The money makeover profiles in the Globe & Mail, MoneySense magazine, and the Toronto Star are designed to give readers a peek into the life and finances of real families dealing with real money problems. But more often than not the articles feature high income earning couples who just want to know if they can retire early and still enjoy their lavish lifestyle.
Once the issues have been laid out, a financial planner tells the couple everything will be fine if they can just make a few sacrifices to their lifestyle, which include:
- Taking one, instead of two, luxury vacations per year
- Cutting back on the fancy dinners
- Reconsidering that condo purchase in Florida
The financial facelift is completed when the couple is advised, ideally, to max out their RRSP, TFSA, and RESP accounts while putting an extra 10 percent lump sum onto their mortgage each year.
The ideal saver
One thing I’ve learned from reading these stories, aside from many of them being out of touch with the average Canadian, is that we can’t do it all – we need to prioritize our financial goals.
To help illustrate my point, let’s look at an average Canadian household with two children and how much they’d have to put away in order to become ideal savers, like some of the ones listed in the money makeover stories.
The median family income after taxes is $76,000 in Canada, according to a Statscan survey. The average mortgage balance is $168,387.
For this couple to max out their registered and tax free savings plans, they’d have to contribute $13,680 to their RRSP, $11,000 to their TFSAs, and $5,000 to their RESP. That’s 39 percent of their net income saved – great job!
This couple also wants to pay off their mortgage early so, in addition to their monthly payment of $1,200, they’ll also pay a lump sum of $16,838 at the end of the year. That’s 41 percent of their net income going toward their mortgage.
Joe, 42, Jane, 40, and their eight and 10-year-old children.
How to live on 20 percent of their income, or $1,267 per month, so they can pay off their mortgage and retire in five years.
Related: Can you live on $1,065 per month?
Cut out all those non-essentials like groceries, clothing, transportation, cable, internet, and insurance.
Retire and then START LIVING!
What this blogger says:
I don’t doubt that some families could actually make this plan work (eating ramen noodles seven days a week). But for the majority of Canadians, we need to balance our saving and investing goals with a dose of reality – we can’t do it all.
That’s why I focus on two financial goals – paying down our mortgage and contributing to my RRSP. However, that comes at the expense of maxing out our tax free savings accounts and our kids’ RESPs.
We’re still on track to save about 30 percent of our income this year, and while I’d love that to be 50 percent, I’m content that we’ve struck a good balance between our financial goals and our day-to-day living expenses.
Related: What’s busting your budget?
I’d love to see more of these money makeover profiles featuring average Canadians who earn less than six-figures a year and who are just trying to figure out what to do with that extra $200 per month after all the bills are paid.
One series that’s worth checking out is on the Len Penzo blog, where his readers share how they live on less than $40,000 annually.