Evelyn Kwong
March 2, 2020
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?
Emily and Tom are both 26 years old. Emily, a registered nurse makes $69,000 a year, while Tom, an apprentice tradesman, makes $44,000. Their monthly spending adds up to around $6,000, and the $300 to $800 left over goes straight into paying off debt.
"We're looking to buy a house ASAP," Emily said. What's the rush? The couple, who currently rent a home in Scarborough, just found out they're expecting.
"Ideally, we'd settle in Whitby, but our budget for homes is under $300,000," she said. The two also say London is a good option to look at, but before real estate becomes a reality, Emily still has to pay off $12,000 in OSAP debt and Tom has to pay off $5,000 remaining of a consolidation loan from a fitness membership that went wrong.
"Hopefully we can pay it off by the middle of next year," Emily said, adding they are eager to start their family life.
They've tried to be frugal to make their dreams a reality. In a typical workday, Emily and Tom pack a lunch. Emily will treat herself to a Starbucks drink three times a month while Tom buys a coffee and breakfast once a week. "Also, we both eat out from a fast-food restaurant once or twice a month."
On the weekends, the two are typically homebodies unless they're going to a friend's house. Also for their date nights, they try to find ways to budget. "We never go out to drink, we go on dates maybe once every three months and typically spend just shy of $100 per date with food included."
Their two largest monthly spends? $1,695 split between the two of them on rent, more than $700 on car insurance, about $550 on groceries and $400, which is non-negotiable, for charity.
We asked the couple to send in a sample of their weekly expenses for a #MillennialMoney expert to examine. Here's what happened.
The expert: Jason Heath, managing director at Objective Financial Partners Inc., has advice for the couple, who he says has an exciting year ahead.
It sounds like the home budget is pretty modest at $300,000. They will need a minimum five per cent down payment or $15,000.
As they are considering a home purchase, remember that with babies come changes in income and expenses. I'm sure some sort of a parental leave for one or both of them will reduce their combined income for a period of time. EI maternity and parental benefits will replace only a portion of their incomes.
I would focus the extra $300 to $800 leftover cash each month on Tom's consolidation loan. It is likely the interest rate is higher than Emily's OSAP loan rate.
Debt repayment may be a better option than investing given the interest rates they're paying, especially given their time horizon for a home purchase seems short. It's not wise taking risk to invest if you may need your money in a short period of time.
One thing to consider while Emily is off work is she may have the opportunity to buy back service in her pension plan.
Having a baby is a good time to re-evaluate insurance coverage and estate planning. Both Emily and Tom may need more life insurance. If they don't already have wills and powers of attorney, they should consider them.
The results: They spent less. Spending in week 1: $2,262. Spending in week 2: $551.91.
What Emily thought: Compared to last week, the couple is proud of how little they spent. "We will save from there," Emily said. Next goals: "We'd like to reduce spending on snacks and coffee." Added bonus, Tom will no longer need to use the 407 toll to go to work as he did in Week 2, which will mean more savings.
Take-aways: With help from the Millennial Money expert, now Emily and Tom have shifted into looking more seriously into how to buy a home. "We will likely have to rent to save up for a down payment and maybe will need to pay off debts before purchasing a house as well," Emily said.
In addition to that, the two had already planned to transfer any child tax benefits into an RESP, so they were glad to hear this affirmed by the financial coach as the "best investment strategy."
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This article was written by Evelyn Kwong from The Toronto Star and was legally licensed by AdvisorStream through the NewsCred publisher network.
