Client situation
Suzanne Richter, 31, makes $110,000 as a corporate lawyer but wants a career change.
Assets
RRSPs, $7,000; cash, $1,200.
Monthly expenses
Rent and parking, $1,705; car lease, $500; gas, $100; cable and Internet, $70; phones, $255; gym and yoga, $135; student loan payments, $350; taxes, EI, CPP, $1,865; food, $300; entertainment, meals, $350; clothes, $200; gifts, $200; charity, $70; grooming, $150; cleaning lady, $70; career coach, $315; cabs, $75; insurance on car, $141; other insurance, $30; credit card payments, $300; travel, $200; miscellaneous, $100.
Liabilities
Student loans, $28,800; line of credit, $13,000; Visa balance, $2,500; department store credit, $1,000.
High above Bay Street, corporate lawyer Suzanne Richter (not her real name) has the feeling that writing weasel words for mergers and acquisitions is not the goal of her life. She laments the 80 hours a week she must investin her profession and the target she must meet of 1,900 billable hours a year.At the age of 31, she is on track to make partner at her firm. She earns $110,000 a year. Her credit card debt, student loans and a modest line of credit at her bank total about $45,000.“I am at the crossroads between deciding to stay or moving into something very different,” she explains. “If I stay, I will get annual salary increases of $10,000 a year and that will be a chain that’s hard to break.“If my standard of living rises, I will be stuck paying for it. I have freedom now. I am getting to a stay-or-flee point in my career.”
What our expert says
Facelift asked Michael Cherney, a certified financial planner in Toronto, to meet Suzanne and to examine her career plans and goals. He’s well qualified because he’s a non-practising lawyer who left the profession to work in finance.
Suzanne’s plan is to shift her work to human resources consulting in the area of diversity management or becoming a director of a philanthropic organization. “That work is more about people and less about paper,” she said.
Suzanne should be good at it, but she will have to take a temporary salary reduction to $75,000 to $80,000, Mr. Cherney says. “That would entail significant changes to her spending plans.”
Currently, Suzanne spends about $7,480 a month including taxes, Employment Insurance, Canada Pension Plan, temporary career counselling and debt repayment. That level of spending will require management if Suzanne is to make a smooth move to another career, the planner says.
Suzanne’s rent, $2,005 a month less $300 from her sister who is attending university, is reasonable, Mr. Cherney says. A car Suzanne leases for $500 a month for use on weekends is costly. He wonders if Suzanne might be able to terminate the lease with a reasonable penalty payment and buy a used car.
There are a lot of other expenditures, including $235 for phone calls— many to her family on the West Coast. Those high phone bills might be cut by shopping for lower-cost digital phone plans and long-distance providers, he suggests.
Suzanne is generous to a fault: she spends $270 a month on gifts and charitable donations. Mr. Cherney recommends that they be cut by a half or two-thirds. Once Suzanne’s new career blossoms, she can restore her gift-giving to its former level, he says.
Car insurance that costs $141 a month is pricey for a female professional with a good record. Ms. Cherney recommends that Suzanne shop for better deals. They are hard to find, but he is confident she can do it.
At her $110,000 income level, Suzanne can pay down her debts if she develops a systematic plan, but if her income declines to $75,000 a year and if she continues to spend at her present rate, she will be in trouble, Mr. Cherney says.
“Suzanne’s current spending would not be sustainable if she makes a career move,” he explains. “It may be necessary to find a smaller apartment that Suzanne can split with her sister, each paying $600 to $700 per month.”
To prepare for a career move, Suzanne should begin by paying down debt with high interest rates, Mr. Cherney urges. That includes a $2,500 Visa balance that bears a 16-per-cent annual rate of interest, a $13,000 line of credit with a 7-per-cent interest rate, a $1,000 balance at a department store with a 24-per-cent interest rate, and student loans that total $28,800 with interest at 7 per cent.
Once debts are reduced and monthly expenses trimmed, Suzanne should begin a systematic plan to develop savings for retirement or a transitional lifestyle. She has only $7,000 in registered retirement savings plans and $1,200 in cash in the bank.
“What I want is to find a job that I love. My present job pays me very well and would pay a lot more in the future, but I don’t want to become a slave to it. I want personal satisfaction and this exercise has shown me that it is attainable.
“I will have to make some cuts in my budget. First I’d get a smaller apartment, as Mr. Cherney suggests, or ask my sister, who shares the apartment with me, to contribute more. Then I could cut my phone bills, then cut back charity but not gifts, and cut back on entertainment. But I have to preserve a minimum quality of life. The gym, the yoga and the hairdresser are going to stay.”
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