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. 

Of course, the reason roommates are so popular with approximately one-third of city dwellers is to cut costs on rent and utilities. According to that same study, the biggest reason renters have roommates is, unsurprisingly, to help with rent. Paying for half of a two-bedroom unit is often cheaper than paying for a one-bedroom unit. If you don’t have a friend to move in with, consider renting a two-bedroom apartment and searching for a roommate. You can find apartment listings on popular rental sites like Realtor.ca, Padmapper, Condos.ca and even Facebook Marketplace.

Working with a real estate agent may be helpful, as they can find rental options that fit your budget and lifestyle. This service is free for tenants; landlords typically pay realtors one month’s rent as a commission.

Consider the trade-offs

“Figure out if you need your car,” says Lucy Robinson, a sales representative at RE/MAX Noblecorp in Vaughan, Ont., about trade-offs to consider when moving to larger cities. It’s often cheaper to use public transportation than to own a vehicle. If you decide to keep your car, she says, you’ll have to account for monthly parking fees (which she said can tend to be higher if you’re renting a spot from someone else) in addition to the existing costs of gas, maintenance and insurance. 

If you can find a rental building with amenities like a gym or fitness centre, you could save yourself the cost of a gym membership. If you’re living farther away from the city centre, that could mean lower rent—at the cost of convenience. While if you live downtown, you may be able to go without a car, but will likely pay more for your place.

Use loyalty programs to save on groceries and essentials 

While you might be trying to fly through the checkout as quickly as possible, registering for loyalty or cash back programs can help you earn rewards that you can put towards groceries and other essentials. 

With PC Optimum and Air Miles Cash Rewards, you can earn points on items purchased through their grocery store partners, as well as online retailers like Amazon (through airmilesshops.ca). If you reach a certain number of points, you can redeem them to pay for groceries and other items. 

Don’t overlook coupons. Printed flyers might seem like a thing of the past, but you can access digital versions on your mobile device. Apps like Flipp allow you to search through stores in your area for savings.  

If you make grocery purchases using your credit card, consider using a credit card that earns cash back on groceries.

Plan for your future goals while renting 

After establishing a solid emergency savings fund, you might consider investing to grow your savings. Hui recommends that young people start with a tax-free savings account (TFSA).

He is also a proponent of index funds, which are mutual funds or exchange-traded funds (ETFs) that mimic or “track” a benchmark index, such as the S&P 500, by holding stocks in the same companies. Index funds can contain hundreds of different stocks, spreading out risk through diversification. 

Hui does not recommend that young people opt for high-fee mutual funds or try to time the stock market, especially if they are not experienced investors. (Note: As a fee-only planner, Hui does not sell any investments.)

To start investing, you can use a robo-advisor or work with a financial advisor to determine the best investments for you. 

A financial advisor can help you establish your savings goals and come up with a plan that will allow you to keep an eye on the future while you rent. 

Finally, consider your decision carefully.

Living in a large city can be full of adventure and opportunity, but as we noted above, you might end up spending more than you can earn and save—so carefully weigh the pros and cons. Especially with remote and hybrid work becoming more common, you may have more flexibility to explore opportunities while remaining in a smaller town. That gives you more options for where to live—and how much you’ll spend (or save) on rent. 

*Name changed for privacy.

More on renting:

• How to upgrade your rental apartment without breaking the bank
• The real cost of being single
• Want to save money as a renter? Don’t cheap out on these 5 things
• Rethinking rentership: How to get ahead financially while renting

About Margaret Montgomery

Margaret Montgomery is a former MoneySense editorial assistant and MoneyFlex columnist. She studied business administration at Wilfrid Laurier University and journalism at Centennial College.

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