Shane is finally debt-free. After paying off $25,000 in OSAP last year — mostly because he finally landed a full-time role and left the gig-economy — he’s transitioned from paying off debt to saving.
Making $75,000 a year as a graphic designer and paying as little as $1,300 a month in rent for a one-bedroom pad, Shane says it’s the first time he’s been able to save a couple hundred dollars per pay cheque. His monthly goal is to save $1,000, which is also supplemented by a freelance side gig.
But what exactly should Shane put his money toward?
Lately, he’s been spending money to furnish his home — buying a new dining table and couch, but still has some leftover cash. He also has a passion for trying new restaurants and going out with friends, and he spends $100 a month on natural wine. But he wants some guidance. “I’m still figuring out what I am saving for. I guess mainly to travel and feel comfortable.”
The long-term goal? To start his own business and become his own boss. But that dream seems a long way off.
On a typical workday, Shane skips breakfast. “I’m not a morning person, so normally I am running out the door in a hurry.” If he has time, he’ll make breakfast at home, and walk the 10 minutes to work from his condo. For lunch, it’s usually meal prep, with the exception of pho or sushi one day a week. From Monday to Wednesday, he cooks dinner at home, but the end of the week is about going out for dinner with friends and trying new wine bars.
Besides that, a big daily spend is coffee. That could be two a day from independent cafes that cost $3 to $4 each, depending on whether he is in a latte or Americano mood. Also, quality food is important to Shane, and that’s what the weekends are all about. “I spend the day grabbing coffee and pastry, buying flowers for the house, running errands. I also try to do a spa day, and spend time at the LCBO scavenging for natural wine.”
Shane knows he spends too much on food and drink, but it’s something he can finally afford without building debt. He’s hoping the money coach will be able to give him ideas of where his money could go instead of into these indulgent buys.
The expert: Jason Heath, managing director at Objective Financial Partners Inc., had this advice for Shane:
“Don’t worry about not knowing exactly what you’re saving for right now. It’s OK to be saving generally for the future without a specific goal when you’re young,” Heath says. “One thing to remember is that despite the frequent advice that you have a long time until retirement and to save aggressively, young people often need their savings for lots of things well before retirement.”
> TFSAs are great tools and could be helpful for Shane to save in the event of a dip in income or to make the move from employment to self-employment.
> Shane can open an RRSP at just about any financial institution. It’s not a bad idea to consider some RRSP contributions, knowing that up to $35,000 could be used towards a home down payment using the Home Buyers’ Plan (HBP).
> Shane’s biggest financial risk is getting a disability that would prevent him from earning an income. He should make sure he’s got good disability coverage in place now while he is an employee. It could prove difficult to get coverage in the event he becomes self-employed.
> Shane spends a lot on eating out and drinking, but saving $1,000 a month on $75,000 of earnings is a pretty good 16 per cent savings rate.
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The results: He spent less! Spending in week 1: $363. Spending in week 2: $277.74.
What he thought: “I think I improved this week, in terms of eating out less and drinking less, but at the same time, that is something I do enjoy spending my money on,” Shane says, adding that he’ll probably continue his lifestyle, but move it to weekends to limit weekday spending. “I have a coffee addiction and I also can see that my spending revolves around food, but that ties into health, necessity and enjoyment.”
Take-aways: Doing the Millennial Money challenge “definitely” opened Shane’s eyes to how he could use his money in the future. “I never considered disability coverage, and that is something I am looking into and making sure I have a backup plan. I have been financially independent since I was 18, so I need to ensure there is a measure in place if something were to change that.”
Shane is also going to open an RRSP. “I do want to be a homeowner someday so knowing that there is options with RRSP contributions to HBP makes it more tangible.”
Next steps? To plan for the future instead of the normal daily spend. “I always thought that keeping money sitting was a good option, but this exercise opened my eyes to other avenues, and I would like to invest my money on low-risk mutual funds.”