Saving up for a home
Danielle has sights set on a new place in the city.
In our Smart Money series, #MillennialMoney, we ask people living in the Greater Toronto Area to record every penny they spend in a typical week. Then, using tips from a financial adviser, we challenge them to cut their spending the following week so they can save more money. Will they fail or succeed?
At 28, Danielle is living her best life as a PR and digital marketing manager making $81,000 a year. Right now, she’s fortunate to have kept her job throughout the COVID-19 pandemic and is using this time to reflect on her splurging habits to see if she can save enough for her first down payment.
It means confronting her food costs. Per month, Danielle spends $800 on groceries and food. Worse, that’s only the cost of food for two weeks, as her and her boyfriend alternate on weekly food costs, meaning they spend around $1,600 a month on food.
Fortunately, Danielle lucked out on a spacious two-bedroom downtown property she rents with her boyfriend, paying less than $1,000 for half the rent.
When it comes to her daily regimen under pandemic measures, Danielle works from home and eats all meals from home. This means a lot more cooking, but also delivery once or twice a week. “It’s an expense I could definitely cut as I always have groceries in the house; it’s more of a matter of laziness.”
Before COVID-19, Danielle also brought lunch from home and had breakfast, snacks and coffee from her workplace’s communal fridge, but would spend more time dining out. On weekends, she and her boyfriend would typically go out for coffee and a dinner with friends. They also used more ridesharing services like Uber for outings.
Now that she’s staying home more and has only $350 in debt on her credit card, she’s hoping to take advantage of reduced spending to pursue her dream of buying her first home — but it has to be in Toronto.
We asked Danielle to share her weekly spending to see how her weekly costs add up.
The expert: Jason Heath, managing director at Objective Financial Partners Inc., gives his financial advice to Danielle:
“I feel for Danielle and other young people who want to buy a home in Toronto. The prices are really high for young people regardless of their incomes … she may not want to move out of the city, but if someone is willing to make a bit of a commute prices can be a bit less,” Heath says.
> Her modest rent with her boyfriend is a good reason to stay put. She has had just small rent increases for five years, so she is paying a pretty competitive rent.
> She was surprised at how high her restaurant spending was once she put it down on paper. Most people find the same thing once they actually quantify their spending. It can be a great exercise to see how much you’re spending and how much ability you have to save.
> Her income is fairly high, so her RRSP contributions are saving her about 30 per cent tax. She is saving more to her TFSA than to her RRSP — five times as much, in fact. She may want to consider ramping up her RRSP contributions given her high income to benefit from tax refunds, given it will help her accumulate more money for an eventual down payment.
> I can understand her hesitance to invest recently given stock market volatility. Generally, I would say that an investor with a long run time horizon should try to remain unfazed by stock market volatility or declines because, if anything, it just means you’re buying stocks on sale. But a 28-year-old hoping to buy a home, and who may start a family at some point in the next five to 10 years, has a short to medium-term time horizon for most of her savings. She should probably maintain a modest stock market exposure — not because of COVID-19 or volatility — but because even a moderate risk investment portfolio can have a negative five-year return.
> It would be easy to pick on her three trips a year as a way to cut costs and boost savings for a down payment, but I think that would be short-sighted. As young people get older and start a family, it can be harder to take vacations. Enjoying them while responsibly avoiding consumer debt and saving for the future in your 20s and 30s can be a good way to maintain balance and live for today while saving for tomorrow.
What she learned: Danielle is proud of her weekly spending, especially now that she’s able to look at her spending differently under COVID-19. “In normal times, I would usually go out for dinner once a week, spending anywhere from $40 to $100, and an average of $60 to $80 a month on Ubers.” On top of that, this time at home has given her the ability to save on her gel manicure costs, which are around $50 to $90 a month, and her gym membership, which costs $189 a month.
But this doesn’t mean that she hasn’t totally stopped impulse buys. “I did still have one impulse food delivery order and then the vitamins were a bit of an impulse purchase, although I had been considering trying that brand for a while and the 50 per cent off promo code dramatically reduced the cost of my order.”
Take-aways: Despite food deliveries, what Millennial Money taught her was that she isn’t that bad with money. “To be honest, I think the money coach’s feedback demonstrated to me that I am doing better financially than I thought,” she says.
Her next steps are to set up an appointment with her financial adviser to look at how she can increase her monthly RRSP contributions. Before the money coach’s advice, Danielle says she placed more importance on her TFSA than her RRSP. “Seeing the RRSP as more a short-term savings solution for purchasing a property has changed my perspective.”