Magnolia has the luxury of not having to worry about rent.
The 25-year-old lives with her parents in Whitby and most of her bills and groceries are covered.
She earns $70,000 a year as a freelance communications consultant but still feels like she’s behind on her savings.
“I am truly awful at saving,” Magnolia says. “I live at home and nearly all my funds are disposable income. Some people will say ‘oh it must be nice to save money’ but I just end up spending what would be rent money on other things.”
The good news is she has managed to pay off $30,000 in student loans which she said she did “aggressively during the pandemic.” She has no credit card debt either.
But Magnolia wants to make sure she has enough money to move to the U.K. in the new year.
“I have about $12,000 saved but ideally I would love to have $20,000 saved by the time I leave in January,” she says.
On a typical workday, Magnolia says she makes most of her meals at home because she freelances. But on the weekend she admits to sometimes splurging with friends and family.
“I would like to cut down on my spending,” she said. “I find it overwhelms me to think about the excess spending I do each month, and have trouble realizing how fast it is adding up until I go to pay my credit card.”
“I’m not spending outside my means,” she added “but it is still a stress.”
How can Magnolia get a grip on her spending habits? We asked her to share two weeks of her expenses to see what she can do.
The expert: Jason Heath, managing director at Objective Financial Partners.
Twenty-five-year-old Magnolia is disappointed in her progress with her savings. She only has $12,000 set aside, but she did pay off $30,000 of student debt over the past couple years since graduating so that deserves some credit.
The problem, which she readily acknowledges, is she pays no rent, has no car payments, and her food is subsidized while living at home with her parents. I think anyone getting ready to move out on their own should set a monthly saving target in line with rent and the other costs that would be involved with living on their own. If you cannot save the same amount and avoid the temptation to tap those savings, you are on track to end up cash flow negative once you move out. This can lead to credit card debt.
Magnolia wants input on how to cut back on spending. The simplest way is to save first and spend second by setting up an automatic savings plan. And when your bank account is running low, you have to say no to yourself and to others when it comes to spending money.
You may need to take turns passing and saying yes to invites to the bar. Or skip the odd meal out when you are heading home and can wait to eat at home. Or choose the cheaper option even though you may want to choose a more expensive one.
You can get really granular and try budgeting apps to track and analyze your spending. But ultimately, you have to earn more or spend less to be able to save more. Spending may be more within someone’s control than a higher income short of a job change or part-time job.
If Magnolia’s U.K. move is temporary and she continues to be taxable as a Canadian resident, her moving costs may be tax deductible. If she purchases health care coverage while abroad, which is advisable, she can claim the premiums as a medical expense tax credit. Being tax savvy is important so you can turn expenses you are already incurring into tax savings.
Especially if Magnolia is going to move to the U.K. in the new year, she should get used to paying closer attention to spending. It is a big cost just to get there in the first place and costly to move back home with her parents if she cannot swing it on her own. She likes to travel, and European travel will obviously be a temptation and hopefully an opportunity while she is in the U.K. Foregoing today’s spending can help her travel more once she moves, let alone pay off financially for her in the long run.
Results: Spending in week one: $570. Spending in week two: $568.
Take-aways: Magnolia says “these tips are excellent reminders of what I can do to be more responsible with my finances.”
“I especially liked the bit about how every bit of money spent now is money I don’t have later when I will be living abroad and travelling,” she said. “That really helped realign my goals and put things into perspective as I grow closer to my move.”
Magnolia says she was surprised by Heath’s advice about tax implications for her big move and says she will look into what that means for her.
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
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