At 38 and earning $60,000, how can he start saving?

Millennial Money is a weekly submission-based series that provides financial advice to millennials. Read the full series here.

Will millennials ever be able to afford a home in Toronto?

That’s a question Michael, 38, wants an answer to. Working as a finance clerk and earning $60,000 a year, he is a longtime tenant in the city, splitting housing expenses with his partner.

“Ideally we would save for a house,” Michael said, “but that’s not realistic right now.”

Instead, he seeks to maximize his savings for other reasons that seem more feasible, including college tuition. Michael also wants to be able to build up his savings to start a family, a “cost of living fund” in case he misses work and retires. More immediately, he also wants to save for an upcoming trip to Europe to visit his girlfriend’s family.

When it comes to spending, Michael said he and his girlfriend were good with money and only bought what was necessary.

Due to the pandemic changes, he has shifted to working from home four days a week, saving him money on food costs as he prepares most meals at home. “I like to cook, so I cook most of our dinners at home, but we do takeout maybe once a week,” he said.

The day he comes into the office, Michael is riding a bicycle. “It’s my favorite way to get around and it’s actually a lot faster for me than the TTC,” he said.

One thing Michael and his partner really love is coffee, and the two aren’t shy about spending a little extra on it at home.

“We really enjoy coffee, so we spent the money on gadgets and gadgets to make the varieties of coffee we like, so now we rarely buy coffee,” he said.

Another thing: He’ll want to get back into the gym soon, which will add $150 a month to his expenses.

So how can Michael start saving? We asked her to share a week of expenses to get a better idea of ​​her finances.

The expert — Jason Heath, Managing Director at Objective Financial Partners Inc., discusses Michael’s situation:

Michael and his girlfriend pay modest rent in North Toronto and although they would like to save for a house, they feel that is not realistic.

He mentions saving for retirement as his main goal, among others. Luckily for him, the new Tax-Free Home Savings Account (FHSA) may be versatile enough for both. Although not available until 2023, the account will allow tax-deductible contributions (like an RRSP) and income and growth will not be subject to tax. If they buy a house, the withdrawals will be tax-free. If they don’t, the account could be transferred tax-deferred to an RRSP for use in retirement.

Once opened, a maximum annual contribution of $8,000 would be available each year for five years, for a total of $40,000. If Michael has an existing RRSP account, he can make transfers from the RRSP to his FHSA up to annual limits of $8,000 and lifetime limits of $40,000.

He may pursue higher education, which incurs costs both as an expense and due to a potential reduction in income.

RRSP contributions may be worth considering in the short term as a savings strategy, as he can make tax-free Lifelong Learning Plan (LLP) withdrawals from his RRSP to fund their post-secondary education costs. These contributions could also be used to fund FHSA contributions if he does not return to school and help supplement any FHSA contributions he may make from cash flow.

The good thing about all these different accounts and programs is that savers have options. The bad thing is that it becomes more confusing than ever to know how best to save.

It looks like Michael and his girlfriend might also be considering starting a family.

They have a lot of potential costs and changes to their income to consider. If they haven’t already started talking seriously about the timing and priority of those goals, that might be something to consider together.

They may also find that by combining their finances somewhat, there may be further efficiencies. For example, one may have better benefits or group retirement savings plan options than the other. When and how to merge finances as a common-law couple can be tricky, but if they’re planning to start a family, there’s no better time than the present to dive into those conversations.

Results: He spent more. Expenses week 1: $173 Expenses week 2: $267

How he thinks he did it: “My weeks are pretty regular and last week was no different,” Michael said.

Keeping things small, Michael’s day-to-day isn’t much of a concern. “In addition to groceries, we went out for burgers on Saturday and I had a small medical expense,” he added. “I don’t think there’s much room left for day-to-day budget optimization, but this process has accelerated my efforts to more effectively track my expenses to better predict my savings.”

Take away food : After receiving the guidance, Michael learned a lot. The first thing he will examine? Canada’s new FHSA initiative – giving her some hope of maybe buying a home even in the hot real estate market.

“I was glad the adviser brought up the new FHSA because I was aware of it since this year’s budget announcement but didn’t know much about it. I also didn’t know about the withdrawals LLP Between FHSA, RRSP and TFSA, there’s a lot more research I’ll have to do,” he said.

When it comes to all the different things Michael hopes to save up for, he agrees with Heath about taking the time to get organized.

“I also completely agree that efforts for my girlfriend and I to plan and strategize as a couple should be a priority,” Michael said. “She’s still currently independent, so it’s hard to plan that, but we’re working on it together.”

Biggest takeaway? “Personal finances can be complicated even though my life seems pretty simple,” Michael said.

“Most importantly, I appreciate even more the value of financial literacy and the emphasis on talking openly about finances, especially in response to the rising cost of living and social pressures to spend at beyond our means.”

Are you a millennial living in Toronto or the GTA and need help saving your money? Be part of #MillennialMoney and email [email protected]
Digital design by McKenna Deighton.

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