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Grouni is cutting back Michael’s food and drink spending to $1,253, his entertainment spending to $181, his shopping budget to $388 and his spending at spas to $256. That frees up an additional $2,078 of monthly savings.
For every year between now and when he turns 45, Michael should look to spend no more than $115,000 between expenses and debt, with $84,000 going to the former and $30,000 going to the latter. Grouni also wants Michael to top off both his RRSP and his TFSA every year until he’s reached 45, meaning he’ll have to set aside $33,000 in savings per year.
Grouni expects Michael will be able to save even more once he sets up a professional corporation. “It’s a fantastic tax deferral vehicle,” she said. Of the $300,000 per year Michael would earn in his PC, Grouni said he’d need to withdraw about $235,000 or $146,000 net to pay for his expenses, savings and debt. Once he pays for his business expenses ($32,000 per year), he’ll have about $32,000 left to save and invest within his PC.
Right off the bat, a 50 per cent reduction in discretionary spending is in order
Nancy Grouni, financial planner, Objective Financial Partners
When Michael turns 45 and switches to part-time work, he can begin withdrawing $150,000 so that he can continue paying his expenses and debt and funding his TFSA. This is where Grouni’s plan deviates from Michael’s wishes. Between 45 and 60, he didn’t want to still be saving for retirement. And while $6,000 per year is almost a pittance in comparison to his income, Grouni said Michael’s original plan just wasn’t feasible.
“It’s unrealistic to think you can cram all your savings from now until age 45,” Grouni said. “You’d have to be a lot more aggressive with his savings and I felt already reducing discretionary expenditures by 50 per cent was a pretty big feat, but he’d have to reduce his expenses even further.”