Kate has the travel bug. How can she also afford a home?

Kate’s income varies year-to-year depending on how much work she’s getting, but her monthly income is mostly stable and she has about $34,000 in savings and no debt. She works from home and cooks most of her meals with her partner.

“Can I afford to hire one more part-time freelance resource?” Kate wonders.

At the same time, Kate would like to save up for a home with her partner who she currently splits rent with in downtown Toronto. The couple is hoping to buy property outside of the city “somewhere close to nature,” she says.

Kate also loves to travel and wants to know how much she should budget for her globe-trotting.

“Last year I spent more than $10,000 in travel — way too much — and $3,000 this year so far,” she says.

“I want to spend at least three weeks per year solo budget travelling in a different country and one to two weeks on foreign trips as a couple plus (a few) short ones within Canada,” she adds.

How can Kate achieve all her financial goals? We asked her to share her monthly and weekly expenses with an adviser to get a better sense of her cash flow and spending.

In her desire to scale up her business by hiring a part-time freelancer, Kate should try outsourcing work that is tied to an invoice for one of her clients so that the cost is less than the revenue generated. Otherwise, she needs to outsource things that allow her to be more productive and profitable with her time.

Being debt free with savings in the bank and more work than she can handle, now seems a good time to try. It will be the only way to determine if it is worth it.

Her income varies month-to-month but seems consistent. I would try to set a budget based on the low end of her monthly income and consider having a modest monthly deposit to her savings from that target.

In months with higher income, I would save some and allocate some to a travel fund. Is it 50/50? Or some other percentage? It is up to her. The saved portion should be earmarked for her home purchase goal. As the travel fund rises, she can consider booking trips.

She and her partner should try to determine a value for their target home purchase and work backwards. How much of a down payment would they need based on the mortgage they could not only qualify for — but afford — given their other spending? And how many years might it take them to hit that goal based on their target saving?

If the time horizon is longer than they would like, they might need to reconsider their discretionary spending. Kate acknowledges she spends a lot on travel. That is a choice. And so is whether or not to sacrifice choices like travel to accelerate other goals like a home purchase.

I do note that Kate’s other discretionary spending on entertainment, restaurants, and transportation is modest. Travel is her splurge. So, her conscious choice to eat primarily at home and have low-cost hobbies like going for walks, picnics, and reading will allow her to allocate more to travel spending.

Kate would be a good candidate for a first home savings account (FHSA) given her high income and her stated goal of a medium term home purchase. She could kick start her FHSA with her existing savings to grow it with tax savings and the contributions and tax deferred growth that can be withdrawn tax free for an eligible home purchase.

Takeaways: Kate said Heath considered all possibilities and appreciated that his advice was balanced. 

“How can I save for a home and travel or how I might want to pursue travelling and take it easy on the home purchase,” Kate said. “This advice is also helpful from a business perspective as it might allow me to take that chance to expand my business without feeling overly cautious or stressed.”