A Realistic Financial Plan for the Everyday Millennial

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A Realistic Financial Plan for the Everyday Millennial

On November 7, 2014, Posted by , In Creating Goals, With No Comments

Parents of teenagers pay attention!

You can’t argue with the headlines, millions of students enrol into post secondary school only to graduate with a mountain of debt and limited job opportunities. Unless a household is able to afford higher education for their children, it is time we start to consider a new approach to helping millennials avoid indentured servitude.

When I finished high school, I was one of the fortunate ones who knew what they wanted and was able to attend college on a scholarship. I truly believe if I didn’t have school paid for from my savings and scholarships I would’ve considered taking a gap year. Gap years are more common outside of North America, in Australia and New Zealand they partake in a Overseas Experience; a.k.a. OE; however, most individuals doing their OE wait until they finish college. The purpose of an OE is to get some real life experience, through seeing the world, before settling down.

In yesterday’s article (A Financial Plan for Misguided Millennials), I highlighted key milestones that should be consider for most millennials who are essentially starting from $0 when they graduate high school. We hardly ever commend our youth for being in an advantageous position, being that most of them have no consumer debt when they finish high school. I do realize that there are high school students with credit cards; however, I have to hope that they are learning how to be responsible with consumer credit.

Let’s implement the plan introduced yesterday for a soon to be high school graduate with no debt who wishes to achieve the same financial successes as their parents. The following will be the layout for the plan:

  1. Retirement at age 75.
  2. College must be paid for in cash – no student loans.
  3. 25% down payment and start mortgage ay age 40.
  4. Travel is a priority before purchasing a home.
  5. Content with finding a career at age 30.
  6. Parents agree they can stay at home until they finish college – they may have to pay rent.
  7. Regardless of income, 15% to 20% of take home pay will be set aside from every paycheque for short term and long term goals.

To conclude from yesterday, with the recent changes in public opinion regarding retirement we are now going to remove 10 years from the back end (from the traditional retirement age range) so that there is more time to create an estate in the earlier years.

We will now add a few assumptions for the millennial (let’s call this person Brenda) at graduation (all figures are in today’s dollars):

  1. At graduation, Brenda will be able to find a job that pays $12.50 per hour.
  2. At age 25 she will be enrolling into university (tuition and books equal $40,000), where she plans on completing a 4-year degree. She plans on working part-time on weekends to afford her living costs outside tuition/books.
  3. Her parents allow her to rent out the basement suite (separate unit within her parent’s home) until she completes university for $600 per month. Or she could share an apartment rental with her friend paying roughly the same amount.
  4. At graduation (Brenda will be 29) she plans on working abroad teaching English, working as an au pair in Spain. She will work for four months to fund the last 8 months of her European adventure (one year overseas adventure).
  5. Brenda plans on pursuing a career in Toronto or Calgary depending where she will be able to find a career in her field.
  6. With her life experience (including relevant work experience throughout her 20s) and education, she will be able to secure a job that pays 10% above the median Canadian salary ($55,000 per year).
  7. She will rent an apartment that is close to her job to minimize transportation costs and more importantly time.
  8. Brenda will be pursuing industry designations to ensure she is able to make above $70,000 before she purchases her first home (Additional education upwards to $20,000).
  9. Brenda enjoys the city life, so she plans on buying a 2-bedroom townhouse in or just outside the city limits (rapid transit is wildly available).
  10. Brenda at age 30 breaks down her budget using the 50/30/20 budget allocation (for more information – CLICK HERE).
  11. Her goal is to purchase a place with the savings she has set aside, which should equal to 25% of the purchase price (avoiding CMHC Insurance).
  12. She wants to avoid the following: 1) consumer debt 2) student loans 3) having flexibility to afford a decent lifestyle while achieving financial stability.

With everything listed above, we have created a financial plan illustration to see how much her estate will be throughout her life.

There are many elements when forecasting a person’s entire life. The illustration above would be considered a preliminary draft based on the information generated from a typical fact finder.

Impossible is nothing!