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financial facelift

(Christopher Katsarov for The Globe and Mail)Christopher Katsarov/The Globe and Mail

Abby is age 36, a single parent raising her 11-year-old son without much additional financial support. Her biggest struggle is coming up with a balanced budget that works well, she writes in an e-mail. A budget that will pay the rent, car, cellphone and insurance bills, buy groceries and chemical-free toiletries, allow her to give to charity and save for emergencies, for her son's higher education, for her own retirement, and for "wellness, personal development, clothing, and gifts," Abby writes.

"My emotional health has suffered from the stress, and I notice I am downloading more of this stress onto my son, yelling at him that he needs to stop costing me so much … I understand he is just being a boy, but I am hoping with some advice I can balance things better financially and release a huge stressor in our lives."

Abby earns $61,500 a year and pays $1,700 a month in rent. She also gets the federal child tax credit, but little in the way of child support – maybe $100 a month – from her ex-husband. Until last spring, she worked two jobs but quit because her health was suffering.

"As you can see, my rent takes up almost 50 per cent of my take-home pay," Abby writes. Charity, house cleaning and savings eat up another big chunk. "That leaves me 20 per cent to pay my bills, groceries and everything else," she adds. "I finally realize that this is why I am struggling and stressed, expecting to have everything and yet work within the 20 per cent," that remains.

We asked Heather Franklin, an independent fee-based financial planner in Toronto, to look at Abby's situation. Ms. Franklin holds the Certified Financial Planner (CFP) designation.

What the expert says

"Abby finds herself in a precarious financial position," Ms. Franklin says. She pays so much for her townhouse (in a community outside of Toronto) because it is close to her son's school, in a safe neighbourhood where his friends live and also because her landlord is an acquaintance and therefore reliable. "As I don't have much social support, I have chosen what I feel is the safest option for us," Abby says by e-mail.

"Her financial problems are based in part from her perceived need to live in a large home as well as the lack of financial support from her ex-husband," Ms. Franklin says. She might consider other perfectly safe but smaller places to live that would not consume so much of her income. If Abby could lower her costs, she would feel less stressed about her financial situation.

Several items in her monthly budget might be reduced and in some cases, eliminated, the planner says. She should consider volunteering her time to charity rather than donating money, Ms. Franklin says. "We can assist others better when our own needs are taken care of first." She might explore possible savings on her car and home insurance through an employer-sponsored plan, for example, or by combining them into one policy.

While cellphones have become necessary, expensive plans are not, the planner says. "Perhaps she could consider a pay-as-you-go plan instead of an expensive, all-inclusive one." She might also be able to switch to a lower cost provider. Ms. Franklin also casts a critical eye at the $120 a month Abby spends on a cleaning service. And she notes the $100 for vitamins and supplements, where good food would likely suffice.

"However, the main stumbling block is the rent," the planner says. Although Abby says she is planning to stay put for another three years, she should take some time to explore other rental options in her neighbourhood, Ms. Franklin says. Alternatively, she could try to negotiate a lower rent with her landlord, especially if she intends to be a stable, long-time tenant.

On a positive note, Abby is part of a defined benefit pension plan at work. If she stays with her current employer, "her financial requirements during retirement will be met," Ms. Franklin says.

Finally, Abby should review her investments, open a brokerage account and switch out of mutual funds that have high management expense ratios to low-cost mutual funds or ETFs, the planner says. She might even consider an online portfolio manager, or robo-adviser. Because of her pension plan, additional RRSP contributions are not crucial for the moment, the planner says. Instead, Abby should concentrate on building up an emergency fund and taking advantage of her tax-free savings account, the planner adds.


The people: Abby, 36, and her son, 11

The problem: Learning to live within their means

The plan: Look for a less expensive home, volunteer time to charity, spend less on non-essentials.

The payoff: An end to the stress that is taking such a toll on their lives

Monthly net income: $3,425

Assets: Savings account $21,800; son's savings $2,560; lump-sum contribution to pension plan $60,000; TFSA $48,255; RRSP $18,995; estimated present value of DB pension plan $20,000; RESP $16,380. Total: $187,990

Monthly disbursements: Rent $1,700; home insurance $35; cleaning service $120; garden $20; transportation $330; groceries $500 (includes toiletries, household supplies); clothing $40; gifts, fundraisers $120; charitable $160; professional development $80; grooming $100; music lessons $140; dining, entertainment $100; piano tuning $15; bike maintenance $10; sports and summer camps $160; Costco membership, bank fees $25; dentist, holistic medicine $50; prescriptions $20; vitamins, supplements $100; life insurance $40; cellphones $130; Internet $75; RESP $90; savings account $210; pension plan contribution $220; disability insurance $25. Total: $4,615. Shortfall: $1,190 (covered by savings)

Liabilities: None

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