Susan Wilson (28) landed a position doing communications and marketing for a major charitable organization. She earns $68,000 and has full benefits. Susan moved from a smaller town to Toronto but, even with a bigger paycheque, she now has less disposable income because of the higher cost of living. She is more mindful of her spending these days and has to monitor her finances to keep herself on track.

Related: Diversifying assets for a balanced portfolio

Debt payments are her biggest worry. Susan still owes $26,000 in student loans, has a $17,000 car loan, plus about $18,000 in credit card and line of credit borrowing, much of which is attributed to her move to Toronto.

Travel is very important to Susan. She uses her credit card travel points, but still spends $2,500 – $5,500 on travel every year. She also spends most weekends driving out of town to visit friends and relatives in southern Ontario.

Current Assets

  • RRSP’s – $16,000
  • Personal accounts – $6,900
  • Defined Benefit Pension Plan – $5,300

Goals:

  1. Pay off her debts.
  2. Buy a home in the near future.
  3. Travel to all corners of the world.
  4. Retire by age 60.

The Financial Plan

Here’s what Susan can do to help achieve her goals.

Aim to be debt free within 5 years

Susan needs to eliminate her debts as quickly as possible and commit to not accumulating any more debt going forward. She must monitor her spending habits and eliminate where necessary to come up with extra funds to pay against her credit cards first.

Related: Debt avalanche vs. debt snowball

Thankfully her tastes aren’t lavish and if she’s careful she should be able to keep to her budget and funnel even more to her debt payments. This will free up more money for savings and she can set aside a regular amount for her travel.

Buy a house

Although homeownership is not a high priority, Susan wonders if she should invest in a house in the next few years, or continue renting?

Her father has indicated he would help her with a down payment, but she is wary of having to sacrifice her vacation time for the sake of a mortgage or to build up the remaining recommended 20% down payment.

She should first make every effort to pay off her credit cards and loans.

If she plans to remain in Toronto it might make sense to for her to purchase a condo in a few years if she can find one for a reasonable price and her mortgage and related expenses are less than the current $1,600 she pays for her 950 square foot, 1 bedroom apartment.

Related: Managing the proceeds from a rental property sale

She would love to have a real garden, but she doesn’t see herself with a roommate. “That doesn’t fit the lifestyle I want.”

Build up retirement savings

Susan would like to retire by age 60. She has a portfolio of mutual funds in a 60/40 ratio of equity to fixed income. She took the recommendations of her financial adviser at her bank.

“I haven’t made the effort to research funds myself.” She wonders if her investments could support the lifestyle she wants in retirement?

It would be advisable to switch her high MER mutual funds to a diversified index fund portfolio at her current bank, and set up a regular bi-weekly contribution up to her maximum annual RRSP limit.

She should concentrate on long-term growth by increasing the equity portion of her portfolio to 70%.

If she has a retirement shortfall at age 60 she’s fine with that. If she can’t afford it she’ll work a bit longer. “But I still have over 30 years to go.”

Final thoughts

Susan has learned good financial habits in the past and she is able, for the most part, to keep to her budget. This is not easy for a single person living in Toronto.

Related: Retiring after self-employment

She needs to make sure she also budgets for annual expenses, including insurance and clothing, and add this to her savings account on a monthly basis. She also needs to earmark funds to a dedicated savings program for her travels so she doesn’t dip into emergency or other savings (or her credit cards).

Susan may want to consider one big trip every few years instead of travelling every year. She can funnel her uncommitted monthly income into her Tax Free Savings Account.

Susan is on her way to achieving her goals of travel, retirement at 60, and homeownership.


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