◾ Millennial Money:
Feeling lost, Nicole is looking for some clarity on her finances .
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 fail or succeed?
At 29, Nicole, a policy analyst making $78,000, says she’s going through a #MillennialLifeCrisis with her finances, and wants more clarity.
Just this year, as condo prices went down in the pandemic, Nicole bought her first property: a $485,000 place in Roncesvalles. “I had saved $100,000 saved up by June 2020, and bought my apartment immediately.”
How was she able to save six figures? She attributes that to living at home with her parents until the age of 27, which allowed her to save on housing, food and other costs.
By the height of the pandemic, just a few months after moving into her apartment, Nicole temporarily moved back home to her parents to stay connected to them and not be isolated, and as an opportunity to save more money.
“While I’m at my parents I can save $1,000 to $1,500 a month,” she said.
Before the pandemic, Nicole says she was living a comfortable lifestyle, which included travelling, eating out, buying clothes and taking Ubers — and she wants to continue that when it’s safe to. But at the same time, she would like to feel financially comfortable and independent.
Short term, Nicole’s goals are to have enough to take an extended vacation in Europe in the next year or so.
Long term? That’s where she’d like more direction.
“I’m just not sure what next steps should be. Emergency fund? Travel fund? Future larger house fund? RRSPs?”
She also has a government pension and has been contributing since 2013. Right now, she has saved up $10,000 in her bank account.
We asked Nicole to share a week in spending to get a good idea of her finances.
The expert: Jason Heath, managing director at Objective Financial Partners Inc., on Nicole’s confusion
Nicole sacrificed during her 20s to save up a 20 per cent down payment on a condo. Just 50 per cent of 30-year-olds owned a home according to the 2016 census. Interestingly, Statistics Canada reports that in 1981, only 56 per cent of 30-year-olds owned their home — not much different from today.
Nicole works for the government and has had a pension plan for the past eight years. Her pension enrolment means she does not accumulate much new Registered Retirement Savings Plan (RRSP) room each year.
She may have some accumulated room from working earlier in her 20s or teens, but I would not necessarily prioritize retirement saving.
She has some other short- and medium-term goals like a European vacation and a larger home. She may want to contribute to a Tax Free Savings Account (TFSA) and keep some of the funds in cash or bonds, and some invested more aggressively with exposure to stocks.
I think it is OK to build a bit of low-risk savings, but if she starts to accumulate a lot of cash earning one per cent in her TFSA, she could consider paying down her 2.09 per cent mortgage for a better return.
She may want to establish a home equity line of credit, if she does not already have one, as a backup emergency fund.
An emergency fund is always a good idea, but given her car is nearly 20 years old, a point may come where the repairs are more than her handy father can handle for free.
Finally, I would not be in a big rush to repay her Home Buyers’ Plan (HBP) balance. She only needs to repay ⁄ of the $17,000 1
15 withdrawal each year with the first $1,133 repayment required in 2022 — two years after the original withdrawal. If she does not re-contribute this amount to her RRSP, it gets added to her income for the year, and she loses that RRSP room forever.
The results: She spent less. Spending week 1: $1,252 (including mortgage) Spending week 2: $358
How she thinks she did: Nicole thinks that this week she managed to keep her daily costs pretty average and at a manageable level. “My online spending and takeout budget has increased since lockdown, but living at home helps offset those costs,” she said.
Take-aways: The first thing Nicole recognized is that she hadn’t considered putting additional payments toward her mortgage.
For her car, though she recognizes it is more than 20 years old, having it die wouldn’t be the worst thing. “I think I would just do without a vehicle and take transit.”
As for her priorities, they’re still focused short-term on vacations and long-term on continuing to save for a larger home.
Mainly, Nicole got a sense of comfort knowing she is doing well for her age.
“I’ve worked hard to be a homeowner and still maintain my lifestyle and want to continue to be able to make smart financial choices. It was also reassuring to hear my pension puts me in a good position for retirement,” she said. 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