Sherry, 35, earns $70,000 working contract to contract. How best to save due to the precarious nature of her work?

Sherry is a civil servant who works contract to contract. Because of the precarious nature of her work, the 35-year-old tries to make sure she has enough money saved at all times for when there is a gap between jobs.

“I have some savings set aside in case I don’t find work immediately after a contract ends,” says Sherry, who earns around $70,000 a year.

Her main financial goal now is to learn how to invest and grow her savings for retirement and in the event the time in between contracts stretches longer than anticipated. Sherry says she is not considering owning property at this point because of her contract work, but adds “it would be nice one day.”

Sherry has been working remotely since the start of the pandemic and says she eats at home and cooks her meals as much as possible. If she has to go into the office, Sherry says she tries to pack a lunch so she doesn’t spend money.

On weekends, Sherry prefers to stick around at home for more low-key nights. She does chores, runs errands, buys groceries and enjoys watching television and scrolling social media.

“I try not to make big expenditures,” Sherry says.

What’s the best plan for Sherry to grow her savings? We asked her to track two weeks of spending to get a better picture of her finances.

The expert: Jason Heath, managing director at Objective Financial Partners.

Sherry is a saver who likes to have extra money set aside for periods of lower income. She does contract work as a civil servant and sometimes there is a gap between jobs. A high-interest savings account in her tax-free savings account (TFSA) could be a good fit for some of her savings.

A TFSA is kind of like a shopping cart. You can pick and choose what to put in it. In Sherry’s case, a high-interest savings account probably makes sense if she needs to bridge a gap in income with her accumulated savings. Stocks probably do not make sense for that purpose because they are volatile. But at 35, she really should be thinking about retirement savings as well.

The higher the growth rate for retirement savings, the more you can accumulate. The more you can accumulate, the sooner you can retire and the more you can spend in retirement. A high-interest savings account is not a great way to save for the long term. Stocks are a great way to save for the long term. The 30-year return for the TSX and S&P 500, including reinvested dividends, was 8.7 per cent and 9.9 per cent respectively for the period ending Dec. 31.

So, if Sherry has savings beyond an emergency fund for in between contracts, she should consider some stock market exposure. Although she could buy stocks in her TFSA, an RRSP may be a better option for retirement saving. The reason? She can deduct registered retirement savings plan contributions from her income and get a tax refund of about 30 per cent. So, she can turn $100 into $130 and more quickly boost her wealth. In the long run, she will probably be able to withdraw from her RRSP when she is in a lower tax bracket, and that helps her to come out ahead.

The best thing Sherry can do is to learn a bit more about investing to establish a comfort level with stocks. They may be risky in the short term because they rise and fall each day, but over the long run, stocks rise. Arguably, the bigger long-run risk an investor faces is not taking on enough risk to allow their savings to grow to help them become financially secure in retirement.

Results: Spending in week one: $267.42. Spending in week two: $319.27.

Take-aways: Sherry says Heath’s advice was helpful and she’s interested in learning more about investing.

“I don’t invest,” Sherry says. “But it’s not a surprise to me that is something I should look into. I’ve been also told by others that I should really start investing my money,” Sherry says. “I’ll likely follow up on Heath’s advice.”

Are you a millennial living in Toronto or the GTA who needs help with saving your money? Be a part of #MillennialMoney and email galsharif@thestar.ca

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