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Millennial Money is a weekly series based on contributions providing financial advice. Read the whole series here.
For 29-year-old Anna, moving out of her family home in Mississauga and into an apartment she can call her own is a priority.
As a program administrator and team leader at her company, Anna brings home $55,000 a year. She has been saving diligently in hopes of raising the money to pay a down payment on a condo.
“I’m paying off OSAP and I’m saving enough money to buy my own apartment,” Anna told the star. Aside from owing OSAP $7,500, she is debt-free.
Unsure of where life is taking her, she’s trying to prepare: Anna is saving to buy a house with a partner, “or a condo if I do it alone.”
During the work week, she usually cooks herself: “I usually make breakfast, lunch and dinner.” That changes when she plans to go out to eat, “which doesn’t happen often on a weekday.”
At the weekend Anna usually meets up with friends for dinner or to the cinema.
Anna wants to know if she can meet her OSAP payback and savings goal and move out on her own.
We asked them to share their spending for a week to get an idea of their finances.
The expert: Jason Heath, Managing Director of Objective Financial Partners Inc.
“Anna set herself a few simple goals to help pay off her student debt and move out of her parents’ house and buy a condo. I think the goal of debt repayment is good, especially when her cost is low and she can repay it quickly. Not to mention rising interest rates. I think she should broaden the other goal: move out and start building wealth. Homeownership does not necessarily guarantee wealth and there is nothing wrong with renting as a first step for a young person.
“Her budget suggests she has about $2,000 in extra cash flow each month. There are likely to be some gaps in that budget, and tracking your spending and finding out what’s being spent each month before starting your own business is a good first step. Then you can make reasonable assumptions about rent and utilities and groceries and other expenses that you may not pay now. When total expenses exceed your after-tax income, something needs to be done. It may mean that you need a roommate or that you have to wait longer before moving out. But it also helps you set a budget that you can afford to spend on all of your other expenses each month.
“Before you move out, it can make sense to transfer rent and other costs notionally to a savings account. If you can’t do that, you’ll have a hard time moving out. You risk falling behind, racking up credit card debt, or worse, ending up back with your parents.
“I love that Anna’s spending tracking has made her think twice about her daily tea purchase. But at the same time, two dollars a day will not save or break them. Even if she forgoes five store-bought teas each week, that might only be $500 a year. If she makes the teas at home, there are still costs involved. Honestly, I’d focus more on the after-tax income that pours through her bank account each year, which she can’t identify. There must be room in your budget for a few indulgences.”
Results: She spent more. First week spend: $142.11. Week Two Spend: $541.95
How she thinks she did it: Anna didn’t achieve her usual goals, but sometimes unexpected costs can crop up, she says.
“I don’t think I saved as much as I wanted due to a series of events and a pet emergency,” says Anna. “It made me realize that every week there will be something different or unexpected. I’m glad I have the financial means to afford these scenarios.”
Anna believes she hoarded some of her money to help achieve her homeownership goals. “Renting could be a good alternative,” she said. “I always felt like I didn’t want to spend the money I saved on rent.”
And she says as interest rates rise, she wants to work harder to pay off her debt faster. “I actually made the decision to send $500 to National Student Loans and to be honest, I feel like I’ll be able to pay off school debt very soon,” adds Anna.
Take away: Anna likes our expert Jason Heath’s idea of ”notionally paying rent.” Having never paid rent, she is not sure what expenses she would have to support herself.
“I’m a good saver, but I’ve never thought about the costs of utilities, rent, parking or maintenance,” says Anna. She sometimes feels guilty about overspending, even for small indulgences.
“I worry that if I spend too much I won’t have enough money for my future, so I save everything,” says Anna.
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