Millennial Money is a weekly submission-based series that provides financial advice to millennials. Read the full series here.
One thousand dollars. That’s how much 29-year-old Jason has left to pay off in student debt, a milestone that’s left him thinking more about his future.
Making $ 120,000 a year as a software engineer, he bought a house several years ago in midtown Toronto. “I live by myself in a small two-bedroom, semi-detached unit,” he said. “I have gotten used to the convenience of living in a city and would love to stay here.”
However, now he’s considering making a change.
“I’m starting to think I need more living space. Especially considering the real possibility of having more people living together once I start a family,” Jason said.
Working from home during the pandemic has helped Jason save more. “I usually cook my own breakfast, and for lunch and dinner I usually split home cooking and getting takeout or delivery 50-50,” which typically costs $ 20 a meal, he said. “Back when things were normal, the only difference was that I would sometimes get takeout breakfast, for around $ 5 each.”
On the weekends Jason will meet up with his girlfriend and get takeout meals. The two will also go on dates around the city and enjoy the parks.
The house he has in mind next is a detached unit with three or more bedrooms in Toronto.
“I would like to plan and see if it’s possible to reach this goal without taking my future partner’s income and finance into consideration.”
Currently, he still has around $ 500,000 left on his mortgage.
We asked Jason to share a week of spending to get an idea of his day-to-day finances.
The expert: Jason Heath, managing director at Objective Financial Partners Inc., on Jason’s goals.
Jason has done well for himself to own a semi-detached home in Toronto on his own. He would like to move to a detached home with three or more bedrooms without counting on his future partner’s income to have space for a family. As a financial planner, most of my time is spent helping people to plan ahead. However, I think there is such a thing as planning ahead too much and getting ahead of yourself.
Some couples have fertility issues that delay or even prevent the start of a family, with associated costs. And even after you have a baby, my own experience is that they do not need much space for the first couple of years. On that basis, I would encourage Jason to consider delaying a move until his relationship and family plans are more solid.
I notice he spends about 90 per cent of his after-tax income on his current expenses. That does not leave much wiggle room for saving or to cover extraordinary expenses. The recurring expenses that stick out in his budget are eating out and meal delivery services. Five out of the six expenses in his weekly money diary were delivery or takeout. His monthly restaurant budget is also twice his grocery budget. That is one area I would focus on to free up cash flow if Jason is really determined to move to a bigger home imminently.
Given that he is about to pay off the last $ 1,000 of his student loan debt — congrats! — he may also want to start proactively saving for the future and make that part of his monthly budget. When you save first, and spend what is left, it can be a powerful wealth-building strategy.
Jason’s income is high and RRSP contributions could be beneficial from a tax reduction perspective, but he should also balance short and medium-term goals. He owns a car that will have repairs. He already owns a home so cannot take a RRSP withdrawal using the first-time Home Buyers’ Plan. He wants to move to a bigger home and have a family. There are a lot of expenses that will come up in the coming years well before retirement, so saving in a TFSA account could be flexible.
I would consider contributing to both his TFSA and RRSP, with a bias toward his TFSA to allow flexibility. As his TFSA builds, he can also consider withdrawals to make RRSP contributions depending how his saving and home-purchase plans shake out.
As a single guy with no dependants, life insurance is not that important right now. He may well have coverage at work. Disability is his biggest risk, as well as job loss. He can insure against disability risk with disability insurance, and those with group plans should always review them to see if they are adequate or if additional private disability coverage should be considered. A job loss can be mitigated by having savings, like a TFSA, but Jason should also consider getting a secured home equity line of credit if he does not already have one.
He has no debt other than his mortgage and $ 1,000 of student loan debt remaining. His income is high, and he has home equity. A home equity line of credit (HELOC) can be an emergency fund of sorts, particularly for those who are disciplined and resist the temptation to access it for consumer spending. And the best time to get a HELOC is when you do not need it, and when your financial situation is good.
Results: He spent less. Spending in week 1: $ 262. Spending in week 2: $ 170.
How he thinks he did: This week, Jason made concrete goals to cut more of his day-to-day spending.
“I think I did better this week. I have reduced my food-related spending by cooking more at home,” he said. “It’s still tempting to use meal delivery because of the convenience, but I will try to make it more of an exception rather than the norm.”
Take-aways: While doing the Millennial Money exercise, Jason realized how helpful it was to have all his day-to-day expenses laid out.
“It was helpful to keep in mind exactly how much I’m spending on restaurants and meals. I tried cooking at home more and I was able to eat healthier while saving some money,” he said.
He adds that cooking at home has also allowed him to be in control of healthier eating habits.
“I think the coach correctly pointed out that I’m only saving a small per cent of my monthly income, and meal-related spending is a good place to start cutting, without sacrificing health,” he added.
In terms of savings accounts, Jason also has a new perspective on his home equity line of credit.
“I opened a HELOC a while back. I never tried accessing it and thought it wasn’t useful. But knowing its benefit now, I will keep it as another resource for responding to financial emergencies,” he said. “I have also learned to make better use of my TFSA and start making monthly contributions.”
Finally, in terms of planning his future, the advice has made him realize that he’s privileged to be able to take things slow.
“It helped a lot to not stress too much about making the perfect accommodations for future family plans.”