Are millennials just not prioritizing their money well enough?
Average salary of a millennial is $35,592.
I am going to use Montreal as an example with this salary, because it is what I know best. I know other cities have a much higher cost of living (hello, Toronto and Vancouver I see you), but feel free to chime in with your calculations / numbers.
The tax rate for under $43,055 is 15% in Quebec
(Source: Revenu Québec)
This means, after taxes, using this calculator, they get $27,688 net or $2307.33 a month, no retirement (RRSP) contribution.
Average debt for a millennial is $21,000…. if we throw all of this together, I came up with budgets that have no RRSP max contributions and the max RRSP contribution (18%)
MILLENNIAL BUDGET – NO RRSP CONTRIBUTION (18%)
So if the gross income is around $35,592, after taxes, they have a net of $27,688 or about $2307.33 monthly into their bank accounts.
With that, a budget could look like this, as a single-person household:
It has been a while since I have rented, but I put $800 as a decent apartment, no bedbugs, not in the middle of nowhere (as I prize low commuting time over anything else), and some numbers for some basics.
I also threw debt in there at $287.50 but that just feels so low. I feel like people pay way more on car loans, credit card debt and student loans, but this is what I am putting in there for now.
The leftover is pretty decent – $494.83, but remember, they aren’t saving a thing.
MILLENNIAL BUDGET – FULL 18% RRSP CONTRIBUTION
So now if I do a budget where they pay themselves first, the taxes drop by $1763 a year, which is about $146.97 a month ‘extra’ back in your pocket, PLUS you are saving almost $6405.96 a year in a pension plan.
The same budget now looks like this, but savings is fully funded at 18%:
Ouch. I mean, OUCH.
I know I am bougie, but I found it hard to just have $200 as a fun budget to eat out and shop with. To have $107, that is TIGHT.
Singletons lose out
At this income level, it is much more expensive to be single. Without a partner, or a roommate, the cost of rent is ridiculous and eats up most of your budget.
Unless you move to a cheaper place and/or get roommates, it is difficult to get a boost in that income if you are stuck at this salary and/or cannot/don’t pick up a second or part-time job.
Do things really cost what they cost?
I am also probably lowballing the costs of everything else!
Debt seems like it should be higher, maybe utilities as well, then they have cellphones, a television or Netflix account… there is lots in there I have not even put in.
Full pension contributions are a stretch
If they max out the 18% with saving $6405.96, this is great, but it is a tight fit on a budget, even with a tax refund back of about $147.
Still, saving younger, and as much as possible is what really makes true wealth possible.
However if you do that math and let’s say that’s their salary out of school, this is how much they’d have at the end if they had the same salary and budget for 40 years, you’d have $1.4 million at the end:
If this person was SERIOUS about saving, just look at the chart above. In the beginning the interest earned is almost equal to the value of what you are putting in, but then your earnings are mostly INTEREST earned, not even how much money you put in.
Isn’t that incredible? That whole dark blue section is pure investment gains by investing early.
They wouldn’t even be able to max out their TFSA at $6000
TFSAs are also $6000 a year and there is no way anyone will be able to save an additional $6K on top of this already tight budget, that is for certain.