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HomeMoney SavingCan young people afford to live in the city anymore?

Can young people afford to live in the city anymore?


High rent is a major contributing factor to the lack of affordability: Rent growth has exceeded wage growth in major Canadian cities, according to a February 2022 report from the Canada Mortgage and Housing Corporation (CMHC). This has been a long-brewing issue: CBC’s The Fifth Estate found that between 2014 and 2019, rents across Canada increased almost 20% while incomes remained relatively stagnant.

Adding to the pressure is the rising cost of basic necessities. Inflation—which affects the prices of everything from food and gas to shelter and your morning latte—is currently at a 31-year high of 6.8%. This number directly impacts your budget. Consider grocery prices: In April 2022, prices were 9.7% higher on a year-over-year basis—the largest yearly increase since March 2009, according to Stats Canada.

The bottom line: Today’s young renters have to account for the rising costs of both rent and everyday living expenses, which can be a challenge on a student budget, minimum wage or an entry-level salary. While there’s little you can do to change the going rate for an apartment in your city of choice, there are strategies to lighten the financial burden of a high cost of living. Let’s take a look at some pointers for young professionals and recent graduates who want to make the leap to independent living.

Calculate what you can afford

Everyone has a different definition of what it means to live “affordably,” depending on their lifestyle, but there are some general guidelines. According to CMHC, affordable rent (including utilities) should be no more than 30% of a household’s annual income. So, if your monthly income is $3,000, you should aim to pay no more than $900 in rent per month. In many cities, that will mean living with a roommate to keep rent affordable. For example, in Toronto, the average price of a bachelor apartment is $1,225, a one bedroom apartment is $1,446 and a two bedroom is $1,703 (plus utilities for each unit type). You can use a rent affordability calculator to determine the range that is realistic for you. 

Start saving well before your move

If you’ve just entered the workforce, you shouldn’t be ashamed to live at home or with family while you save up money, says Greg Tomkins, chartered financial analyst and financial advisor at Tomkins Financial in Nanaimo, B.C. 

If living with family is an option, you can build up your savings account before rent, utilities and grocery costs start to eat away at your paycheque. You’ll need a stash of cash for first and last months’ rent, moving costs and, in some cases, a damage deposit. (Tenant insurance is also a good idea, to protect your belongings.) 

That’s what Leila Kalwar*, a 24-year-old business development representative from Mississauga, Ont., did. She saved for eight months while living with her family and working remotely, prior to moving into her downtown Toronto rental unit last spring. 

Once you’ve moved, you can put any leftover savings into an emergency fund or begin investing for the future. 

Maintain an emergency fund

Nicholas Hui, an advice-only financial planner at VAVE Financial Planning in Markham, Ont., suggests that young people have an emergency savings fund before moving into rental accommodations.

The fund should cover at least three-to-six months of living expenses, including rent. So, if your rent is $1,000 and you expect to spend $600 on utilities, groceries and transportation, you would want to have at least $4,800 as backup in case of an unexpected event like losing your job or fixing your car. Your savings will protect you from having to take on debt to cover expenses. 

Create a monthly budget 

Between online shopping, hitting the local pub and ordering food delivery, it’s incredibly easy to lose track of where your money is going. That’s where a budget comes in. Hui recommends mapping out your monthly income and expenses (including rent) in a spreadsheet to determine how much you’ll have left over at the end of each month. “That’s going to help you understand how much you’re able to save,” he says.

For instance, if you add up your rent, groceries, transportation, gym membership, subscriptions and miscellaneous expenses like takeout food and you have $200 left over, aim to save $100 of it. Hui suggests setting up automatic transfers from your bank account to a high-interest savings account (HISA) each month. 

Tomkins says that if you can draw from your HISA rather than frequently using your credit card, you can avoid accumulating credit card debt and paying interest on it (usually around 20%, plus the cost of compound interest if you carry a balance). If you do use your credit card, make a point of paying it off in full and on time each month. 

If a spreadsheet sounds tedious, try one of the many free financial apps that calculate and categorize your spending for you. Mint, for instance, tracks your finances all in one place, across all of your accounts—from chequing, savings and credit cards to registered accounts like a TFSA, lines of credit and car loans.

Think outside the box

When it comes to your living arrangements, you might need to compromise to stay on track financially. 

A study by insurance company Square One found that in 2019, 33% of renters in Toronto had a roommate, as did 32% in Ottawa, 28% in Vancouver and 23% in Edmonton. In Ontario, B.C., Alberta, the number of renters with roommates increased between 5% and 10% from 2018 to 2019 alone. 

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