Tracy knows she could be doing better financially: She should be saving for retirement and paying down debt.
Tracy's downfall has been spontaneous shopping.
"What I've mostly been spending my excess money on is online shopping -- at least $300 a month," says the 28-year-old warehouse manager.
Despite the free-spending tendencies, she still has managed to buy her first home on a single income of about $49,000.
Worth $240,000, she still owes about $171,000 on the bungalow.
Tracy also owes $12,000 on a student line of credit and about $14,700 on a five-year car loan, which charges about six per cent interest.
"When I have extra money, I've been putting it on the line of credit," she says, adding her only savings is a GIC worth about $3,000.
Tracy admits she doesn't pay much attention to how much she spends, but she would like to become more conscious of it.
"Everybody is supposed to start young for saving, but I just don't really have any idea of how to do that," she says. "It seems so far away, it's not really tangible right now."
Financial adviser Chris Hunter, with Scotiabank in Winnipeg, says Tracy's focus should be paying down debt as quickly as possible so she can free up cash flow that can be used for long-term savings.
As a homeowner, Tracy likely can open a home-equity line of credit (HELOC), which will allow her to borrow at a lower interest rate than she's paying on her debt. With the HELOC, she can borrow up to 80 per cent of the value of her home, which is about $192,000.
"When we take away the current mortgage balance, she is left with $21,100," says the personal financial planner.
Tracy has enough room to move her entire student line of credit and $9,100 of her car loan into the HELOC, combining the debts into a mini-mortgage with fixed payments. Making a regular monthly payment of $380, the debt will be paid in five years.
"The remaining $4,700 on the car loan can be moved to an unsecured line of credit with a rate of approximately prime plus two per cent," he says, adding that rate is still better than the 5.99 per cent rate she's paying now.
"With a payment of approximately $90 monthly, this would also be paid in full within five years."
But Tracy can also save in the meantime by cutting her discretionary spending.
"If she is able to reduce the online shopping to 50 per cent, this will increase her monthly surplus cash to $412."
This surplus should be automatically directed every month into a high-interest savings account for emergencies.
"Having enough savings for six months of expenses is ideal, but three months is a reasonable goal, keeping in mind her existing GIC can be used in this pool of money, too," he says. "But it is important to note this fund should be liquid and accessible and not locked into any terms."
When the emergency fund is in place, she can divert the monthly cash flow to long-term goals.
Tracy has a couple of options to save. She can choose to contribute to an RRSP, which will allow savings to grow tax-sheltered and provide her with an annual refund on income taxes paid on contributed earnings. Once retired, RRSP savings, when withdrawn, will be fully taxable. If planned properly, however, the withdrawn funds will be taxed at a lower rate than she pays on income now.
As an alternative, she could contribute to a TFSA, which would allow her money to grow tax-free. While contributions aren't tax-deductible, such as those for an RRSP, the money can be withdrawn without tax consequences. Over decades, TFSA savings can grow substantially and provide a tax-free income in retirement.
As for how to invest, Tracy first must determine what type of investor she is. She's young, so she could take on more risk by investing in the stock market, which often provides better returns than GICs over time.
"If she prefers low-risk, then doing a GIC would be the best option," he says, adding the GICs principal and the rate of return are guaranteed. "The negatives are that we are in a very low-interest-rate environment, so the return would be minimal, offering next to no growth potential that likely would not keep pace with inflation."
After 32 years of investing in GICs, using an average interest rate of 2.3 per cent and a yearly contribution of $4,944, Tracy will have $235,552 saved.
After inflation, that's about $125,000.
If she is willing to take on more investment risk -- such as a balanced portfolio of 50 per cent stocks and 50 per cent bonds -- she likely would be able to accumulate much more wealth by retirement.
If her investment portfolio averages about 6.5 per cent over three decades, for example, she will have accumulated $527,462.
The downside is market risk. Her capital is not guaranteed, so she could invest money and lose it -- though over long periods of time, there's a high probability stock and bond investments will increase in value.
It may turn out, however, Tracy has less free cash flow for savings than estimated because she will be paying more money on debt under the new plan. But with all her non-mortgage debts eliminated in five years, she also will have more cash flow for savings or paying down the mortgage at an accelerated pace.
Her long-term success hinges on discipline.
She admits she struggles with discipline when it comes to spending. Still, saving should become much easier with time, especially after five years of focusing on debt, Hunter says.
"That money has already been part of the budget, so it'd have no impact on her lifestyle spending."