Allana wants to stop living pay cheque to pay cheque but is finding it challenging to keep up with expenses while also trying to build up savings for an emergency fund and her upcoming nuptials. “How do I save for an emergency when I only have about $600 after necessary expenses to enjoy life and the things that come with it?” Allana wonders. The 29-year-old and her partner — who share a joint account that covers rent, utilities, internet, groceries and other monthly expenses — are recently engaged and need to put money aside for their wedding next year, but both of their credit cards are almost maxed out. “I have about $5,500 on my credit card currently, which I am hoping to pay in full,” Allana says, adding that she doesn’t have the savings for a wedding at the moment. Allana makes $71,000 annually working as a university administrator. She and her partner live in Muskoka, which means they need a car to get around, and gas and car maintenance fees can add up. At the same time, Allana puts aside $630 a month in a Tax-Free Savings Account and is trying to cut back on dining out. She says she is also taking a “personal training certification in the hopes that working a handful of hours outside of my regular job will help with some additional income.” However, it’s hard for Allana to say no to events and celebrations with family and friends, which cost a lot of money and eat up a big chunk of her income. “In the summer I have something on the go almost every weekend — a birthday party, family get together, wedding or baby shower,” Allana says. “It has been a particularly expensive summer so far.” “How do I budget for these things and not feel restricted?” We asked Allana to track two weeks of spending to see what she can do. The expert: Jason Heath, managing director at Objective Financial Partners. Allana and her partner are recently engaged and planning a wedding. However, their credit cards are maxed out and they are unsure how to pay for it. She also hopes to build up an emergency fund. One thing that sticks out to me is that she saves $630 per month to a TFSA. I like that she saves first and spends the rest because if you spend first and save what is left over, the savings may never happen. However, in her case, she should probably hit pause on her savings. If she is carrying credit card debt, which is often at 18 per cent interest, she will pay $18 of interest per $100 of debt over the next year. By comparison, $100 in her TFSA would need to earn the same $18 — or an 18 per cent return — to keep pace. Even an aggressive investor with low investment fees should not count on earning more than seven to eight per cent as a rate of return over a long period of time. From year to year, stocks can be up or down significantly. And since most investors are not invested 100 per cent in stocks, and have investment fees to pay, most will earn a mid-single-digit return over the long run. The point is her TFSA is unlikely to be worth maintaining at the expense of credit card debt. I would be inclined to stop TFSA contributions for now and consider withdrawing from her TFSA to pay off her credit card. If she wants to have an emergency fund, she should build that first before her long-term savings. Beyond that, while I can appreciate that she and her partner want to get married, money can be a major relationship stressor. If they need to hold off until they can get their credit cards paid off, not only could that be good motivation, but it sets their marriage up for a better start. I think the personal training certificate that Allana is pursuing is a great side hustle. She goes to the gym every day anyway, so if you can make a part-time job out of something you love to do, it may not feel as much like work. Spending in week one: $227. Spending in week two: $623 Take-aways: Allana says she will be taking Heath’s advice and pausing her monthly TFSA payments to help build an emergency fund and cover costs over the summer. “I’m glad to have the reassurance that pausing might be the right fit for my current situation,” she says. I will definitely be speaking with my financial advisers about a reduction or pause for the next few months.” Are you a millennial living in Toronto or the GTA who needs help with saving your money? Be a part of #MillennialMoney and email galsharif@thestar.caGhada Alsharif is a Toronto-based business reporter for the Star. Reach Ghada via email: galsharif@torstar.ca
Allana wants to stop living pay cheque to pay cheque but is finding it challenging to keep up with expenses while also trying to build up savings for an emergency fund and her upcoming nuptials.
“How do I save for an emergency when I only have about $600 after necessary expenses to enjoy life and the things that come with it?” Allana wonders.
The 29-year-old and her partner — who share a joint account that covers rent, utilities, internet, groceries and other monthly expenses — are recently engaged and need to put money aside for their wedding next year, but both of their credit cards are almost maxed out.
“I have about $5,500 on my credit card currently, which I am hoping to pay in full,” Allana says, adding that she doesn’t have the savings for a wedding at the moment.
Allana makes $71,000 annually working as a university administrator. She and her partner live in Muskoka, which means they need a car to get around, and gas and car maintenance fees can add up.
At the same time, Allana puts aside $630 a month in a Tax-Free Savings Account and is trying to cut back on dining out. She says she is also taking a “personal training certification in the hopes that working a handful of hours outside of my regular job will help with some additional income.”
However, it’s hard for Allana to say no to events and celebrations with family and friends, which cost a lot of money and eat up a big chunk of her income.
“In the summer I have something on the go almost every weekend — a birthday party, family get together, wedding or baby shower,” Allana says. “It has been a particularly expensive summer so far.”
“How do I budget for these things and not feel restricted?”
We asked Allana to track two weeks of spending to see what she can do.
The expert: Jason Heath, managing director at Objective Financial Partners.
Allana and her partner are recently engaged and planning a wedding. However, their credit cards are maxed out and they are unsure how to pay for it. She also hopes to build up an emergency fund.
One thing that sticks out to me is that she saves $630 per month to a TFSA. I like that she saves first and spends the rest because if you spend first and save what is left over, the savings may never happen. However, in her case, she should probably hit pause on her savings.
If she is carrying credit card debt, which is often at 18 per cent interest, she will pay $18 of interest per $100 of debt over the next year. By comparison, $100 in her TFSA would need to earn the same $18 — or an 18 per cent return — to keep pace. Even an aggressive investor with low investment fees should not count on earning more than seven to eight per cent as a rate of return over a long period of time. From year to year, stocks can be up or down significantly. And since most investors are not invested 100 per cent in stocks, and have investment fees to pay, most will earn a mid-single-digit return over the long run. The point is her TFSA is unlikely to be worth maintaining at the expense of credit card debt.
I would be inclined to stop TFSA contributions for now and consider withdrawing from her TFSA to pay off her credit card. If she wants to have an emergency fund, she should build that first before her long-term savings.
Beyond that, while I can appreciate that she and her partner want to get married, money can be a major relationship stressor. If they need to hold off until they can get their credit cards paid off, not only could that be good motivation, but it sets their marriage up for a better start.
I think the personal training certificate that Allana is pursuing is a great side hustle. She goes to the gym every day anyway, so if you can make a part-time job out of something you love to do, it may not feel as much like work.
Spending in week one: $227. Spending in week two: $623
Take-aways: Allana says she will be taking Heath’s advice and pausing her monthly TFSA payments to help build an emergency fund and cover costs over the summer.
“I’m glad to have the reassurance that pausing might be the right fit for my current situation,” she says. I will definitely be speaking with my financial advisers about a reduction or pause for the next few months.”
Are you a millennial living in Toronto or the GTA who needs help with saving your money? Be a part of #MillennialMoney and email galsharif@thestar.ca
Ghada Alsharif is a Toronto-based business reporter for the Star. Reach Ghada via email: galsharif@torstar.ca
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