This article was originally published on eqbank.ca
“Make a budget”, “have a plan”, “think ahead”. In our adult lives, changes come at us fast and furious, and often there can be conflicting advice on what to address first. We’ve done our best to break down some of the biggest milestones you should be planning for in your 20s, 30s, and 40s. Keep in mind this list is not exhaustive, and dependent on your individual future life plans. Here we go!
Saving for retirement – Think your 20s is a bit early to save for retirement? Think again. Different financial planners will give you different advice about retirement, but one thing they can all agree on? The earlier the better. Canadians are able to start saving for retirement as soon as we start working, so it’s a good idea to get into the habit now. Remember the earlier you start, the more time your money has to multiply. Don’t panic if you’re not able to save the recommended 10% of your salary right away; save what you can now, and you can increase or decrease your contributions as your income fluctuates. Many employers also offer RRSP matching plans, so carve out some time to talk to your HR rep to find out how it works.
Pets – Our furry friends have so many pawsitive attributes. They are proven to relieve anxiety and stress, walking a dog is built-in exercise, and they’re fantastic company. However, a little foresight can go a long way when you’re thinking about adopting an animal. Are you going to be in a financial position to spend hundreds of dollars a month on medication if your four-legged sidekick gets sick? If your new puppy destroys your carpeting and/or furniture, will you have the funds to replace it without digging yourself into debt? If you spend a lot of time on the road, start factoring pet care into your travel budget, in case a friend or neighbour is unable to do the job.
Saying “I do” – The average wedding costs upwards of $25K in Canada, upwards of $44K if you live in a bigger city like Toronto. The more people you invite, the more costs can multiply. Years ago, the cost of your wedding was assumed to offset the home necessities you would receive as gifts. By today’s standards, many of us live with our partner prior to marriage, and often have most, if not all of those items before we tie the knot. So, unless you plan on asking your guests to only give you cash, be ready to foot the bill for your custom donut wall and open bar.
Celebrating others – Don’t put away your dancing shoes just yet! As you drop your thank-you notes in the mail, you might see a stack of invites to upcoming weddings staring back at you. The new outfits and gifts we often need to buy for these weddings and associated showers and engagement parties, and all those other “fun parties” to celebrate our loved ones add up fast. Depending on your friend group, many of these events may end up happening within a tight timeframe, making the expenses rapidly multiply.
While it’s a wonderful thing to support our friends and family, it’s important to remember a few caveats. First, only give a gift you can afford. If the person in question is close enough to you, they are sure to understand why you weren’t the one to buy them a top-of-the-line-espresso machine. If you truly cannot afford to attend the event, it really is okay to say no. Your close friends or family will understand. Finally, think about some cashless ways to show you care, like babysitting, helping with wedding décor, or photographing the happy couple.
Not having a budget – Yes, not having a budget can count as an expense. Not everyone works within a budget, but “if you fail to plan, you plan to fail”, is an adage for a reason. Failing to have a financial plan can lead to leaning heavily on high interest credit to cushion against unexpected expenses. It’s a good idea to review your budget at least once a year, or anytime your financial situation changes. And remember if you’re partnered up, include your spouse in the conversation!
Student loans – Now that you’re getting established in your chosen career, those pesky student loans are going to start needing your attention. According to Credit Karma, the average Canadian has $17,741 in student debt, which works out to an estimated $400 per month, depending on repayment terms, loan amounts, and the interest rate of your loan. That’s a sizeable chunk of change that shouldn’t be ignored when you’re forecasting your budget for your 30s.
High interest debt – For many, your 30s are your “building years”. You’re establishing your career, your home, and potentially starting to plan a family (more on that later). A lot of this “building” costs money, and many of us lean on credit to help get there. Taking into account the average Canadian credit card interest rate is 19%, depending on how long it takes you to pay off the debt you incur, you can easily multiply the price tag of that new couch by at least two. Does it still seem affordable?
Children – If you choose to have children, you likely have an understanding of the associated costs; diapers, clothing, and childcare, to name a few. What about the costs that aren’t spoken about as often?
Having kids in a non-traditional way is an expensive process. In Ontario, going to a fertility clinic is free with a referral, and some services are covered by OHIP, but many of the tests and shots you’ll need to prepare your body for pregnancy (vitamins, egg count tests, mandatory counselling) are not. Going to a sperm bank is up to $2K per attempt, and it doesn’t always work the first time.
Adoption is another route some parents take. Private adoption can cost between $20-30K, and international runs between $30-50K, the higher end including airfare to pick up the newest member of your growing family.
Speaking of travel, for those nomads out there, once you’re a parent, get ready to multiply the cost of your getaways to include your kids. This doesn’t only equate to higher airfare – you’ll need to budget for meals, hotel rooms, amenities, activities, unscheduled stops, snacks when your pickier kids didn’t like the meal they had … the list can be seemingly endless. Often the destination itself isn’t the selling point for our young comrades; as much as you want your kids to follow in our footsteps, they might not share your intense love of photographing rare birds. So, get ready to book some more kid-friendly activities on your trips.
Buying a home – Buying a home is often touted as the most expensive purchase of your lifetime, and for good reason. Not to mention the price tag for the house itself, but the associated costs like insurance for high-ratio mortgages, land transfer tax, lawyer fees, property tax (yup, that’s different than land transfer tax!) appraisal, title insurance, and moving costs. These costs stack up quickly, and many first-time homebuyers might neglect to take these into account the first time around. It is worthwhile to consult a professional mortgage broker to assist you in sketching out this plan.
Levelling up your living space – When you’re planning to purchase your new home, remember to take the word “new” with a grain of salt. Does your home base need updates to the roof, windows, or appliances? Even items like window coverings can be pricier than you might expect. Make sure to factor these in when you’re making plans to upgrade your new pad.
Parental care – While more and more couples are prioritizing sharing the financial duties, many of our parents decided to divide and conquer, leaving one spouse in charge of the finances. Losing a spouse is a massive life shift, and often the grieving spouse will turn to their children to take over some vacant roles. Whether it means emotional or financial support, even contributing to your parents’ mortgage, caring for your aging parents is an uncomfortable reality, but some conversations and proper planning will go a long way.
Illness – A major illness or disability is not something we often want to think about, but as we age, the chance of something like this touching our family increases. This is where some conscientious planning of a few things is prudent. Fundamentally, insurance will be part of that. Insurance is something many of us never think we need, until we need it. Estate planning is a close second. Writing a will isn’t always the most enjoyable exercise but taking the time to put one in place before something critical happens will undoubtedly bring you peace of mind. Finally, don’t forget your emergency fund. It has the word emergency baked right in. If you ever need it, you’ll be happy you have it.
Funeral costs – The emotions of planning the funeral of a loved one can make it difficult to make the smallest decisions. This is when estate planning saves the day. Having a will is another document many of us avoid but having one in place can take a large amount of stress off our loved ones when the time comes. While having a will won’t take the cost of a funeral away, it should bring some clarity to the wishes of the deceased which can bring quite a bit of relief when trying to make the seemingly endless decisions for the service.
Divorce – While it may seem incredibly difficult to prepare financially (or emotionally) for a divorce, this is where regular money conversations can build a strong foundation for your relationship. No one wants to think about their marriage ending but checking in regularly with your partner about possible scenarios might actually bring you closer together. Set aside one day a year to go over your budget and current financial state over a glass of whatever you fancy, and reward yourselves with a nice dinner to follow.
Teenage kids – As your kids get bigger, so do the grocery bills, clothing and hobbies! Baby clothes are tiny, cute, and often on sale, and when your little one doesn’t talk yet, you can pretty much dress them in whatever you want. (We all have the incriminating pictures to prove it!) But when your kids reach their tweens and teens, they will likely have slightly more discerning (read: expensive) tastes. Oh, and did we mention teenagers eat more? Get ready to see that grocery bill inflate. Once your well-dressed, well-fed, and inexplicably tall offspring decide to pursue post-secondary education, you may find yourself wanting to financially assist them to avoid those student loans you remember from your 30s. Consider an RESP to plan for your future teen’s continuing education. They’ll thank you later.
The gist? Those folks telling you to plan for your future aren’t wrong. Thinking ahead a few years might save you more money than skipping your daily latte ever could.
The views and opinions expressed in this column are those of the contributor and do not necessarily reflect those of Equitable Bank. Any information provided is for information purposes only and Equitable Bank makes no representations as to the validity, accuracy, completeness or suitability of any content. You should seek the advice of a qualified professional or undertake your own research before making financial decisions.