Lifestyle | At 28, is she able to earn less?

Sarah* is 28, so her whole future is ahead of her. A future that she already sees differently, after four years on the job market.

Marc Tison
The Press

The situation

“I don’t like my job and I would like to know if I can reduce my salary,” says the young woman, who works in information technology. “My dream is to work on an organic farm near my home, like when I was a student,” she explains. That’s really what turns me on. I want to know if I can leave my office job. »

She would be spoiled for choice: several of her friends own farms in the region where she lives. She would have less latitude for the salary, however, which, according to her estimate, should be around $15 an hour. She currently earns $46,000 a year.

Sarah and her partner, Maxime, bought a house in 2018, paid for $200,000 and still burdened with a mortgage balance of $130,000, with a monthly payment of $770.

Maxime’s situation, both in terms of income and debt, is almost identical to that of Sarah, “so all our common expenses are divided equally”.

Self-employed, Maxime earns $45,000 year after year. Each has about $6,500 in student debt and about $3,500 committed on their line of credit.

Neither has an RRSP.

“Breaking news, I am eligible to contribute to an RRSP at 2% of my salary and 2% of my employer from the next paycheck,” she told us by email after our interview.

She patiently accumulated $3,000 in a TFSA.

“These have been Christmas gifts since I was little, that I would like not to touch to take a trip eventually, hopefully in the next year. »

She says she is ready to sacrifice a share of income to access “a slightly simpler way of life”. However, she recognizes that work on a farm is very likely to be seasonal, probably accompanied by another winter job. Although “in an ideal world, I would have winter to be able to relax and take my vacation,” she recalls.

The situation gets complicated when she adds that she would like to “start a family soon”.

Shortly ? Maybe in six months to two years, she says. “To be able to have a child, I consider that I must have a job that I love. »

For Sarah, happiness is indisputably in the meadow. Hence his question: “Can I afford it?” »

The answer

Unfortunately, the size of Sarah’s projects runs in the opposite direction of her income.

“Financial choices will have to be made,” says planner and tax expert Benoit Chaurette, advisor at the Center of Expertise at National Bank Private Wealth Management 1859.

“Assuming she works all year round 40 hours a week, her annual income would drop to $31,200,” he calculates.

This income could be even lower if the job is seasonal. Can Sarah do without a gross income of about $15,000 a year?

“She doesn’t save, so presumably not, with the current lifestyle,” replies the planner.

The only way out: reduce expenses and change your lifestyle.

However, Sarah’s program is ambitious: winter break, travel, founding a family, renovations…

Our expert notes that “the key to a successful career transition lies in the development of a comprehensive budget”, on the basis of which the couple can assess the realism of the project of the future agricultural worker.

Both can already improve the current situation.

Good news, the mortgage situation, with a monthly payment of $770, is excellent, he points out. In a context of rising interest rates, Sarah should prioritize the repayment of her line of credit.

Maxime’s case is different. Being self-employed, he could set the money aside strategy in motion. It consists of charging your work expenses to a business line of credit, to apply the money thus freed up to the repayment of your personal line of credit.

“Since the interest paid on a loan used in the context of business is tax deductible, Maxime will be able to gradually convert a non-deductible debt into a tax-deductible debt. »

There is no rush to speed up the repayment of student loans, the interest on which provides a tax credit.

On the other hand, Sarah should jump at the chance to contribute to her employer’s group RRSP, to which the latter contributes 2% of her salary – a “free” RRSP contribution, argues the planner.

For the rest, the road looks difficult. Benoit Chaurette estimates that, for the moment, Sarah is not able to materialize her project. It’s only a postponement, however, and he outlines some budgetary milestones to get closer to the goal.

“If Sarah is not able to save, it is a sign that she needs all her income to live comfortably,” he notes. Sarah will first have to start reducing her expenses in order to produce surpluses that will allow her to repay her margin and free up some savings. “She will thus be able to see what reduction in this income she can assume without affecting her pace of life. »

The couple should also build an emergency fund, ideally equivalent to three months’ income. In addition to the fact that this effort already demonstrates strict budgetary discipline, the fund will facilitate the change of employment “by reducing financial stress”.

In addition, Sarah and Maxime will have to keep a detailed budget. They will thus be able to see which expenses they would be more easily able to reduce in the context of a reduction in their income.

But with reduced incomes, what place would be left for retirement savings?

The answer lies in the demonstration that the couple will be able to maintain a modest lifestyle.

“For a household with a low cost of living, a large portion of retirement expenses can be covered through public pension plans. [PSV, SRG et RRQ], emphasizes Benoit Charette. This is all the more true with the recent enhancements to QPP benefits. »

Once the debts and the mortgage loan have been repaid, the budget surplus can be directed in part towards retirement savings.

“With a paid-for house, government benefits and a little savings, the couple could look forward to retirement at 65 without too much worry. Provided of course to maintain a simple way of life. »

In short, Sarah will first have to plow and sow to reap a career change.

* Although the case highlighted in this section is real, the first names used are fictitious.

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