This Ontario nurse has salary increases capped at 1% per year. How do you plan ahead?

Natasha, 25, has big plans to travel and see the world. She has been saving money since she started working in health care in hopes of increasing her savings.

As a registered nurse practitioner, Natasha has had a tumultuous few years. She earns about $62,000 a year, though the exact amount varies depending on how many overtime hours she works at her hospital, she says.

But Natasha feels she has hit a wall with her earning potential, due in part to the one percent increase cap on her wages implemented under Ontario Bill 124. “I don’t expect to get a significant raise in the next five to 10 years.” Natasha tells the Star. “As a result, I cannot realistically afford mortgage payments or maintenance with my current income and budget.”

For now, Natasha’s goal is to pay off her remaining student and car loans. “I have $13,000 left in my OSAP and $5,000 in my car,” she says. On her TFSA, Natasha has $15,000 and an additional $8,200 in a mutual fund.

She shares a one-bedroom apartment with her boyfriend and pays $1,065.29 in rent. During the week, Natasha says she gets up early and drives to her shift from 7 am to 7 pm at her hospital. She doesn’t always eat breakfast at home, since she prioritizes sleeping a few more minutes.

“I try to pack two meals per shift, usually a smoothie and coffee for breakfast and prepared pasta or salad for lunch.” Dinner that you eat after coming home from work at night. “I find that the busier the shift is, the less likely I am to have to prepare meals for my next shifts and end up using my hospital cafeteria. The takeout meal will include a croissant, a donut, or a prepared salad,” she says.

On weekends he goes to the gym and sometimes buys a coffee and a donut for breakfast. She catches up with friends and family, and sometimes goes out for dinner or drinks with her boyfriend and friends.

How can Natasha better manage her money? We asked to see a week of her expenses to find out.

The Expert: Jason Heath, CEO of Objective Financial Partners Inc.

Natasha is an example of how inflation makes it difficult for people to keep up with the rising cost of living. Inflation was 8.1 percent year on year in June. As a nurse, she has had a salary cap of one percent for the past two years. Although she does not expect a big salary increase in the next few years, high inflation will put pressure on the provincial and federal governments to increase public sector salaries.

She lives well within her means, spending only 30 percent of her take-home pay on rent. She thinks owning a home is too daunting because of her fixed income. However, she is only 25 years old, and despite paying most of her education costs on her own, she has quite a bit of savings.

Natasha has $23,000 in a TFSA and a mutual fund. If the mutual fund is in an unregistered account and not in her TFSA, she would consider keeping it in her TFSA. Assuming she turned 25 in 2022, she would have $50,500 of room accumulated under the TFSA since she turned 18 in 2015. Any contribution she made would reduce that room and any withdrawals would increase it. If she has savings or investments, and she has room in the TFSA, she should generally consider keeping them in her TFSA so the income is tax-free.

That said, Natasha also has $13,000 owed on her student debt and $5,000 left on her car loan. She also lists paying those amounts as her top priority. I think she should consider using her $23,000 of savings to pay off her $18,000 debt. If she believes she can earn a higher rate of return on her investments than the interest rate on her debt, it may make sense for her to contribute to a TFSA instead of paying off the debt. However, there are some considerations.

Thinking you can earn a higher rate of return on your investments and actually doing so are two different things. Stocks can return six to eight percent over the long term. But most people don’t invest 100 percent in stocks. Most people also own investments that have fees associated with them, such as mutual funds, which reduce the net return for an investor. Someone with a moderate risk tolerance with a mix of stocks and bonds might only get a 3 to 5 percent return after long-term fees, fluctuating from year to year. Since interest rates have risen from rock bottom, there’s a more compelling argument for paying down debt.

The other thing for Natasha is that once her debt is gone, she’ll have extra money each month to save and invest. So, she will quickly replenish her investments. I think she has the right idea in concentrating her savings in her TFSA. She is only 25 years old, her income and tax rate are modest, and she is already saving for retirement indirectly by being a member of a pension plan at work. She will have a lot of flexibility with her TFSA in the future and she should keep some money in a conservative cash or near-cash investment for emergencies, while she invests the rest over a medium- to long-term time horizon.

There’s not much I can say about Natasha’s expenses. Her biggest vice is not preparing food for the next day if her 12-hour shift is too busy. That is understandable! A croissant, donut, or salad in the hospital cafeteria won’t make or break her. If she really wants to avoid spending on fast food, she could try packing meals in bulk and freezing things that she can take out on days when she’s too tired to do anything that day.

Results: Spent less. Expense in the first week: $512.46. Spending in the second week: $256.11

how do you think you did it: Tracking her spending gave Natasha a new perspective on her finances, she said. “I think this experiment has made me more aware of my daily spending,” she adds, and she goes on to say that she now knows where she can cut back.

Specifically, she plans to prioritize one-time meal prep so she can spend less during the week after work nights that leave her too tired to cook for the next day.

Takeaway: Natasha plans to follow Heath’s advice about prioritizing parts of her debt to pay off first.

“I’m going to start with my car because it has a higher interest rate and monthly payment,” she says. From there, she anticipates having more money released each month. “This will allow me to save more money once all is said and done.”

Jenna Moon is a Toronto-based business reporter focused on personal finance and affordability. Follow her on Twitter: @_jennamoon

SHARE: