Reader Case Study: Starting From Scratch In Canada; Where Do I Go From Here?
Welcome to this month’s Reader Case Study in which we’ll address Alison’s questions on how to map out her financial future. Case studies are financial dilemmas that a reader of Frugalwoods sends to me requesting that Frugalwoods nation weigh in. Then, Frugalwoods nation (that’d be you), reads through their situation and provides advice, encouragement, insight, and feedback in the comments section. For an example, check out last month’s case study.
P.S. Another way to get support on your financial journey is to participate in my free Uber Frugal Month Challenge! You can sign-up at any time to join the over 18,900 fellow frugal sojourners who’ve taken the Challenge and saved thousands of dollars.
I probably don’t need to say the following because you all are the kindest, most polite commenters on the internet, but, please note that Frugalwoods is a judgement-free zone where we endeavor to help one another, not to condemn.
With that I’ll let Alison, this month’s case study subject, take it from here!
Hello Frugalwoods nation! My name is Alison and I’d love to hear from you clever people about how you’d move forward if you were me. I’d summarize my situation by saying I’m basically starting from scratch, what with achieving a positive net worth (sort of) this past March, and I’m not sure how to get to where I want to go from here. I just turned 29 and I live in the Canadian prairies.
I’m a museum conservator and I hold both masters and bachelor’s degrees in the field. My job is a government position that comes with typical government characteristics: its reliable and stable with reasonable pay, but little chance to advance (in my view), and a pension. I went to university straight out of high school and did some paid internships for several years before I secured this job two years ago. I never really saved anything as an intern and it’s only in the past year that I started paying attention to my budget with an eye towards longer term goals.
In addition to my day job, I run a small Etsy shop in my spare time and right now it’s more a method for selling old costumes I’ve made over the years as opposed to a sustainable business. I see myself running out of product in a year or so. I’m slowly developing another side business in conservation, but I’m so busy that I find it challenging to devote time to it. Additionally, the client base is small. I do a bit of sewing for people as well but I’ve found it difficult to charge people an amount I feel is fair. Maybe I make sewing look too easy!
I’m a homebody and I love puttering around and working on projects. These days I make almost all of my own clothes. It’s tons of fun and such an amazing creative outlet. I cook from scratch and spend quite a few hours every weekend prepping my food. I’m also playing around with a little balcony garden and growing some vegetables–or trying to, at least!
I’ve done various forms of weightlifting over the years and right now I’m having a lot of fun with CrossFit. I go to an amazing gym that focuses on creating a community of supportive people. I’m not that great at it actually and I’m no competitor! But I’ve made slow progress since I started last fall and it’s been a huge confidence builder for me. Eventually I will be able to do pull-ups unassisted!!
Where Alison Wants To Be In 10 years:
- I want to buy a home. In ten years, I want to be in a small detached house that I purchased with a sizable down payment (~25% ideally) and also have a nest egg saved up. Doing the math, it looks like I should have a down payment saved up in about five years and also have my student loan paid off, which is from my parents and has 0% interest. At that point, my take-home pay should be enough to cover the additional expense of owning a home. I also estimate that this is when I’ll reach the top of the pay scale for my job.
- I expect to be able to afford a home with good bones, but which will need some work, and I’ve budgeted for minor renovations in my calculations. I appreciate homes with character and I’m trying to educate myself about how much work and expense the renovations will require. Based on my estimated home-owner budget, I will only have a few hundred dollars leftover every month; hence, my savings rate will be small. Assuming I buy a home, I estimate I’ll have about $20k in savings in ten years.
- Honestly much the same as now, but a bit more expanded. I’d love to have a nice garden, a sewing room, and a cute home. Travel is not a priority for me at all. Family is, however, and I travel to my hometown every year at Christmas. I wish I lived closer to them, however, I live where the work is. In my specialty, permanent positions are rare and I’m lucky to have the job I do. Something might open up in my hometown in the future and I’ll pursue that if it does. I want fitness to still be a part of my life as I love going to the gym. I’m not sure I’d feel the same with a home gym but that might be something to explore. I was just gifted a bike and am very excited to start commuting to work by bike some of the time. In this imaginary future, I’ll prioritise my commute when looking for areas to buy a home.
- I would love to become more involved in my local community, perhaps as part of a community league. Volunteering with girl guides is on my bucket list as well. I don’t know how I’ll fit all that in though since I don’t have time for it now! I’d also love to be able to buy higher quality, local meat products and give more money to charity.
- I enjoy my job and I have a talent for it. I would like to expand my role and do more treatments, more research, and write more papers. I want to collaborate with curators and put wonderful objects out there for people to enjoy. I definitely see all of these things happening for me if I stay where I am. I’d also like to explore private work as a method for boosting my income and possibly gaining some freedom in later years. It would be an interesting mix to work part time for my institution and supplement my income with private work. I have doubts that there is enough of a market to support this, however, and I don’t see the business building up enough in the next ten years to replace my current income.
- I do have a few other ideas to generate more income. My favourite idea is to develop a line of PDF and printed sewing patterns. The PDF angle is great because it’s passive income once the product is created. Paper patterns, on the other hand, are a different kettle of fish. I would need to learn a lot to make this happen: CAD, logistics for printing and distributing paper patterns, pattern grading, not to mention designing the garments themselves. I have one pattern I would like to put out there as it’s a great beginner project that’s simple and very wearable… Anyway this is something I have a lot of passion for, but the skill gaps and time needed to make this happen seem like a big barrier.
Take Home (Net) Income
|Monthly after-tax income||$3,688.35||After all deductions, taxes, pension etc|
|Annual Total:||$44,260.17||Includes day job and side hustles|
|Rent||$1,150.00||I’m moving at the end of August and looking for an apartment that charges $850 or less in rent, which will help a lot|
|Hobbies, entertainment, dining out, clothes, etc.||$390.00||This includes eating out, hobbies, entertainment, and anything not captured elsewhere. Clothing also comes out of here, but I sew most of my things these days.|
|Student loan repayment||$300.00||Payment on my 0% interest rate student loan that I received from my wonderful parents.|
|Groceries||$200.00||Pretty consistently within this. I use my credit card rewards to supplement my grocery budget to the tune of about $400 per year.|
|Household||$160.00||Laundry, cleaning supplies, other consumables.|
|CrossFit||$157.50||Uggg I know it’s expensive, but this has so much value to me. I’m there four times a week and have made some great friends. There’s a chance I might be able to barter some of my sewing for a membership and I’m going to look into that.|
|Travel||$110.00||My yearly flight to my hometown at Christmastime takes up most of this.|
|Car Insurance||$106.00||Liability and collision. I’ve saved enough to pay in one lump sum when this comes for renewal in August. I’ll look for the best deal and hopefully save some money.|
|Car sinking fund||$100.00||For repairs and an eventual replacement (in the distant future, I hope).|
|Gas||$75.00||I usually don’t quite hit this this total.|
|Gifts||$75.00||Christmas also comes out of here. I try to make gifts for people as much as possible. For example this month I’m making some receiving blankets and a simple dress for two different sets of friends who had babies recently. About $30-$35 each project.|
|Cell Phone||$49.95||Freedom Mobile, lowest cost option in my area last time I checked. Not great competition between providers up in Canada but I’m open to suggestions.|
|Internet||$34.60||Lowest cost option in my area. Really not bad considering the state of Canadian telecom companies.|
|Charity||$30.00||I’d love to increase this.|
|Pension contributions||$35,114.00||This money is essentially inaccessible to me until retirement age and is better measured in payout per year, I guess? Not sure how to value this.|
|Emergency fund||$2,350.00||Currently refilling this, aiming for $7,500 and should be done by December.|
|2015 Kia Rio hatchback||$15,000.00||Low mileage, bought it new for my first car. I would not do that again, but you live and learn. I paid it off in April.|
|Student loan||$28,742.00||Loan from my parents for my higher education. 0% interest rate.|
Alison’ Questions For You:
- How do I effectively plan for my longterm financial future as a single person?
- I’ve written my 10-year plans from the perspective that I’ll still be single, which is a defining factor in planning my future. It seems like most successful FIRE (financially independent/early retired) folks are paired up and, while I’m seeing someone right now, I can only truly plan for my future as a single person. As I see it, the numbers boil down to me working for an additional 27 years and retiring with a reduced pension at age 56, a small nest egg (~$250k) saved up given some additional income, and a paid-off home. I’d probably have a yearly income of about $40k at that point. It’s not a bad plan, but it feels like I’ll be spending my whole life working. Perhaps that’s just the reality of being a single-person household?
- My pension: help me learn to appreciate it!
- I’m surprisingly resentful of my pension these days. I lose about 14% of my pay to this plan and the legislation surrounding it only allows me to take a payout that would be converted to an annuity with almost the same restrictions as the pension itself but with higher expenses. Not a great financial move. I was unprepared for this high of a deduction coming out of my paycheque as it’s double my last place of employment. In light of this, I rented an apartment that I thought I could easily afford but that’s really too high a percentage of my take-home pay. Lesson learned: ask what your exact take-home pay is before building a budget based on a new job! I feel like I have to live in the real world of dollars and cents while a big chunk of my money disappears into a plan that promises to take care of me in the future. I feel trapped and am impatient to move onto the next phase of my life, which I view as homeownership. I’ll be 34 by the time I look for my first home and I can’t see a way to get there faster. Any advice on how to think about my pension more positively?
- Should I/could I save more?
- Maybe I’m just not frugal enough to expect to move at an exceptional pace (I’m looking at you CrossFit). I could work very hard on my side hustles, but that would take away from all the other things I do with my spare time and that’s a choice I’m making and maybe I’m not willing to give that time up. Maybe that’s just the way it is and I should try to be more patient. I know I need to practice more gratitude and I’m working on that. Any advice on whether or not you think I could or should save more?
- How’s my savings, investments, and first-time homebuyers plan?
- I’ve opened an account with a low-cost broker here in Canada and it’s sitting empty at the moment while I top off my emergency fund. I’ve opened a Registered Retirement Savings Plan (RRSP) specifically to take advantage of the first-time homebuyers plan the Canadian government offers. An RRSP is funded with pre-tax dollars and is taxed as income when you take it out unless you qualify for this homebuyers plan. Essentially, you save your income tax rate (mine is 21% I believe) on this transaction. You are required to repay the amount you withdraw within 15 years, which I feel is totally doable and I intend to repay it much faster than that. I would lose the gains on this money during the repayment period as well, which reduces the value of using this plan somewhat, but I still feel it’s worth it. The alternative is a Tax-free Savings Account (TFSA) which is funded with after-tax dollars and the gains grow tax-free. My emergency fund is in a TFSA. There are no restrictions on withdrawing and you don’t lose the contribution; however, you have to wait until the next calendar year to refill that contribution room.
- Does this approach seem like a good idea? It seems to be a popular program but, as with saving for retirement in general, people are bad at repaying the homebuyer’s loan. If there’s one thing I know about myself, it’s that I will have the discipline to see a plan through if I can.
Thanks in advance, Frugalwoods nation!
Mrs. Frugalwoods’ Recommendations
First off, I want to say that I don’t think Alison is starting from scratch at all–to the contrary, she’s doing a great job! Alison has already completed the very challenging first steps of tracking her spending, making longterm financial projections, and creating a budget to enable her to reach her goals. That’s pretty advanced right there! So a round of applause for Alison in her efforts to map out her future. I understand that she wants to be further along on her journey, but I also want her to pause for a moment to congratulate herself for everything she has accomplished.
The real failure is when we don’t plan at all–when we don’t know how much we’re spending, when we’re unsure of how we’re going to pay off our debt, and when we have no articulated longterm goals and no sense of how to hone our finances in order to achieve those aims. And if that sounds like you? Don’t stress. The first step is to track your spending like Alison has done. Without knowing exactly where your money goes every month, there’s no way to craft savings, debt repayment, or investment goals. If you need to start tracking your spending today, I use and recommend Personal Capital for this purpose because it’s free and easy.
While Alison has already done the yeoman’s work of articulating her longterm aspirations, I sense some uncertainty in her plans. I encourage Alison to do a bit of soul searching in order to gain greater clarity around her goals. Alternately, it’s entirely OK to say “I’m not exactly sure” and to continue stashing away money for the eventual day when her goals do crystallize. No one has ever wished they had less money once they realized what their dreams are. Saving for the future is a way of shoring up your ability to take advantage of fabulous opportunities–and yes, to manage the challenging pitfalls–that life will inevitably throw your way.
Retiring Early Isn’t For Everyone
Something that surprised me was Alison’s mention of her concern over working for most of her adult life. Since she articulated that she enjoys her job and is very good at it, I was surprised to hear she wanted to quit. Retiring early doesn’t need to be your goal in order for you to live a financially independent lifestyle. Frugality is a means to accomplish early retirement, but it’s also a means to accomplish a fulfilling, financially stable life where you do happen to work (that’s what I do, after all).
The difference between a frugal person working and a spendy person working is that the frugal person is not reliant upon their paycheck for their survival. It’s not that a frugal person hates their job, it’s that they’re ensuring they won’t starve or be without a home if they happen to unexpectedly lose their job one Monday morning. Frugality is the ultimate personal insurance. It’s also what would enable Alison to one day start her own sewing or conservation business if she so chose.
Alison shouldn’t consider working to be a failure or a bad thing–especially seeing as she’s very happy with the work she does. But I do agree with her that having a nest egg as a buffer–and not living paycheck to paycheck–is a much more financially viable path.
If Alison decides that early retirement is in fact a true goal, then she’ll need to dramatically reduce her spending (everything unnecessary to survival will have to be eliminated) and increase her income through either side hustles or a higher paying day job. That’s the trade-off she’d need to make and she may decide it’s not worth it since she’s happy with her job to begin with.
Time Use Prioritization
Something that stood out to me in Alison’s story is that she feels she doesn’t have enough time or money. I think many of us feel this way and what I always recommend–and what works or me–is the ethos of ruthless prioritization. And I really do mean “ruthless.”
Alison should sit down and perform an audit of her time, in much the same way as she’s performed a thorough and excellent audit of her finances. I’m of the belief that you will absolutely make time to do the things that matter most to you, but it requires an honest accounting of where your minutes and hours are spent every single day.
It’s so easy to let the precious resource of time slip through our fingers without even realizing where it’s going. But with concerted prioritization, and a system in place for every day, Alison should be able to bring her time use into alignment with her priorities.
Parallel to the conversation about time usage are Alison’s side hustles. I can’t tell if she wants to build up a sewing and pattern making side hustle or if she feels she should for the supplemental income. I encourage her to reflect on this and on whether or not she wants to do it. And if she genuinely wants to do it? She can–and should–create that time and space in her life.
Conversely, if she’s not truly passionate about it, don’t sweat it. Let it fall by the wayside while she focuses on the things that do deeply matter to her. How we spend our time is the summation of our lives–spend it as you wish and as it fulfills you.
It’s not exactly easy to build up a side business while working a full-time job, but as someone who did it, I can tell you that it’s entirely possible. I used to wake up at 6am in order to work for two hours on Frugalwoods before going to my office job and then I put in another few hours in the evenings and much more on the weekends.
I had to restructure how I allotted my time and I let a bunch of stuff go by the wayside: I stopped watched TV, I stopped painting my nails, I stopped cleaning the house so often, I stopped shopping–I basically cut out everything that wasn’t bringing me lasting fulfillment. I didn’t cut out my yoga practice or my hiking, because those are chief priorities for me. So I’m not recommending Alison chop everything out of her days, merely that she do a comprehensive overview of how her time gets used.
Buying A Home
Since this sounds like a top priority for Alison, I recommend she start researching real estate in her area now. She may have already begun this process, but I suggest going to open houses, browsing listings online, and tracking asking and sale prices of homes in her price range. Getting a feel for the market early on is a fabulous way to ensure you’re ready to pounce when the right property comes up.
In addition to the practical benefits of researching home buying in advance, it’s also a way to keep her goal top of mind and to feel as though she’s making progress even though she won’t be ready to fork over a downpayment for another few years. Mr. Frugalwoods and I looked for our first home for a good five years before purchasing, which turned out to be an excellent strategy.
To Alison’s point about looking for her first home at 34, I think that’s fantastic! That’s an impressive age at which to buy a property solo and Alison shouldn’t feel bad about that for a moment! Rather, that’s a point of congratulations!
My main comment on Alison’s expenses is that it’s all about priorities. She doesn’t have a ton of discretionary spending and while she certainly could save more, it’s largely a question of if she wants to. Since she has mapped out a solid financial plan at her current level of spending, she should feel confident in sticking with that.
My main concern is that she’s very dependent on her paycheck at present and she mentioned that permanent positions are rare in her field. If she were to unexpectedly lose her job, what’s her game plan?
I LOVE that Alison is in the process of building up her emergency fund–that is the #1 hedge against financial ruin. Way to go, Alison! I do want to caution, however, that her projected emergency fund goal of $7,500 would only cover 2.5 months worth of living expenses at her current spending rate. That’s not a whole lot of runway in the event of a job loss. I’d advise either upping her emergency fund total or reducing her expenses.
On the other hand, Alison is very wisely looking for a cheaper apartment to rent, which I commend her for wholeheartedly. She’s right that she’s spending way too much of her take-home pay on housing and reducing that is one of the biggest impacts she can have on her savings rate. Kudos, Alison!
In great Frugalwoods tradition, let’s take a run through all of Alison’s spending:
- Rent: as previously mentioned, Alison is an absolute rock star for finding a less expensive apartment. Woohoo! If she’s able to find a place that’s $850/month, she’ll save a whopping $300 per month ($3,600/year).
- Hobbies, entertainment, dining out, clothes: at $390, this is a fairly steep category. However, this really comes down to Alison’s priorities. If these are all things that bring her happiness–and she’s aware of the financial trade-offs inherent to spending this money–then that’s fine. Conversely, if she wants to move faster towards her home ownership goal, this is a category ripe for cutting.
- CrossFit: I don’t recommend Alison do away with this since she derives so much joy from it. However, she mentioned she might be able to barter some of her sewing for a free membership, which I highly recommend exploring. And if not her sewing, perhaps there’s some other arrangement she could work out? Volunteering at the front desk? Cleaning the gym? I used to volunteer at the front desk and take out the trash at my yoga studio in exchange for free classes and I’ve heard of similar arrangements from readers at their studios/gyms. Worth asking at the very least!
With all of these items, and everything else in her budget, it really comes down to a question of priorities and how quickly Alison wants to achieve her house-buying goal. There isn’t a right or wrong answer, just different time frames.
Alison’s Specific Questions
1) I think Alison is extremely smart to plan for life as a single person. If she does end up in a longterm relationship, then hopefully that’ll just add to her net worth/family earning power. But either way, she’ll have set herself up for success. There’s no downside to making these plans on her own. Being in a stable financial position is great if you’re single and also great if you’re married.
2) Alison’s pension is a wonderful benefit of her job and, while it’s tough to appreciate those longterm savings, they are a boon. The power of compounding interest in on her side with this one and she’ll be sitting pretty when she retires. There’s also a lot of peace in accepting things you can’t change. If she’s locked into this pension plan–which is sounds like she is–then don’t waste energy militating against it. Accept it, forget about it, and move on.
3) As I noted above, this is really about priorities and the timeline in which Alison wants to reach her goals.
4) I don’t know much about these Canadian-specific plans, but I know we have loads of Canadian Frugalwoods readers, so I encourage you all to chime in with your relevant experience. My main comment here is that Alison needs to ensure her brokerage truly is low cost. Fees will cripple your net worth over the lifetime of your investments if you’re not careful. For reference, in the US, low-fee index funds through Vanguard have an expense ratio of 0.04%, which is considered very low and I don’t recommend spending anything more than that. In terms of Alison’s ability to repay within the 15 year timeframe, I have no concerns about her ability to do so–she is organized, efficient, and on top of her finances, so I wouldn’t see that as a reason not to engage in that plan.
In summary, I advise Alison to do the following:
- Keep building up her emergency fund and consider if an amount greater than $7,500 would be appropriate since that would only cover 2.5 months worth of living expenses.
- Perform an audit on how she uses her time to identify areas where her actions aren’t aligning with her priorities.
- Do some soul-searching on whether or not early retirement is truly a goal–it absolutely doesn’t need to be. If it is, however, Alison will need to dramatically slash her spending and increase her income either through side hustles and/or a higher paying job.
- Decide if the sewing side hustles are a priority and, if they are, make them happen. If they’re not, she should turn her focus to things that are priorities.
Ok Frugalwoods nation, what advice would you give to Alison? She and I will both reply to comments, so please feel free to ask any clarifying questions!
Would you like your own case study to appear here on Frugalwoods? Email me (firstname.lastname@example.org) your brief story and we’ll talk.
Updated September 20, 2017 with Alison’s Decisions:
I really appreciate your hard work and insights and those of the readers. I’ve re-read the post a few times and it still makes me pause to think.Well my big move to a cheaper apartment was disastrous. I applied myself to watching the market, evaluating what was important to me and what wasn’t. I applied for, and was accepted for, an apartment that had everything on my list of needs and some of my wants. Unfortunately it also had a cockroach infestation. I am so lucky that I built redundancy into my plan and had an overlap of a few weeks between my old apartment and my new one. Even with this, I ended up with three business days to find a new place to live which was ultimately unsuccessful. I ended up staying a friend for a few weeks, and it was uncomfortable for both of us. August was crazy and horribly stressful. The property management company has also been pretty terrible to deal with although I suppose I should feel lucky they’ve let me out of that lease because legally they didn’t have to or could have made it far more difficult. I’m still waiting on the return of my deposit cheque.So I’ve ended up in a lovely main floor apartment of a 100-year old house. I love it (it has a dishwasher!!) but there are essentially no additional savings to my monthly budget as a result of this move. But it’s safe, infestation-free, and close to transit for my winter commute. I’ve been biking to work whenever I can. We got snow today (in the middle of September) so I’m not sure how much biking time I have left. I’ve pulled back on some things that I love to make room for other things that I also love but equilibrium still eludes me some days. My main financial goal right now is that emergency fund. I have increased my goal to $10,000. I would really rather have $18,000 or six months of expenses. Honestly I don’t know if I have the patience to get there before starting to save for a house. In any case I’m working to save save save. After all this business with renting and landlords and property management companies, home ownership could not come quickly enough.I’ve tried to give myself some slack lately, and allow for some more impulsive happiness in my life even if there’s a bit of spending attached. I biked to the farmers market and bought some flowers last weekend and seeing those on my kitchen table when I come home after work truly does make me smile.Thanks again,Alison
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