’s workday is anything but typical as he’s always on the move. “I’m either flying to another province or I am on the road for most days,” he says.
Because of his extensive travelling, his company provides him with a car, and pays the gas, maintenance and insurance. Another perk? Most of his breakfasts and lunches are covered, and if he’s staying overnight in a different city he’ll get his dinner covered too. On the rare day that he’s home he’ll cook or get takeout. “I reserve eating out for weekends with my partner.”
Weekends are when Damien gets time to indulge in his hobbies, which means window shopping at the mall, or seeing friends or a concert or a show. “Sunday is typically a personal day I will either run errands (or) every four to six weeks I will get a massage (reimbursed by work benefits),” he adds.
After grinding it out as a student, now he has goals to save for a 20 per cent down payment on a two-bedroom condo or townhouse in the GTA.
“The realistic amount is around $ 150,000 to $ 200,000, but I will be able to split this with my partner,” Damien says. Besides that, because of all his time in school, he feels he’s very behind in retirement savings and “lost out on years of compounded interest.”
“I read some places you’re supposed to save one and a half to two times the salary by age 35, which is pretty frightening to me.”
Outside of his normal expenses, he’s currently able to invest close to 40 to 50 per cent of his take-home earnings toward retirement. “I like the Canadian couch potato strategy and mostly invest in index funds via do-it-yourself online brokerage.”
We asked Damien to record everything he bought in a week to get an idea of his weekly spending.
The expert: Jason Heath, managing director at Objective Financial Partners Inc., gives his financial advice to Damien.
“I can understand Damien’s concerns about his late start to saving. I’d discourage him from paying too close attention to rules of thumb like the one he mentions though. How much you need to save for retirement annually or by a certain age is highly dependent on many other factors,” Heath says. “There is a fine balance between living like he’s still a poor graduate student and living too high on the hog. Obviously, his modest spending is helping him make up for lost time.”
- Given his high income, I think focusing on his RRSP first and foremost makes sense to get up to the $ 35,000 Home Buyers’ Plan limit. I’d still keep contributing after that to the extent he has an employer matching contribution. The ongoing match will help him build savings quicker. If his company stock purchase plan has a matching contribution, I would keep doing that as well. But he should aim to sell shares as soon as he can to redeploy the cash. Some stock savings plans have a required hold period, while others allow you to cash out at any time. If he can sell the shares and use the cash for RRSP and eventually TFSA contributions, I think that makes sense.
- Damien may like the Canadian couch potato approach to investing, but I would caution him to be careful with how much exposure he has to stocks in his accounts. If he is hoping to buy a condo or townhouse in the next couple years, he shouldn’t be taking on too much investment risk. Stocks are down about a third of the time over a one-year period and can even have a negative five-year return. So, for time horizons under five years, young savers need to be careful about how much stock exposure they have with their investments.
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- I favour ETF investing like a couch potato portfolio for a DIY investor over trying to pick stocks. A key to success is not trying to time the markets though. In other words, if someone is going to be a passive investor, be a truly passive investor rather than trying to be a day trader. This is the one area I see DIY investors negate any potential benefit of lower fees. Saving on fees is hardly worth it if your investment strategy reduces your returns.
- I would ensure he can use the Home Buyers’ Plan with his group retirement account. Some savers mistake defined contribution (DC) pension plans for group RRSPs. DC pensions generally do not allow withdrawals prior to age 55 and are not eligible for the Home Buyers’ Plan anyway.
- His restaurant spending is higher than his spending on groceries, so if Damien was looking for a place to cut spending that could be one area. That said, no doubt it’s tough for him when he’s often on the road for work, including out of town. Not to mention, his saving rate is really high compared to most people and, after years living like a student, he should be able to splurge within reason.
- As he and his partner begin to more seriously consider a home purchase, they should be sure to talk about the integration of their finances. They will want to establish whether they will completely pool their finances or instead contribute proportionately to shared expenses. This will help them determine how much they should save for a home down payment and how much they can afford to pay for a home. There can also be a difference between what the bank says they can afford to borrow and what they should be borrowing in order to achieve their other goals. Depending on their incomes, it may make more sense for them to contribute to one spouse’s RRSP or the other based on their tax brackets. If Damien has maxed out his TFSA, he can also help his partner contribute to their TFSA, though there may be family law or other considerations with this type of full integration of their finances.
Results: He spent less! Week 1 spending: $ 572 Week 2 spending: $ 284
How he thinks he did: “I have definitely been spending less these last few weeks during COVID-19. I think I did pretty well; my expenses were less than half of my normal weekly expenditures and my biggest expense was a one-time donation to hospital front-liners,” Damien says.
One thing he notes is Heath’s point about how he spends more on restaurants than groceries. “It’s pretty eye-opening.” So to improve, Damien says he chose a cheaper takeout option.
Another factor that’s helped Damien save a bit more this week? The COVID-19 restrictions. “I would probably spend an additional $ 100 to $ 150 on a combination of entertainment and restaurants.”
Take-aways: Prior to the Millennial Money exercise, Damien had never considered tracking all his spending. “I think it can be pretty powerful to retrospectively see where you put your money. It makes you reflect on the ‘why’ part.” He was also able to find some free money tracking apps and recommends that most people try the exercise to get a better idea of how they’re spending their money.
Damien also felt reassured in regards to his worries about making up for lost time on saving for retirement. Heath’s advise gave him better perspective. “He made a good point about not worrying about milestones and rather to think backwards about the amount of money required for retirement.”
In terms of his RRSP holdings, Damien agrees with Heath on being a bit more conservative since his plan is to use the money for the first-time home buyers plan with the market being so “volatile.”
Overall, taking part in the challenge has given Damien perspective. “Doing this activity during this unfortunate pandemic also triggered me to think more about the importance of the ‘emergency fund’ and how vital it is to have three to six months of funds available,” Damien says.
“All in all I appreciated this opportunity and do feel very fortunate that I am one of the lucky ones that wasn’t as negatively (knock on wood) affected by the COVID-19 pandemic.”