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This ‘older millennial’ who makes $105,000 a year is wondering if he’ll ever be able to buy a house in Toronto or if he’ll be renting forever. What should he do?

This ‘older millennial’ who makes $105,000 a year is wondering if he’ll ever be able to buy a house in Toronto or if he’ll be renting forever. What should he do?
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Millennial Money is a weekly submission-based series that provides financial advice to millennials in the GTA. Read the full series here .

Gary, 36, is a self-proclaimed “older millennial” living in Oshawa who feels stuck at a stage where he can’t move forward. He has a great job, making $105,000 a year in public relations, so what’s the issue?

“I’ve never been in a position to buy a house despite being fairly disciplined about saving. This is partly because I do not want to go the ‘buy a condo to build equity’ route,” he said.

In fact, he “hates” the idea of apartment or condo ownership, but wouldn’t be able to afford it even if he wanted to in the GTA, he says. “I’m priced out of the market for even condos because debt scares me and I won’t put less than 20 per cent down.”

Gary also says he’s frugal and organized with his money and has no debt after paying off $40,000 in student loans in his mid-20s. For years, he’s been putting thousands straight into savings accounts when payday comes around.

“I have a DB (defined benefit) pension and fully funded TFSA ($80K) and RRSP ($95K). I keep a $15K emergency fund, a $5K (and building) car replacement fund and a $1K emergency medical/dental fund. I keep a monthly budget and save ahead for major annual expenses.”

His careful financial planning also carries into his daily spending where he tries his best to spend less. In a typical week, he’ll only go into the office one day a week, due to COVID-19 restrictions, and will bring food from home. The only purchase? “I will often grab a coffee,” he said.

On the weekend, Gary stays active outdoors through biking, jogging or camp fires with friends. Other than that, it’s video games or video-conferencing with family and friends, all of which are relatively low cost.

COVID-19 has also brought a wealth of spending changes, including saving $100 to $150 on a gym membership as well as more than $350 on transit.

What are Gary’s goals? Replace his used vehicle in four years, have security in his retirement funds and care for his aging parents in the next 15 years or so. Also, figure out if real estate is in his future.

“Should I just accept that I’m destined to rent when year-to-year housing prices in the GTA and suburbs are increasing by 14 per cent across all housing types, which is far more than I can possibly save to meet that 20 per cent down target?”

We asked him to share his daily spending to get an idea of his finances.

The expert: Jason Heath , managing director at Objective Financial Partners Inc., on Gary’s real estate prospects:

I can appreciate Gary’s concerns about feeling stuck and that he can’t afford a home. He mentions a 14 per cent year-over-year price increase that has swallowed up his entire down payment. That’s got to be disheartening for him, but it’s also unsustainable.

Interest rates may stay low for the foreseeable future, but they can only decline so much. More importantly, incomes are not increasing at a rate that can support 14 per cent annual increases in home values. Something has to give.

In the meantime, he’s done a great job saving. His RRSP and TFSA accounts are maxed out, which I suspect is not the case for most 36-year-old homeowners.

Between his $80,000 TFSA and a potential $35,000 Home Buyers’ Plan withdrawal from his RRSP, he’s got $115,000 for a down payment excluding his emergency funds.

If he’s targeting a 20 per cent down payment, he can only afford about $575,000 for a purchase price. If he wants a house, not a condo, he’d need to concede to putting down a smaller down payment.

I credit Gary for his modest spending and high saving rate. He’s clearly not renting a house given his rent is only $1,475 per month. That’s allowed him to amass a significant down payment as well as emergency funds and other pools of money for extraordinary expenses.

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He has his saving totally automated, with not only monthly contributions to his RRSP and TFSA, but also other sources. He’s investing in a nonregistered account, and even puts aside money for short- and long-term expenses he knows he will incur. The save first and spend second approach will help him a lot in the long run.

That said, I think Gary may be richer than he thinks. He’s saving over $2,600 per month in addition to being in a defined benefit pension plan.

If his pension is lucrative enough, and he works for his employer long enough, he may well have most of his eventual retirement spending covered by his workplace pension along with government pensions (Canada Pension Plan and Old Age Security).

That’s not to say he doesn’t need to save over and above his pension, but he may not need to save over $30,000 per year in addition to the pension. He may be easily able to redirect that cash flow to mortgage payments for a home purchase, even if he doesn’t quite get to a 20 per cent down payment.

I also hope Gary can be a little selfish in frivolous ways.

He’s saving over $300 a month by not using public transit during the pandemic. He could just use that to save more but, honestly, life doesn’t need to be about saving as much as possible all the time.

Sometimes people save for a long retirement that never happens. Or they save for a dream house they never buy. I encourage Gary to do his best to balance saving for tomorrow with living for today. Both are important.
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