This millennial couple making $ 150,000 just became parents. Can they survive on just one income?

Millennial Money is a weekly remittance-based series that provides financial advice to millennials. Read the full series here.

As a tech programmer and teacher, Andrew and Mia, a couple in their 30s who live in the GTA, earn a combined income of about $ 150,000.

Living in a house they bought together in the Durham region, 2021 has been a milestone for the couple as they have become parents. “Since we had our baby and COVID, we didn’t go out much. If we do, it’s usually free events in the community or exploring parks and trails. We also have friends to play regularly, ”Andrew said.

Mia is currently on maternity leave and earns more than $ 2,000 less per month than before. Still, the two of them are grateful to bring a child into the world, and now they are really looking to fix their finances to prepare for the future.

On a typical day, Andrew and Mia have a short drive to work. “However, we only go twice a week and the wife is on paternity leave,” Andrew said. The couple always eat breakfast at home and are also good at packing lunch for work. “(Outside of paternity leave) my wife will eat out for lunch, for about $ 10 to buy Tim Hortons,” he added.

They both like to cook dinner at home and only go out once a week, usually with Mia’s parents, who pay for the food. When it comes to shopping for food, the two of you are always looking for bargains. “Every time we go, we match the price of groceries,” they said.

As parents now, you have very specific goals in terms of preparing for your future. They want to add $ 2,500 annually to the RESP plan “to maximize the government grant.” They also want to maximize their TFSA accounts each year, in which they currently have about $ 6,500 combined. There are also plans to buy back Mia’s pension from parental leave by May 2022 (about $ 5,000).

In addition to these savings, the couple wants to be able to pay their mortgage and has been quite productive doing so. “We have put in about an additional $ 10,000 each year in 2019, 2020 and 2021,” Andrew said.

Eventually, the plan is for Andrew to become a stay-at-home parent while living off Mia’s income, $ 86,900 a year, from September 2022 to July 2023 “at least,” they added.

Aside from their mortgage, the two of them are debt-free, but they do have some up-front expenses.

“We will likely want a deck and fence by the summer of 2022 (est. $ 4,000) and an out-of-province wedding ($ 1,000 for flights and food; lodging is covered),” they said.

To get a better idea of ​​their finances, we asked the couple to share one week of expenses.

The expert: Jason Heath, Managing Director of Objective Financial Partners Inc., on Andrew and Mia’s goals:

Andrew and Mia have seen their family income drop and their expenses increase since they became parents, but they were well positioned for it. A financial challenge as you move into adulthood and especially in life events like homeownership and starting a family is planning for these peaks and valleys in cash flow. In the case of Andrew and Mia, both can take long periods of time off to be with their newborn because they are living within their means and have accumulated savings and avoided debt. These types of opportunities are rewards for sacrificing expenses in the past.

They may want to put RRSP contributions on hold for now to improve their cash flow. If both of you will have lower incomes due to parental leave, the tax returns on your RRSP contributions won’t be as beneficial either. Buying Mia’s pension is a good thing to consider. By contributing the approximately $ 5,000 in pension contributions lost while away with her little one, she will be entitled to more pension income in the future. The school board will also contribute towards the pension, so the contributions are not only tax deductible, but will also prompt your employer to contribute more to your future income during retirement. The “return” on investment to buy back the pensionable service is often better than what could be earned by contributing that same money to an RRSP, but must be assessed on a case-by-case basis. If cash flow is limited, pension buybacks can generally also be financed with a transfer from an existing RRSP account.

Andrew and Mia are making TFSA contributions as well as additional payments against their mortgage. As long as your risk tolerance is relatively high and your investment fees are relatively low, you may be able to get by with this strategy. If your risk tolerance is low or investment fees are high, your expected TFSA return may not be much higher than your mortgage rate, making debt repayment possibly more attractive. As interest rates rise, the opportunity to use TFSA savings to make additional lump sum mortgage contributions is something borrowers should consider.

An RESP is a good way to save for your baby’s post-secondary costs. A beneficiary can have up to $ 2,500 per year of contributions to qualify for a 20 percent Canada Education Savings Grant. If Andrew and Mia’s parents or other family members open an RESP and also contribute, that will reduce the amount of their own contributions that will qualify for the government grant. Even if a new parent does not have the cash flow to make contributions to the RESP, if they have a TFSA account, they could withdraw from it to contribute. TFSAs are tax free and RESPs are tax deferred. Tax on RESP withdrawals could be minimal as income is attributed to the child at a time when they may not be working while attending college. But the 20 percent return on contributions makes PRAs really attractive, especially if the funds can be committed now without compromising the family’s cash flow needs.

If Andrew and Mia still don’t have good insurance coverage and up-to-date wills and powers of attorney, a life event like the birth of a child is a good reason to cross those items off your financial to-do list. .

Results: They spent less. Spending in week 1: $ 1,870.87 Spending in week 2: $ 996.29

How they think they did it: “We did our best to stick to essentials at a very expensive time of year,” Andrew said, adding that a lot of the purchases were for Christmas gifts.

“Our only gift was lunch for Grandma’s visit to her grandson. Aside from gifts and bigger credit card bills, this is a typical week for us. “

To carry out: After reading the tips, the first thing Andrew and Mia realized is how conservative they are with spending, which will help them with their future goal of temporarily having only one income.

“It was good to know that we can still live within our means on low income so that a parent can be at home with the baby,” they said.

Because of their job, they both have defined benefit pensions, so they can waive RRSP contributions. They say they can catch up in the next few years when their income is higher again, and they both continue to work.

Reflecting on their spending and seeing Heath’s comments has also made them grateful and proud of how they have done so far. “We learned that our ultimate goal of putting family first is made possible by our financial goals that led to our first child. It’s a welcome reassurance based on the advice we received, ”Andrew said.

Moving forward, they will continue to make saving their number one priority and make sure they live within their means, especially as more costs come in as your child grows.

“Even when our income was low compared to now, our spending habits stayed the same. This allowed us to increase our savings as we got older, giving us the foundation on which we are now starting our family, ”they said.