Can this single dad get out from under debt?

In our Smart Money series, #MillennialMoney, we ask people 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 fai

Rohan, 40, is a single father of three between the ages of six and nine. “In the past five years, I’ve been in difficult circumstances and many times out of a job after my divorce,” he said.

Basically, Rohan — who works in the pharmaceutical industry making $80,000 a year — just wants to catch a break and work toward saving. But how can he do that with bills to pay and kids to care for (not to mention home-school for now), all in a pandemic?

Over the years he’s racked up $80,000 in debt on his credit card and line of credit. There’s rent, paying more than $1,500 for a two-bedroom apartment in Brampton for his family of four. Then there’s transportation, which pre-pandemic cost more than $1,000 between car payments, insurance and gas, though less travel has cut down gas costs by almost $300.

Rohan says he is planning to pursue a consumer proposal — a type of debt relief that’s an alternative to declaring bankruptcy.

What’s his lifestyle now? Working from home “we eat the same food that’s cooked for dinner for the rest of the week, with the exception of breakfast, where we’ll have bagels, toast, Nutella, yogurt,” which he picks up on a weekly grocery haul.

The weekend is the only time Rohan has to do groceries, and treat his kids to Tim Hortons doughnuts and meals. To get more relief, he’ll do “one trip every two weeks to Vaughan to see his parents,” ensuring that everyone feels safe.

What are his saving goals? Short term, it’s to buy a new laptop for the family — they’re using a 12-year-old one.

Long term? “I want to have life insurance for the kids, save for their education, save at least one year of emergency savings for myself and create a retirement fund,” he said. “One day, buy a house and get married.”

He has $10,000 in his TFSA invested in stocks, $10,000 in his chequing account and contributes $1,000 a month to his company’s pension plan.

We asked Rohan to share his daily expenses to get a better idea of his finances.

The expert: Jason Heath, managing director at Objective Financial Partners Inc., on Rohan’s situation

I feel for Rohan on many levels. Obviously, things are tough financially.

Rohan is about to file a consumer proposal. A licensed insolvency trustee can help work with his creditors to negotiate a repayment plan on a reduced debt balance, to avoid bankruptcy if it makes sense. Without such a proposal, Rohan’s budgeted repayment of $400-$480 per month may not even cover the interest on his $80,000 debt, let alone ever pay it back.

Rohan mentions he wants to get life insurance for his kids, build an emergency fund, save for their education, save for retirement and someday buy a home and remarry. This could seem a like a daunting list, so I would encourage breaking down financial goals into smaller steps.

The consumer proposal is important to get in place. Beyond that, I would agree that insurance for his kids, but also for him, is really important. If Rohan doesn’t have life or disability insurance, his death or disability could be devastating for his family. Over time, he can check off other boxes on his checklist.

He should also work with the trustee to figure out what to do with his chequing and TFSA balances. His $10,000 bank balance could make a dent in his debt, but he may need an emergency fund — and might have little access to credit given his financial situation.

I’d challenge his $10,000 TFSA invested in stocks. Stocks are volatile and so is Rohan’s delicate financial situation. I’d hate to see him need that money when stocks are down, as they tend to be about one out of every three years.

I think he may also earn a better return on that $10,000 by reducing debt carrying a high interest rate rather than buying stocks, but should work with his trustee to figure out the timing and amount of any debt-repayment plan.

The results: He spent less. Spending week 1: $1,723.97

(including rent) Spending week 2: $258.42

How he thinks he did: “Not a good week for me,” Rohan admitted. Between the pandemic, home-schooling and juggling work, he thinks he splurged to get some relief.

“I think I could not control myself and emotionally, to make myself and kids happy, I gave into chai teas and coffees, and burritos, pizza and chicken.”

Take-aways: Rohan says he may not follow the advice regarding TFSA stocks as he feels confident that he invested smartly.

“It is invested in stable technology stocks and a few temporary stocks related to pandemic where I was just aiming to make a short profit and sell it back so I can purchase a laptop for home, an exercise bike, a home office desk and pay off a dated speeding ticket.”

Currently, Rohan is on medical leave due to an injury from working long hours.

“I am returning to work in one week and I have been advised to get a replacement for my work station. My injuries still hurt but will get better with time and I need to work.” What else did Rohan learn?

“Life insurance is important and should be prioritized along with building emergency funds for the future as we saw the uncertainty with the pandemic, and to fulfil one goal at a time.”

Are you a millennial living in Toronto or the GTA and need help with saving your money? Be a part of #MillennialMoney and email ekwong@thestar.ca