Millennial Money is a weekly submission-based series that provides financial advice to millennials in the GTA. Read the full series here.
At 27 years old, Maggie has found herself back in school — finishing a two-year master’s degree after she entered the job market for a couple of years and earned $ 65,000 a year working full-time.
Now, without a job, she’s relying on savings in her TFSA and RRSP accounts. Thankfully, because of her initiative to apply for scholarships throughout university, she has no student debt.
“I’m a full-time student so I’m living off a combination of personal savings and a stipend from my summer placement through the university,” Maggie said. “I also had scholarships during my undergrad that almost completely covered my tuition costs, so I graduated from my undergrad with no debt. I’m extremely fortunate.”
She splits the rent with her partner on a two-bedroom home in Hamilton, which costs them each $ 795 a month. Because she’s able to study from home, she’s been able to save a lot more.
“Now, with both my partner and myself working and studying from home, we make all of our meals at home. I usually have a light breakfast, coffee and snacks for lunch, and dinner is the biggest meal,” she said. “Once a month or so we’ll order takeout for dinner, but ordering from UberEats is expensive as hell! So we don’t do it very often.”
The pair spend most of their money on groceries, supporting local farmers markets. Before the pandemic, they would go for dinner and drinks with friends. As more of Ontario opens up, they will start to do that again, but with a new perspective.
“I want to be more mindful about how much money I spend at restaurants and bars. The pandemic helped me realize how much money I can save — and other things I can do with my time — by not spending Friday and Saturday nights out at the bar,” Maggie said.
Now, Maggie wants clarity on two goals. First, optimizing her savings accounts, and second, potentially buying their first property.
“I expect to graduate in 2022 with no debt and will re-enter the job market. I would like to explore my options for investing that will give me a bit of a higher return than what my investments are currently making, but I feel a bit lost when it comes to my investment options,” she said, adding that she’s explored using robo advisers like Wealthsimple.
“Also, I do eventually want to buy a home, but the housing market in the GTA is intimidating to say the least, and I’m not so committed to home ownership that I’ll tie myself down to an unmanageable mortgage,” she added.
With no credit card debt, and around $ 23,000 in a TFSA and $ 20,000 in RRSP accounts, she’s wondering, what should she invest in?
We asked her to share a week of spending to get a better idea of her finances.
The expert: Jason Heath, managing director at Objective Financial Partners Inc., on Maggie’s options.
Maggie’s is a rare case of a grad student with no debt, as Statistics Canada reports about 60 per cent of Ontario university graduates come out of school with debt and the average balance is about $ 30,000.
Still, it can be challenging living off a lump sum of money rather than a biweekly paycheque. Young people and retired people often end up in this situation and it makes budgeting important. Maggie acknowledges her spending has shrunk significantly by staying home during the pandemic. Socializing and having fun is important at any age or stage, but your entertainment budget is a discretionary expense that directly impacts your ability to spend and save on other things.
If she wants to save for a home, she will need to figure out with her partner what their budget is, how much they can save together, and how quickly they want to hit their target down payment.
Maggie seems self-conscious of her $ 550 per month grocery budget. Quite to the contrary, with so little spent on eating out — just once a month — it may not be that unreasonable.
She is concerned about her RRSP and TFSA investments not earning much of a return. She has two GICs in her RRSP and her TFSA is in a savings account. Her returns in those investments will not even keep up with inflation. It sounds like she may not need those funds for education costs, and she seems confident she can get a good job coming out of school. She and her partner have a new car and will not need to replace it any time soon. Since it may be at least a few years before they buy a home, she can take some risk with her investments. Stocks do not often have negative three-year returns (about 15 per cent of the time for the S&P 500 over the past 100 years) and a balanced portfolio is that much less likely to lose money over three years and especially over a five-year period.
Maggie is considering investing with a robo adviser. This is a simple option that involves a risk tolerance assessment and a portfolio of low-cost exchange traded funds (ETFs). All-in fees are typically in the 0.5-0.75 per cent range compared to two per cent for the average mutual fund. Customer service and financial advice is limited but the simplicity of a low-touch, predominantly online relationship can be convenient for the right investor.
Results: She spent more. Spending in week 1: $ 364.50 Spending in week 2: $ 393
How she thinks she did: “I think I did pretty well this week, although I can see how my spending is going up entirely consistent with Ontario moving into (Step) 3 and things reopening,” Maggie said.
This week, she spent a bit more on dining out, getting drinks and going to the movies.
“I think that’s pretty much to be expected and I don’t feel bad about it. We deserve this after a year plus of COVID,” she said.
Take-aways: Moving forward, just to make she isn’t jumping straight into spending a bulk of her money on bars and outings with Ontario’s reopening, she’s going to set a budget for the week.
“I’m going to set a more specific budget and then allow myself to enjoy whatever I can within that,” she said. “I’ve been tending to err on the side of caution when it comes to disposable income, but I feel confident from the adviser’s advice that I have a bit of wiggle room as long as I’m keeping track of things.”
Maggie is also encouraged by the advice regarding her investments and savings.
“I am happy to see the point to move into a higher-risk investment option. I think when I originally set up my super low-risk investments it was at a time where I was uncertain how much grad school would cost and how much I would need. But now that I have a better idea of this, I can take on a bit more risk with a longer-term investment.”