Buffy, 34, earns $85,000 (US) a year and has big financial goals. What is the best way for her to save for the future?

Buffy has big dreams for her future. The 34-year-old director of a non-profit organization earns $85,000 (US) a year (about $112,000 Canadian — about $6,400 a month after taxes, depending on the exchange rate) and wants to know the best way to save her money and whether her lofty financial goals are achievable.

“I’d like to own an urban cabin,” Buffy said frankly, adding that her parents would help her with part of the down payment. She also hopes to have a child or two, add a country home, possibly afford to travel three or four times a year, and retire early.

Buffy maxes out her RRSP account and does a good job of budgeting. She works most of the time from home and cooks all her meals. She only eats out when she socializes with friends once or twice a week, rarely takes Ubers, and resists the urge to buy anything online or from advertisers on social media.

But the most important thing for Buffy is to be able to take care of her parents “in case of need for medical assistance”.

“I want to continue maximizing my RRSP contributions and I’m keeping my fingers crossed that the money is there when I need it,” she says.

Although she’s aware that at least some of her goals are probably out of reach, Buffy wants to know how she can make her future as secure as possible: “A girl should dream big,” Buffy says.

Can Buffy get her dream cottage and retire early? We asked him to share two weeks of expenses to get a better idea of ​​his expenses.

The Expert: Jason Heath, CEO of Objective financial partners.

Buffy has many financial goals: townhouse, country house, three to four vacations a year, caring for her parents, and retiring before she’s 50. She also hopes to have one or two children. Studies have shown that setting longer term goals tends to lead to higher net worth, so I think it’s great that Buffy has such ambitious long term priorities. That said, it may not be possible to achieve all of these goals, so Buffy may need to rank her priorities.

She’s maxing out her RRSP account, which is probably a good long-term savings strategy given she’s in a 43% marginal tax bracket. That means she saves 43% on the first dollar of her RRSP deductions. RRSP contribution room accumulates each year based on 18% of your earned income from the previous year. If she saves 18% of her income from age 30 to 50, she may be able to replace 20% of her lifetime indexed annual income at age 50 if she retires at that time. CPP and OAS government pensions won’t kick in until Buffy turns 60 and could replace an additional 20% of her income, indexed to inflation, at that time.

These are rough calculations, but retiring before age 50 probably requires a very high savings rate or some sort of extraordinary event. This could make it difficult to buy two houses, travel a lot and increase his expenses after retirement to take care of his parents.

Buffy should look to open a first tax-free home savings account in 2023 once this new account becomes available. She can contribute up to $40,000 to the account and also withdraw up to $35,000 from her RRSP for the purchase of her first home. Between her own savings and help from her parents, she might have a large down payment – say $100,000. Maybe she could borrow about $500,000 at today’s mortgage rates and buy a house for $600,000. It may get her a condo in Toronto, but not a place in town and in the countryside, even though she had some Airbnb income for the country property.

Her goal to help pay for her parents’ future medical bills is a noble one. Long-term care costs can be quite high. However, some people will never need care and others may need it for many years. This is a difficult expense to anticipate. If Buffy has children, they are certainly expensive, and she might need a bigger house or parental leave, with lower income and savings capacity, at some point in her career.

I like Buffy’s comment about trying to resist the urge to buy things she sees on TikTok. In my experience, many wealthy people who actually have a lot of money saved up don’t look wealthy when looking at their homes, cars, or belongings.

Results: She spent less. Expenses the first week: $454. Second week expenses: $137.

How she thinks she did: Buffy had a lot more expenses than usual in her first week. She had several in-person meetings and therefore struggled to plan her meals and eat at home as she normally does.

Buffy also had to stock up on gifts before the holiday season. His expenses dropped considerably in his second week, which was much more relaxed.

Take away food : Buffy found Heath’s advice helpful and says she still has her fingers crossed for a significant pay raise that might help her achieve some of her goals.

“Saving about 18% of my income is a good idea for me,” Buffy says. “I also like the advice to check the FHSA, I will look into that in the new year.”

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