My Short and Long Term Financial Goals

Over the last few months I’ve been thinking about what the short and long term goals of my money are. I’m now in a savings routine, I have an accessible emergency fund should anything go wrong, and by the end of the year I’ll have about $45,000 across my portfolios.

With that said I’m not saving for the sake of saving and so I’ve set a few financial goals for myself that I think are feasible. My calculations are also conservative based on me staying at my current income for the next 10 years.

Short Term Goal #1: Investment Property

I’m planning on purchasing an investment property with my SO in 2021 and this is what most of my current savings is going to be put towards next year. I feel better about putting some of my money into an asset that will appreciate over the coming years and hopefully become an income source for us.

Short Term Goal #2: Value Based Spending

There are things in this world that I just think are worth the spend and for me that is travel. Travel brings me a lot of joy and I wouldn’t delay those experiences for an earlier ‘retirement’. At least a portion of my trips are usually covered through my credit card points (I’ve been using the same card for years) and it has at times paid for full vacations. This year alone I’ve racked up almost $1000 in points that I can’t wait to use once it’s safe to travel again!

Long Term Goal #1: Pay off the Mortgage

A shared goal of my SO and I (after we purchase an investment property) is to pay off our mortgage. It’s our single largest expense and we’ve each committed to aim for 20-25k in lump sum payments per year; that additional 40-50k will let us pay off the mortgage much faster (about 7 years), while still allowing me to put money away for my next goal.

Long Term Goal #2: FIRE by 40

I’m a huge admirer of the FIRE movement and I don’t really understand all the criticism. I love what I do! I don’t know that I’ll have the desire to fully retire for a long time – I have to be working or adding value somewhere. But wouldn’t you want to have choice? The choice to work or not work, or to only take on the work that you’re incredibly passionate about because you can? I also really believe that if you are doing work because you love it and not because you’re tied to the paycheque, you show up more authentically. You might be more bold, more innovative and less afraid to do your work truthfully. That to me is my FIRE goal. To get to a place financially where I take work only because I want to and not because I have to, and where that money is just a bonus.

What are your financial goals?

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I Am Officially Debt Free!

Today is a very exciting day because I have officially made my final lump sum payment that will rid me of my student loan forever! I’m relieved it’s gone, embarrassed it took so long and thrilled to never see the acronym NSLSC (National Student Loans Service Centre) show up in my bank account ever again. For anyone curious, I graduated in 2013 with a Bachelor’s Degree in Commerce and about $35,000 in student loan debt. Technically, I could have paid off my remaining balance earlier this year but given that student loan payments in Canada were suspended with no interest accruing, I decided to take the opportunity to instead save for the short term and pay off the remainder of the loan right before payments restarted. I don’t regret this decision one bit, it allowed me to build up a substantial cushion of savings and had I lost my job during Covid I would have been very financially prepared.

I don’t know about anyone else but growing up I always heard people call student loan debt ‘”good debt” and because of this I just wasn’t in a rush to pay if off. I received grants every year in university that paid for my books and then some but never thought to save the additional for my inevitable growing loan. During the 6-month grace period after I graduated I didn’t make any payments because why would I? And even after that I only made the minimum payments (which to be fair, was still very high for what I was earning in my first job out of school). I thought it was normal for people to take 10 years to pay off their loans, it was fine because it was “good debt”, right? Wrong!

I understand why people refer to student loans as a good debt; it translates into a significant amount of value for most people and it’s an investment in your future. And I am proof! I am in the exact field that I went to school for, I seriously love my job and I make a comfortable living which I partially credit to my education. But at the same time, it’s dangerous to label any debt as good debt, especially when the average student in Ontario graduates with $28,000 in loans and a floating interest rate that can hover between 4-6%.

Now unfortunately, I don’t have a great story about how I successfully paid off my loan. I paid exactly what was required of me and nothing more for about 4 years after graduating. In 2018, staring down a balance that was still alarmingly high I decided it had to be gone by the time I turned 30. I started putting down semi-regular lump sum payments and then in 2020, I got a bonus that I used to wipe out most of it. Ta da!

My story is pretty irrelevant. You can’t bet on a bonus or a windfall to take care of your debt but luckily, mine did. Consider me a cautionary tale and prioritize paying off your debt- even the good debt. When interest builds on large amounts like student loans, your monthly payments barely make a dent and you end up paying so much more than the principal. If I could go back in time I would’ve made more sacrifices to pay off the loan sooner. But you live and you learn, and this should be a reminder that it is never too late to course-correct.

How I Cut My Expenses by $255 a Month

For the month of September I wanted to set a money goal for myself and I was inspired by two books – The Wealthy Barber Returns by David Chilton and The Millionaire Next Door by Thomas Stanley and William Danko. If there’s one thing I’ve learned this year it’s that if you don’t manage your expenses and spending, you’ll never have enough money no matter what you earn. My current monthly savings has bumped all the way up to 61% this year which is great! However, I wanted to see if I could take it even further and I decided to take another pass at my expenses and see if there were any items I could reduce further or eliminate totally this year. Here are the categories I was working with and in bold are the ones I targeted.

Food, Gas (non-existent), Donations, Subscriptions (Netflix + Prime), Car Insurance, Parking, Mortgage and Home Expenses, Phone

After everything, this exercise ended up saving me what will be a recurring $255 monthly! Here’s how I did it.

Car Insurance

You sort of get accustomed to your monthly payments when you’ve been with the same insurance provider for a while, but it’s worth taking an hour or two to call around and see what rates different companies are offering. I had a membership discount with my previous insurer that had ended this year in 2020 which caused my rate to go up slightly. I decided to call a few different insurance companies for competitive rates and ended up switching to the provider that we also have home insurance with. They even had a discount for the specific university I graduated from, which minimized my rate even further and resulted in me saving $80/mo.

Parking

If you live or work in downtown Toronto you know how expensive the parking is, but I’ve always had a trick to find more affordable parking: most churches in Toronto offer monthly parking for a much cheaper rate. You just have to reach out, see if they offer parking and if they do, ask to be put on the waiting list. My parking at the church by my office was $75/mo. which beat all the parking options in the area by a long shot. However, this month I decided to give up my spot and get put back on that waiting list. To be honest, this one was more a residual effect of finding out that we would be working from home for much longer than anyone had anticipated but either way, I’m looking forward to having that extra $75/mo. to save or invest.

Food and Restaurants

I’ve gotten so much better at grocery shopping and meal planning the last few months and I now set a monthly food budget and stick to it. This month I was able to cut down my food budget by $100 and there were a few things that contributed to being able to do this. We shop weekly for only what we need, this has resulted in a lot less waste on our part. We eat less meat; I’m not a vegetarian but I’ve never been a big meat eater and it’s made a huge difference. We shop at cheaper grocery stores, and lastly, meal planning has been a game changer. Out of pure curiosity I frequently break down the cost per meal of what we make to see how cost-effective it is and I have to say, it is strangely satisfying to find out that your meal works out to be $1.79 a portion.

If you’re at home wondering “why can’t I save more?” or worse, “I can’t save money!”; build a budget or just start by listing all of your expenses and tackling them one by one. I promise you that once you start, you will find so much joy in controlling your expenses and saving that it’ll become more of a habit or a competition for you.

The $30 Purchase that Saves Me $60+ Each Month

As many Canadians do, I love coffee and I rarely start my day without it. In following a host of finance blogs and experts online, I learned there was a narrative out there that millennials are somehow sabotaging their financial futures through designer coffees and pumpkin spiced lattes. While I don’t subscribe to the idea that making coffee at home is the pathway to financial independence, the articles did have a bit of a point. This year while reassessing my budget I realized that on average I was spending $60 a month buying coffee even while working from home. And the numbers were even worse BC (Before Covid, had to-) when I was physically going into the office! I should mention that I live a leisurely 3 minutes walking distance to a coffee shop and so it became a part of my early morning routine to get out of the house, take a walk and grab a coffee. And then sometimes while grabbing that coffee I’d get a bagel, or a cookie or a doughnut… you get it.

The dollar amount was not astonishing and for coffee lovers probably not a big deal. But seeing the monthly average I just realized that I’d rather put that money to use somewhere else. I also never bought the fancy coffees anyways and stuck to the basic black coffee that I could easily make at home. So, in July I went on Amazon and bought a Mr. Coffee coffeemaker, a bag of coffee and a 200 pack of coffee filters for $1.50 and I have not spent any coffee money since- win!

I’m now about a month and a half into making coffee at home and there is a noticeable difference in my monthly food/restaurants budget. I can also honestly say I don’t miss buying coffee at all. I learned that as long as it’s hot and it wakes me up in the morning, I really don’t care where it comes from. And as a bonus, it makes my mornings working from the dining table smell great.

Was it worth cutting out? For me, yes. I don’t miss it and I get more joy from saving. However, it’s not the only or best way that you can save money. In fact, there might be even better places in your budget to start; if you haven’t assessed your monthly expenses I’d suggest starting there to figure out where you can cut back on spending that doesn’t make you happy or add value to your life.

For those interested, I’ve included the link to the coffee maker here: https://amzn.to/3mkKZbB

Financial Advice that No Longer Applies

A $1000 emergency fund is enough

There is tons of advice out there from money experts as to how much you should have in your emergency fund and it will vary on your ability to save based on your income as well as what you realistically need based on your expenses. Most experts recommend having 3-6 months of living expenses stockpiled away, while some more aggressively suggest having a full year’s worth of expenses saved.

One of Dave Ramsey’s well-known pieces of advice is to have an emergency account with $1000 in it before you start paying off any of your high interest debt. It’s not bad advice but it’s extremely arbitrary and very likely that it wouldn’t even come close to covering an emergency.

The goal of your emergency fund should be to minimize the long-term impact that an unexpected bill or job loss could make to your finances and while I believe that having 3-6 months of expenses saved up is the best route of action, I recognize that this isn’t possible for everyone and working towards having even a small emergency fund will help mitigate worst case scenarios like having to borrow money from a family member or take out a loan. 

If you’re looking to increase your emergency fund but don’t think you can increase your contributions, take a hard look at your income vs your expenses. Are there places you can trim, or things you can cut out entirely, even for a period of time to build up your emergency savings? Alternatively, could you increase your income through starting a side hustle or taking on a part-time job?

Save 10% of your paycheque

Again, this isn’t bad advice, but 10% should be considered your starting point.

Let’s say you’re 25 when you start saving for retirement in a TFSA or an RRSP, you earn $50,000 a year and plan to retire at the age of 65. You start saving 10% of your after tax income each month and end up with a sum of 390k at age 65 (taking into account a high investment growth rate of 6.26%) This sounds like a large sum but over a 30 year retirement, it may not be enough to sustain your lifestyle even with government benefits. Yes, this is not taking into account salary increases, bonuses or any other windfalls you may have, but it also isn’t taking into account other things that can happen like periods where you may not be working or years where expenses come up and you have less ability to save.

The most common guideline is to aim to replace 70%-90% of your pre-retirement income. This is personal based on your situation and what expenses you anticipate having in retirement. Will you still have car loan payments? Will your mortgage be paid off? It also begs the question, what KIND of a retirement do you want to have? Do you want to be able to take off at your leisure to sip mojitos in Cabo or visit the south of France? Or are you a happy homebody who plans on staying local and living a more minimalist or fixed lifestyle?

Talking about money is rude

Most of us grew up with the notion that talking about money is taboo, including myself. You don’t share good financial news (brag). You don’t share your salary with colleagues. You don’t ask how much your friend pays in rent even thought it might help you get perspective for your own search. WHY?

Here’s the thing: knowledge is power. When you collaborate, you are more likely to find resources and learn information that can help you become more financially savvy, get paid more or grow your wealth, just to name a few. People often feel a lot of discomfort around their relationship with money, sometimes feeling they don’t earn enough or are ashamed of their debt, but when you start having those conversations you’re more likely to find out that you’re not the only one struggling. And interestingly enough, not talking about money is the strongest amongst the middle class because they have the most anxiety over where they fall on the spectrum.

Not talking about money also has implications for your earning potential over your career. For example, equal pay for equal work. How do you know if you’re being paid fairly? How can you advocate for yourself effectively if you don’t even know where you stand? You don’t stand to benefit from not talking about money, but your company might (we all saw what happened with Conde Nast this year).

Remember that if you’ve ever had a question or a concern about money whether it be investing, saving or debt repayment, people in your life probably have too and they might stand to benefit from conversation as well.

Retire at 65

Technically speaking, the average retirement age across the public and private sectors in Canada is actually 63.6 but close enough.

With the gig economy and the FIRE movement amongst other things, retirement no longer looks the way that it used to and there is now more than one way to go about it. While there are still many folks who plan to retire at 65 (or are eyeing slightly earlier), there is also a growing population of people who plan on extending their working lives and never retiring, or conversely, those who have joined the FIRE movement and are aiming for an early retirement in their 30’s or 40’s through rigorous saving and investing habits.

There are also those who plan on taking mini retirements. Not to be confused with a vacation or a sabbatical, a mini retirement is taking time away from work for an extended period that is defined and clearly planned for to ensure your finances stay on track. Mini retirements can be as short as a few months or as long as a few years.

In short, we are redefining what we want out of retirement including when and how we get there. Those employed are also less likely to depend on their employer’s retirement accounts and lean more towards securing financial independence through their own actions.