Life can be expensive. Between rent, debt payments, savings and personal expenses — it can be hard to keep track of what's going in and out of your bank account each month.
If money feels overwhelming, don't worry! Michelle Hung (BMath '08) joins the podcast to break down all the components of a budget, so you can create a monthly practice that works for your needs today and in the future.
After Michelle graduated from Waterloo, she spent seven years working in investment banking and venture capital. An avid investor herself, she used the knowledge she gained in that career to build a six-figure investment portfolio by the time she was 29. Today, she is a financial planner, financial educator and author of two books about personal investing.
Follow Michelle on Instagram: @thesassyinvestor
Follow Michelle on TikTok:@thesassyinvestor
Learn more from Michelle: https://thesassyinvestor.ca/
Life can be expensive. Between rent, debt payments, savings and personal expenses — it can be hard to keep track of what's going in and out of your bank account each month.
If money feels overwhelming, don't worry! Michelle Hung (BMath '08) joins the podcast to break down all the components of a budget, so you can create a monthly practice that works for your needs today and in the future.
After Michelle graduated from Waterloo, she spent seven years working in investment banking and venture capital. An avid investor herself, she used the knowledge she gained in that career to build a six-figure investment portfolio by the time she was 29. Today, she is a financial planner, financial educator and author of two books about personal investing.
Follow Michelle on Instagram: @thesassyinvestor
Follow Michelle on TikTok:@thesassyinvestor
Learn more from Michelle: https://thesassyinvestor.ca/
Life can be expensive. Between rent, debt payments, savings and personal expenses, it can be hard to keep track of what's going in and out of your bank account each month. If money feels overwhelming, don't worry. Our guest today is going to break down all the components of a monthly budget so you can create a practice that works for your needs today and in the future. After Michelle Hung graduated from Waterloo, she spent seven years working in investment banking and venture capital. An avid investor herself, she used the knowledge that she gained in that career to build a six-figure investment portfolio by the time she was 29. Today, she's a financial planner, financial educator and the author of two books about personal investing. Michelle, thanks so much for joining the podcast today.
Michelle:Thank you so much, Megan. I'm so excited to be here today.
Meg:Yeah, I'm really excited to have you here as well, because I've been following your videos on TikTok, in particular, for a while now. So great to have you, great to have you on. I want to just jump right in. Let's say that I am a new graduate and I just got my first job out of school. Where do I even start with my monthly money management?
Michelle:Well, you'll want to start with establishing what it is that you want. Hopefully, as students because I've done a bunch of talks at the university hopefully you have some sort of concept of what a budget is. But if you don't, that's okay, we'll be going through that. So the first thing is you want to establish your goals. What do you want? Is it to pay off student loans or any debts that you have? Is it to build up savings for an emergency fund? You want about three months, at least three months worth of expenses saved up. And again, is it to save for a house? You want to move out?
Michelle:Maybe you went back home with your parents right After you graduate? That's okay. So you have to look at your situation, establish what it is that you want, and you can certainly have more than one goal. Okay, it's not like, okay, I have to pay off my debt, I can't do anything else. No, you can have more than one goal, and that's why creating a budget will be very helpful, because it's going to help you allocate money towards the multiple goals that you have, while, of course, considering your living expenses.
Meg:Yeah, for sure. I think that that's a really great point to start with, that everyone's in a different situation. Everyone is going to have a different thing that they're striving towards so and cost different amount of money for different things. So that's a great thing to start with. So, now that we've established our goals based on our own particular situation, can we talk about monthly expenses? What should people consider first?
Michelle:Absolutely. So a really big mistake. I see, with people's budgets are having very high fixed expenses and the two most costly ones are especially in, you know, toronto, vancouver. It's going to be rent and car expenses come after that. So I want to talk about rent. Let's talk about rent, especially in Toronto. What the way things are now? They're like low vacancy rates, so they say, and very high rents. It's a big challenge.
Michelle:So my take on, as you know, a fresh grad, you just got a full time job. You're making big money, more money than you've ever made before. So it doesn't mean you should go on a spending spree, right, it's a big mistake that people make. If you can live at home with your parents for the first several years, do it because these are the years where you can really stash away a lot of money. You can pay off that debt so much faster. You can save so much faster. Now, of course, you're going to be very likely contributing to that household as well. Whatever that amount may be, you're going to be paying your parents rent or your family, whatever, any like some form of rent, but it's not going to be as much as if you were to be living out on your own. If it is, then maybe you can consider moving out. But for the most part, you know, staying with family the rent is. You know it should be reasonable, right, and if they're not being reasonable, then reason with them.
Michelle:And I graduated, I, you know, I worked downtown and investment banking but I needed to save money and pay off my debt, so I had to stick it out. I stayed at my parents' house in Markham. I took the GO train in every day very early in the morning and many, you know, late night. There were times where I just didn't see daylight, especially in the wintertime. So you know, I just had to stick out because that was my financial situation.
Michelle:Now, again, that may not be an option for everyone. Not everyone will have, you know, parents, like in the GTA, or you know close to where you work, where your jobs are, so you may have to come out having to rent wherever it is that you're living in. So what I would say is get a roommate. Do not go for that one bedroom, get two roommates if you can. Sharing a home with someone is not and should not be unique to just student life. It's just so expensive in the city and the more roommates you have, the cheaper your rent will be. So when I see people's budgets you know maybe they have you know I see budget like people having budgets of salaries of $80,000 per year and they start renting a one bedroom place in Toronto for like $2,300.
Michelle:Okay, those are people that will be struggling and that's how they get themselves into debt. Their rent or fixed costs are just too high. So, and because they're fixed, they have to pay their rent to stay wherever it is that they're living. It just leaves very little wiggle room for all the other expenses like food, going out, savings trips or any other goals that they may have. So if you get a roommate or, you know, get two roommates, you know if you're going to be living in the city, that is your best option. You'll still have like the freedom, the flexibility, like the independence, but your fixed expenses, your rent costs, will be very manageable. And then that allows you to save money, pay off that, whatever it, whatever goals that you've, you've established. And, of course, if you can get away with not having a car, take public transportation, get that Presto card, walk, bike, whatever it is. You know car costs are also very high. It's also a big portion of someone's budget.
Meg:Yeah, that's, that's great. I mean, like you said, everyone's situation is different, so I guess that I guess the main message is just reduce those costs as much as possible. And, as someone who got rid of her car after graduation and started taking public transit, it's actually, it really is not that bad. I found that I was actually more healthy, but I walked everywhere because I didn't want to wait for a bus, which is also a good option. So so that's our, so those are our fixed costs the vehicle and rent. Those are the big ones that you really need to consider first. So once we've figured out that situation, I assume that we can kind of work the rest of our budget around those big things. And the next piece that I would expect you would look at is debts, because you need to keep paying them, whether you've moved out of your parents or not. How would you recommend tackling debts? Is there an organized way to go about it, especially if you have multiple debts, and how do you know what you should be putting down?
Michelle:So, basically, you know you're you're starting by, you know you're looking at your numbers, how much are you bringing in net, net monthly income each month? And then you've established. And then you've established you know like what are your fixed monthly costs? We talked about the big ones, and then now let's incorporate, like all the other types of fixed monthly costs, right, and that includes the minimum payment on those debts. And if you want to pay off debt faster, you'll want to go above paying the minimum to get that debt down faster. So you have to establish how much more you want to pay about the minimum. So, again, that depends on all your other fixed recurring monthly expenses. So expenses like we talked about rent, transportation expenses. And then there's like utilities, internet, cell phone, gym memberships. And then you also want to give yourself like a minimum savings right. So, even though you have debt, you want to still stash away money for for your emergency fund. So set a minimum savings amount. It could be $200, $300, whatever that amount. You're going to be setting aside money for yourself while making payments towards your debt. So no, again, like, once you've established all of these fixed expenses, including minimum loan payments, minimum savings, no matter what happens, you must pay these bills or set aside money for these goals every month. So, once you've established that whatever's left is going to be allocated towards variable expenses like food, going out shopping and your financial goals, which is paying extra amounts towards your debt, or it could be like saving more aggressively.
Michelle:So if your primary goal is to tackle that debt amount, you want to pay as much towards your debt above the minimum amount. You want to use a debt calculator. You can find that online. I know OSAP. The OSAP website has a calculator where you can, you know, put in some numbers to see when you'll be debt free if you were to pay, you know, x amount per month towards your loans. And I would say, like, be a little flexible with that, be like.
Michelle:I think the. I believe the average time it takes to pay off OSAP loans around it's close to 10 years. Right Now I've really gone. Oh my gosh, it's like 10 years. It's okay, you will pay that down. But the key is you get to have a balance with your life, right, and that's the important thing. You don't want to resent your life just because you want to pay that debt down aggressively. And another note is, like OSAP loans, the interest on those loans are tax deductible, so there's a benefit to that.
Michelle:So you may want to be aggressive, like the first five years kind of thing, get it down to an amount where you're like, okay, I only have like $10,000 or $8,000 left, and then you know that's when you're going to start feeling good and be like, okay, this is good. You can even like slow down your payments or you can, you know, pay it off right like, right off the like. You can even aggressively pay that off Even faster. May not even be 10 years, because if you continue to get raises, maybe get some bonuses, that will all be very helpful towards tackling that debt. So when you're starting right now, look at the calculator and seeing that, oh my God, it's going to take 10 years. That's okay. A lot of things can change over the next 10 years. Just make sure you have a good balance right now between your goals and your current living expenses.
Meg:I like the way that you broke that down, where you know the minimum payments are part of your fixed costs and then you can think about it's good to pay more, but you need to fit it in with your goals, especially with the cost of living being so high. I think it's a really nice way to think about it. So we have our debts figured out eventually in 10 years. That's okay. We have our fixed costs figured out for the month. So once all of that is looked after, what if you have some remaining money left? What should you do for it? Is it open for spending? Can we just go out and treat ourselves?
Michelle:Yeah, absolutely so. Like once all your fixed costs are looked after, including, like, your minimum savings, minimum debt payments, extra debt payments, extra savings, you know, whatever is left over it's gonna be towards your variable expenses food, entertainment, shopping. Okay, now I just wanna add to the previous point that in determining your additional debt payments I mentioned you have to strike a balance between the variable expenses and those aggressive debt savings goals, right? So again, the key is to balance how much you want to give yourself for these variable expenses. So, for example, if you find yourself spending $1,000 per month on food, going out, like restaurants, buying stuff at, you know, walmart shoppers, drug markets, stuff like that Okay, then that's the amount you give yourself for these expenses every month. Okay, and each month your spending on food and shopping will differ. That's why they're called variable expenses. They vary, right? So you wanna give yourself that flexibility, treating that $1,000 per month like an allowance. You can spend that money on whatever you want. Okay, if you wanna go out and eat McDonald's every day, that's great, that's your jam. Just don't go over that amount. This gives you the illusion that you have all this freedom, flexibility, which essentially you do, as long as you don't go over that amount and what you want to do is you're gonna break that monthly amount down to a weekly number, say, you know, $250 per week, for example. Give yourself $250 per week to spend on those variable items. Don't go over the amount and you won't go into debt.
Michelle:And in the meantime, you've already established your allocation for your money towards your fixed expenses, for your financial goals, for your extra debt payments, your savings. All that has already been established. So now your job, day-to-day, is to make sure you don't go over that allowance that you've given yourself. So, and if you're not spending all of it, great, you have extra savings, right, or you can carry that amount toward. You can carry that amount forward to the next month.
Michelle:So it's all about trying to strike a balance. Test it out. If you feel like you keep going over a budget for your variable expenses, like, oh, I can't work with this, okay, then you know, tone down your. You know, maybe some of your goals, right, you want to give yourself some flexibility with your, with your variable expenses. I know most people underestimate what they spend on food and going out, right? So you don't want to have that guilt. It's like, oh, I went over a budget. But that's why it's important to give yourself, you know, that amount, that's the amount that you're like, that allowance that you give yourself, say you up to up it to like $1,200 a month, right, stay within that guilt free spending. You can spend on whatever you want. In the meantime, everything else is taken care of.
Meg:Yeah, I like breaking it down by week and I guess, like there are lots of different ways that you can practically go about that. I know that, like I've seen some people online who specifically take out so much in cash every every week and then that's their spending money, or, you know, you could have like a separate account or something that you that you use for that lots of different ways to keep track of it. I'm sure whatever works best for you. To go back to the savings, if I can add a question in here, because we have our established savings, it used to be when I, when I got, came out of school and this makes me feel a little bit old but when I came out of school, people suggested that you save 10% of your paycheck, and I think that things have really changed now because of the cost of living being different. Is there, is there, a set amount that people should be saving, or is that again dependent on their goals and what they have going on?
Michelle:Yeah, it really depends on everyone's goals and, you're right, living situations, you know, spending like cost of living, like it's changed so much over the year, so this like, oh, save 10%, save 20% of whatever is your earning, it really doesn't. It's not really. For some people it's just not feasible, especially in cities like Vancouver and Toronto. Like, even if you can get away with saving $100 a month, right, like that is better than nothing. So just because you can't meet that 10% like savings allocation, that's okay, save whatever it is that you can, at some point something's got to give.
Michelle:Something will change whether you're going to start making more money, whether you're. You know you'll free up your a lot of cash flow because you're going to be debt free and then you can save more money. That's you know you have to keep in mind savings is not linear. A lot of things happen throughout life. It's not going to be like, oh, I can save 10% for the rest of my life. It's not going to work out like that, especially for, you know, like women, right, you know they go through maternity leave or people lose their jobs, you know, and then they end up not being able to save money. So, you know, just keep in mind. Savings is not linear, and so you have to do what works best for you, especially if you're living in these high cost cities like Toronto, vancouver. The key is save whatever it is that you can.
Meg:Yeah, that's, that's great. Yeah, any savings are good savings, so that's great advice. All right, so look you're. You're known as the Sassy investor. That's the uh, that's the name of your first book. So I have to ask about investing, what is the best way to get started with investing? Where? Where do you start? Uh, I feel like it's overwhelming. There are so many options?
Michelle:Oh yeah, and you know there's. The internet has flooded with so much information. You know people get into this like analysis, paralysis. The best way to get started is just to get started. Okay, get that investment account opened with a few points in mind. So there will be some research involved if you're going to do this yourself, okay, but regardless, I think everyone should learn about um investment investing. You know how that investment education under the belt, so you can also you know, of course check out my TikTok page. I provide a lot of good tips on how to get started and what to invest in. But the first thing you want to do is you're going to, you're going to take action, and you do that by opening an account. Okay, there's no harm in opening an account um, except for one thing, which I'll talk about um in a few minutes. But where do you do that? So in Canada, we have brokerages like well, simple trade or quest trade. Those are great for beginner investors, diy investors, um, and now it's okay. So you found the institution you want to open your account with. Now, what account do you want to open? So here are some of your options. You're going to start um, if you're just starting to invest.
Michelle:Everyone needs to open a tax-free savings account, a TFSA. Okay, so everyone needs to open. That. Doesn't matter like what income bracket you're in and whatnot. Everyone needs to get that open. There are limitations on how much you can put in there, but once you put that money into that account and you invest it, everything grows and, like all the earnings, they grow tax-free, and when you withdraw money from it, it's tax-free. So there aren't a whole lot of things in Canada where things are tax-free. This is one of those things, so you want to take advantage of that.
Michelle:The other option is there's this brand new account and I think it'll apply to a lot of people coming out of school. This is the first home savings account. It's the FHSA. It came out this year, 2023. It's for those who are looking to buy a home in Canada.
Michelle:Now, we all know that sounds like a struggle in itself, but the point of the purpose of this account is to help people with that down payment. So it is similar to a TFSA, where you have limits on how much you can invest each year, but your earnings will grow tax-free. So when you withdraw that and when you withdraw money from the FHSA, that down payment will be tax-free. So you'll have 15 years to make a home purchase from the time you open an account. So when I said before, just open an account, make sure you're for the FHSA, make sure you're ready to start saving money towards your home purchase, because there is a time limitation as to how long you can be saving and investing for. So that time is 15 years. So again, open it when you're ready to start saving for that down payment.
Michelle:So the other I also want to mention the other benefit to the FHSA is that when you do put money in, it reduces your tax bill for the year. So you get a tax deduction, which is nice because you're saving money on your taxes for the year. Your earnings are growing tax-free for that down payment. And you just get a tax refund because it reduces your tax bill. So the tax refund that you get, you can put that money towards your TFSA, your savings. You can do whatever you want with that money. The key is you're saving more money for yourself as opposed to paying it towards taxes.
Meg:Love that tax rebate. I guess it's not a rebate, but I love the return, the tax return. It's always good to get a return on something and then it feels like free money, you know, even though it wasn't really. Yeah, great. So some great options. I mean, the TFSA feels like just such a no-brainer for people, and same with the first-time home buyer. So once we have the accounts open and we're putting money into them, I wonder, like, what are some options for actually investing, because there are some decisions that you need to make for that as well.
Michelle:Absolutely. So what to invest in once you put that money in? So you want to. So I'll start by. Let's just talk about your tax-resavings, right, your saving, your investing money for the long-term. So you have in mind you're not touching that money for at least five, 10-plus years. So when you're investing I'll just follow you and talk a bit Before that.
Michelle:A test you want to make sure you're, you know, diversified and there are ways to save you from From picking, you know, individual stocks like share by Apple. Should I invest in Amazon? Should I invest in Tesla? All these things right? Yes, you can invest in all of them. And the key, and you want to invest in all of them because it saves you the trouble from trying to identify which companies will still be around, which ones are gonna grow. But also, you're not putting all your eggs in one basket by investing in you know Just three companies, right, because if any one of those companies go Bankrupt they don't do well, then it's really gonna have a big impact in the portfolio. So that's why you want to be diverse, invest in hundreds of companies at the same time, and you do that by investing in what is called a fund, right, but specifically an exchange traded fund, so it's just a pool of money that's invested in many companies across the board.
Michelle:You start with investing these ETFs. You can pick a Canadian ETF, so you're gonna be invested in, you know companies, hundreds of companies across Canada. So what comes to mind? Well, we have all the banks right. We have Scotia BMO, rbc, td. You're gonna be invested in that. You, we have you know, three telecom companies. Rogers Bell, tell us. We have a tech darling of Shopify. You know, like, when you think about Canadian companies, that's what comes to mind. So you find, like a Canadian ETF, you will be able to get exposure, invest in all these companies Across the board in Canada. And because you're so that you're diverse in investing in Canadian companies, your money is, you know it won't go to zero.
Michelle:If a few of them, look, have some trouble in the short term, that's okay, because you don't have all your eggs in one basket. So, likewise, you also want to add some like us ETFs, us funds. When you think about the US, you know we think about the tech, like the big tech Giants, like Amazon, apple, microsoft. You know you'll have exposure to that as well. So you'll have a mix of Companies across the world in your portfolio.
Michelle:At the end of the day, you pick a couple ETFs, you get exposure to thousands of companies and you're making money two ways. You're gonna get the dividend payments so, which are like the profits are paid out to their investors. So If you have like thousands of companies, if you have a couple of ETFs, you're gonna see actual money Dividends hitting your investment account on a monthly basis, maybe even several times a month. So that's always nice to see that tangible result in the short term and in the long run You'll wait for, like no matter, what's happening. Eventually, you know you'll see these stock price gains because the stock markets have, you know.
Michelle:But the average historical stock Price returns have been around eight to ten percent per year. Around eight percent in Canada, 10% in the US, and that's a straight line average, meaning it averages out. Like you know, in one year the markets could be up like 30% and the next year could be down like 25%. You average every single one of those numbers up. It's around, it's a positive return eight to 10% and that is good enough to hit whatever goals you want to hit, especially if you're starting really young. It is that's. If you only do that. That is all you need.
Meg:Yeah, for sure, and that is why Any savings are good savings, because, would you put them in a tax-free savings account and you're investing them, they're gonna grow More than just by the hundred dollars you're putting in there every month. Exactly, yeah, that's great. Well, michelle, it's been great to talk to you today. Thank you so much for breaking down monthly budget practice for us. Where can people find you online if they want to follow your other content?
Michelle:Yeah, for sure, you can find me on Instagram. My handle is at the sassy investor. I mentioned tick tock, also at the sassy investor, and then, of course, if you want to check out my web page, it's the sassy investor dot ca. Awesome Thanks, great Thank you so much, megan.
Meg:Thanks so much for listening. If you enjoyed this episode, please subscribe to our feed. If you want to learn more about finances, career paths or other practical topics, check out our list of upcoming events for alumni. Thanks to alumni volunteers, we host events all over the world. Follow the link in our episode description to learn more. You Waterloo alumni podcasts are produced and hosted by me, meg Vanderwood. I also happen to be a proud alum. Thanks to angle media for editing this episode.