Cathy is an avid saver who lives with her parents and refuses to rent.
That’s because the 25-year-old is about to be able to pay a large down payment and dreams of one day owning a townhouse in the GTA.
Cathy earns $85,000 a year as a development manager. Living at home with her parents in Vaughan saves her entirely on groceries and housing costs, including utilities, internet and cell phone. She and her boyfriend – also an avid saver – whom Cathy hopes to move in with, earn a combined income of around $130,000. They also both have hustles that they handle on the weekends.
Cathy has maxed out her RRSP and TFSA accounts and says she will do so by opening an FHSA – First Home Savings Account – to save for a down payment.
Despite their frugal lifestyle, Cathy worries about taking on a lot of mortgage debt. She describes herself as risk averse and does not want to buy property and rent it out until she is ready to move in herself.
“We are in the process of accepting the possibility of having to start with a condo,” says Cathy. “My boyfriend and I currently have no debt, which for us is a big deal considering we both have undergraduate degrees and master’s degrees.”
Given the current state of Toronto’s real estate market, Cathy fears she’s making the wrong choice.
“The big question is, given my risk aversion, when is the right time to stop saving and enter the housing market?”
We asked Cathy for two weeks of her expenses to see what she can do.
Cathy and her boyfriend both have graduate degrees, and their frugal living helped them be debt-free with considerable savings in their mid-twenties. She has maxed out her RRSP and TFSA accounts and is now turning her attention to the FHSA – First Home Savings Account – to save for a down payment.
Since she is debt averse, it might not be a bad idea to forego future RRSP contributions for now in order to continue adding to her down payment. I suspect she’s already accumulated more than the RRSP Home Buyers’ Plan maximum withdrawal of $35,000, so contributing more to her RRSP may tie up funds she can’t use to purchase a home. a house. There may be a roundabout way to transfer RRSP funds to one’s FHSA, so this is a consideration. You can transfer from an RRSP to an FHSA subject to your contribution limit, which would be $8,000 for 2023.
If Cathy and her boyfriend can aim for a 20% down payment on a condo or townhouse, it will help minimize their closing costs. A down payment of less than 20% will result in additional costs for mortgage default insurance. If they are close, that could be a reason to wait and try to reach that level of savings. As for when to stop saving and enter the real estate market, there really is no right answer.
They should establish a reasonable budget that includes costs beyond their mortgage, such as condo fees, property taxes, utilities, home insurance, repairs, furniture and a new car, given that she owns it. They should probably get pre-approved for a mortgage before they start house hunting. If they can wait a while at home without rent, that will definitely help them, and if they are in no rush to leave and no one is kicking them out, it might not hurt to wait for a little longer.
The good news about two savers is that they are less likely to argue about money than a saver and a spender. Not that there’s anything wrong when opposites attract, because sometimes there’s a happy medium that can result. But Cathy and her boyfriend should still be having money talks now as they plan for their future to set ground rules early for the next stage of their relationship.
Cathy has made sacrifices to save over the years, including cutting her hair and doing her nails herself at home. I appreciate that these sacrifices are not for everyone. She was also lucky enough to live without rent and without contributing to the family’s food budget. Little things like paying car insurance annually can reduce premiums by 6-8%, or using a free library app called Libby instead of buying books are some ideas on how to spend less without going without.
Results: First week expenses: $262. Second week expenses: $215.
Take away food : Cathy says she appreciated Heath’s advice on how much she’s contributing to her RRSP at this point. She and her boyfriend will also aim to go over the 20% down payment on a home to avoid the mortgage insurance requirement.
“It’s unfortunate that even given frugal living habits, working as hard as possible, and being in relatively privileged living situations, buying a home is still a major source of anxiety,” says Cathy .
“This appears to be a systemic issue that needs to be addressed, for the sake of generations coming of age in the years to come.”
Are you a millennial living in Toronto or the GTA and need help saving your money? Be part of #MillennialMoney and email [email protected]
Ghada Alsharif is a Toronto-based business reporter for the Star. Contact Ghada by email: [email protected]