Nick Miller is great at sleeping in, bartending and being a grumpy thirty-something in Los Angeles, but he’s deplorable at organization and finance. Advisor to Client asked two experts how Nick can pay down his debt and create a more organized financial future.
Subject: Nick Miller, New Girl
Watch: Wednesdays at 8:30 ET/PT on CityTV
Assumption: For this series, we use Canadian laws and planning strategies.
New Girl’s Nick Miller has accumulated thousands in student debt after dropping out of law school and keeps his bills in his closet. In part one, two experts suggested Nick needs to change his money attitudes; now, he needs a budget.
Nick pays an estimated $1,300 monthly rent, and the average salary for a bar manager in L.A. is $45,000.
Chris Douglas, an independent financial advisor from Winnipeg, says, “It sounds like he’s fairly normal in one respect; he’s spending way more of his money. It looks like he’s spending almost 40% of his income on his accommodation costs.”
Julia Chung, a financial planner from South Surrey, B.C., says she would call his budget a spending plan to make it sound less intimidating.
“People get really uncomfortable about the word ‘budget.’ Let’s talk about how much it costs for you to live and start dividing up that money and seeing what’s left. If he makes $36,000 after tax, CPP and EI, that’s putting him with about $3,000 per month in his pocket and he spends $1,300 per month on rent. This leaves him with $1,700 per month or just under $400 a week to cover food, bills, clothes, transportation, entertainment, debt management and savings.”
Chung says Nick could reduce his financial obligations by applying for the Repayment Assistance Program to ease his student loan debt. “I’m assuming he’s been out of school more than six months. I think he’d qualify for some relief; he certainly wouldn’t get it all wiped away because that’s for people who make under $25,000.”
She estimates Nick could reduce his monthly student loan payment from around $500 to about $275 under the program. To stay organized, he should automate his repayments and bifurcate his bank accounts.
“You have one primary bank account, your working capital, and that’s where you pay bills and you don’t attach your ATM card,” says Chung. And Nick can use his savings account as a second chequing account. “You transfer money to your separate savings account for discretionary spending and attach that to your ATM card.” The automatic loan payments would be drawn from the primary account. “It’s a lot easier of a mental process.”
Beyond that, she doesn’t think he has room in his budget for saving. “In L.A., the cost of living is high. If he manages to pay down his debt and he pays $1,300 a month in rent, he doesn’t have a lot left. So I would probably be talking to him about other ways he can supplement his income.”
Nick could earn extra cash could by leveraging his stint at law school, Chung says. “There may be some opportunities for him to do some legal consulting that might increase his bottom line at least for the next little while. Presumably with the hopes that the bar can make him more money as time goes on.”
If the bar flourishes, says Douglas, Nick could start saving. “One day [he] might want to buy a house. The first thing you’ve got to save a bunch of money and the truth is, people don’t generally save easily unless they develop good discipline.”
He says one way to develop discipline—similar to Chung’s jar trick mentioned in part one—is to pay yourself even just $20 per day. “I have a friend who works at a bar here and every weekend, [he] takes either a $50 bill or $100 bill and puts it away. At the end of the month he puts it in the bank. You can still get it if you need it, but if you don’t do it in a systematic way it’s not going to happen.”
Until now, Nick Miller has been a dysfunctional, lazy skeptic. But Chung says he can turn his finances around. “His future is a whole big cloud of possibility. He’s got ownership in a bar, he’s an author; it’s not like he’s sitting on the side of the street going, ‘I don’t know what I’m doing with my life.’ The future is bright if he’s willing to take some responsibility and be mindful about taking steps to achieve them.”