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What you need to know about COVID-19: August 14, 2020
Amy is moving out on her own for the first time and will need to change her spending habits.
Amy naturally saves 75 per cent of her paycheque.
Spent is a new column in which the Financial Post’s Victor Ferreira takes an entertaining and insightful look at the financial lives of everyday Canadian millennials. Some toil in lower-paying jobs while others are earning six-figures — what unites them is their desire for more and their everlasting struggle to get it.
A 27-year-old financial worker we’ll call Amy had just finished assembling a TV stand when I spoke to her. The instructions were simple enough at first and the individual pieces fit together like a puzzle, until about halfway through, when they didn’t.
The frustration in her voice was clear. The TV stand was the first piece of furniture she’d ever tried building, but she couldn’t do it alone. Like a knight in shining armour, one that wields a screwdriver instead of a sword, her dad came to the rescue.
Amy has gone through a series of similar firsts in the past few months and all of them can be traced back to buying a condo in March.
“My goal was to always move out first before I got married and live with who I was dating,” said Amy, who made $69,457 last year. “Age is another point. I figured at this point, you’re almost 30 and you’re still living at home.”
Are you a millennial who wants to get the most out of your money? Contact Victor at email@example.com to appear in future edition of Spent.
This is all new to Amy because she has lived with her parents throughout university and her early working career. She didn’t have to pay for anything outside her personal purchases. After seven years, she was able to save more than $135,000 to put towards a home of her own.
In retrospect, her timing could have been better. She closed the purchase of a 630-square-foot condo for $530,000 on March 27, at the height of the COVID-19 pandemic. The first thing her real estate agent did when he handed her the keys was assure her that he had sanitized them.
The pandemic slowed the renovations she had planned for the condo, and it has already delayed her move-in date. She’d rather stay with her parents until it blows over.
When it does, Amy will have to adapt to a new reality. For the first time in her life, she’ll have to look after herself. Learning to assemble furniture or install her internet is only the beginning. Much like the TV stand, she’ll have to figure out how to make the pieces of her life fit, even if sometimes they don’t.
The first change will have to come in her spending patterns. You see, Amy isn’t the typical millennial, or even the typical consumer. The reason she was able to save for a down payment is that she’s regularly able to squirrel away 75 per cent of each paycheque. Aside from the condo downpayment and the legal costs associated with closing the deal, she spent less than $700 in March on just 19 expenses.
That figure was a bit hard to believe, frankly, but it was even lower in February: a grand total of 16 expenses. She’s just a simple person, she said, without any obvious guilty pleasures or hobbies to take away from her income. She wasn’t making a conscious effort to save 75 per cent of every paycheque; she was doing it naturally.
“Coming from home you don’t have to pay internet and hydro and that kind of stuff, so now this is all going to be coming into play,” she said.
Amy’s spending is going to increase — substantially. There are going to be mortgage and condo maintenance bills, as well as grocery, hydro and internet bills. After paying them, she’s worried that she’ll be living almost paycheque to paycheque with nothing left to put towards savings.
Spent asked Kevin Cork, a financial planner at Calgary-based The Absolute Group to help Amy budget and adapt to her new lifestyle.
Spelling out the details of her budget should be Amy’s first step, Cork said. Her mortgage payments will be $1,700 a month. It’s on a 2.29 per cent closed five-year rate. Maintenance fees will cost an additional $420 per month.
Amy also knows that her internet bill is going to run her $65 and that she’ll continue to pay $14 for Netflix and $65 for her phone. She’ll still need to spend $50 on public transit every month. That leaves groceries and hydro, which Cork expects will cost her $400 and $100 per month, respectively.
After these expenses are accounted for, she’ll only have $457 left over at the end of each month, and Cork wants her to save $300 of it.
The $300 is on top of what’s already removed from Amy’s gross pay for an employee share purchase plan, which means she would be saving close to 15 per cent of her income on a monthly basis, Cork said.
“That’s the financial adviser’s dream,” Cork said, explaining that the money would realistically be put towards building her savings back up for longer-term goals, such as buying a house or saving for retirement.
As Amy makes the transition to living alone, she might initially find it difficult to stick to her new budget, Cork said, and that’s reasonable. Within six months, he wants the routine in place. She can think of the enforced savings like paying a bill: when she pays her mortgage at the beginning of the month, she should immediately set aside the $300 as well.
“If you end up eating Cheerios for the last three days until the next paycheque comes in, you have the other stuff taken care of,” he said.
In a first for Spent, Cork actually recommended that Amy spend more on herself. He points to a middle-class couple he advises who save $100 each month to spend on an experience together, usually a dinner at a restaurant that they otherwise couldn’t afford. With little money to spend after paying her bills, the temptation will be there for Amy to lock herself away in her condo in front of her TV and become a “homebody.”
Cork said treating herself is a lesson worth learning before her boyfriend moves in when he’s done school in a year.
“If she’s too tight a spender, what I see happen is in 10 years, they have freakouts, they sell everything and move to Nepal,” Cork joked.
I called Amy again to give her Cork’s recommendations. She was struggling to get her Wi-Fi set up, since her provider didn’t want to send a technician into her condo because of the pandemic. Like the TV stand, it’s another headache and another piece of the puzzle she needs to make fit.
As it turns out, she’s having more trouble with that than accepting the tight budget Cork laid out.
“It’s not what I’m used to, but I’m confident that I can do it,” she said. “It’s just going to be a change. As long as I have a nice pillow, something to fall back on, I’ll be okay.”
Copyright Postmedia Network Inc., 2020